Narrative: Microsoft's Consumer Challenges
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Narrative: Microsoft’s Consumer Challenges (Jan 28, 2017)
Written: January 28, 2017
From early in its history, part of Microsoft’s vision was to serve both consumers and businesses, and its vision of empowering people today still encompasses those who use technology in their personal lives. Indeed, for many years now, Microsoft’s consumer and enterprise businesses have been tightly intertwined, and in fact this was the subject of one of my first Beyond Devices blog posts a little over three years ago, when some were pushing for a split between Microsoft’s consumer and enterprise businesses. Office and Windows both serve consumers and business, and the fact that people can use the same tools at work and in their personal lives creates significant synergy at a personal level, and also gives Microsoft massively more scale around these big platforms.
However, what’s increasingly clear is that Microsoft will struggle to monetize some of the things it’s traditionally charged for on the consumer side. Apple and Google have taught people that operating systems should be free, and to a great extent that productivity software should be too. Microsoft’s free upgrade for Windows 10 was supposed to be a one-off, temporary move, but I wonder to what extent it will be able to charge meaningful amounts for end users to upgrade to future versions of Windows. And the fact that a lot of Office functionality is already free on mobile devices is another sign that Microsoft recognizes this. Even though Office 365 has grown decently in the consumer market for Microsoft, growth has recently slowed and subscribers seem to be plateauing at around 25 million – that’s far smaller than the overall installed base of Office in the consumer market, but is likely a sign that many people will stick with what they have or use free software instead.
One of Microsoft’s biggest challenges in the consumer market is its lack of mass-market consumer computing hardware. It provides Windows to OEMs, but its own Surface hardware is very much positioned for enterprise use and price points. Its purchase of Nokia’s phone business might have created another consumer hardware category at Microsoft, but that business was declining from the moment the acquisition closed and has dwindled to almost nothing since then. To the extent that Windows on mobile survives at all, it’s fairly clear that it will do so predominantly as an enterprise play, and not a consumer one.
The two areas where Microsoft still will drive significant revenue from consumers are Xbox and search. Gaming makes up 10-15% of Microsoft’s revenue on a quarterly basis, so that’s not to be sniffed at, while search makes up 6-7% of total revenue, so the two combined hit around 20% of the total. That’s not bad, but that makes Microsoft primarily a company that monetizes through enterprises and not consumers. To the extent that it’s had hits in the consumer market lately, they’ve typically been with free software, like OneNote or Wunderlist, or its Outlook app for mobile. It’s still not 100% clear to me whether Microsoft has given up on monetizing the consumer, or whether it’s simply trying and failing. but the consumer market continues to be a significant challenge for Microsoft outside of these two small areas, and I don’t see that changing anytime soon.
One of the symptoms of Microsoft’s consumer challenge has been its focus on productivity, and its awkward attempts to apply that term to things that people don’t think of as productivity at all. Its recent focus on creativity in introducing the Surface Studio (and the Surface line more broadly) is a sign that it’s finally starting to understand this, and wants to appeal to a different side of potential customers. The Studio itself is massively out of reach for most consumers, but things like the revamped Paint app and some other features in Windows 10 Creators Update suggest Microsoft wants to mainstream this commitment to creativity. That’s still a long shot – most people still don’t associate creativity with Microsoft products – but it’s a subtle change that Microsoft may just be able to drive home given enough time and effort.
Microsoft is bringing its Cortana virtual assistant to Skype, over a year after it first demonstrated some of the features at its Build developer conference in 2016. Whereas Cortana does act in some settings as a voice assistant like Siri and the Google Assistant, it’s worth remembering that Microsoft uses the Cortana name to refer to all the underlying AI capabilities too, and that’s what’s being implemented here. The integration is text- rather than voice-based and limited to messaging rather than voice or video interactions, and Cortana will offer up smart replies in messaging conversations and also offer useful information like movie and restaurant reviews. In some ways, this is a different spin on the Context Cards Snapchat added today, and very much along the same lines as Facebook’s current implementation of its M assistant within Messenger – offering context-based suggestions within existing human-to-human interactions. This is part of Microsoft’s broader push to get its AI into every corner of its products and services, but will hampered by the overall stagnation of Skype as a communication platform – though it clearly has some messaging users, it isn’t the default messaging platform for the vast majority of the population, at least in their personal lives.
This feels more like a confirmation of how I think many of us were already thinking about Microsoft’s approach to Windows 10 Mobile, but we do now have official confirmation now from one of the erstwhile champions of Windows Phone and Microsoft’s smartphone hardware that the platform is essentially dead in terms of future development. Yes, there are companies that have deployed devices on the platform, and Microsoft will support them, but that’s about it. Notably, Joe Belfiore, an exec in the Windows team and for quite some time the face of Windows on mobile devices, says he’s now using an Android device. This outcome has seemed inevitable for a long time now, and Microsoft arguably took far too long to make it official, giving a small number of fans false hope that the platform would somehow live on. The actual number of users must be absolutely tiny at this point, while Microsoft’s main focus in mobile for the last several years has been making or acquiring really good apps that could run on iOS and Android, albeit without an obvious strategy for monetizing most of them.
via Windows Central
At its Build developer conference earlier this year, Microsoft laid out a vision for an ecosystem that would bridge its first party Windows operating system running on PCs and a variety of software experiences running on the two major mobile platforms, iOS and Android. At the time, it wasn’t entirely clear how that would work, and on iOS in particular there are major barriers to third parties providing deep integration. But it was a novel concept, and intended to offer an alternative to Apple’s hardware-based ecosystem lock-in and Google’s software-and-services-layer lockin by combining some of the best of both while offering more neutrality and flexibility.
Today, Microsoft announced two new mobile products intended to further that vision: a version of its Edge browser for iOS and Android, and an Android launcher that builds on an earlier, subtler effort. The Edge browser offers integration with the PC version, in a manner very similar to what Chrome and Safari already offer when used across platforms. The launcher, meanwhile, takes advantage of Android’s flexibility to integrate third party experiences directly into the operating system and offers some clever integrations for hopping between Android and PC experiences. This is the closest Microsoft is going to come in the near term (or probably ever) to having its own platform on mobile again, though of course it’s absent on iOS. Although Apple obviously offers tight integration between Macs and iPhones, the vast majority of the iPhone base doesn’t own a Mac, and many use PCs for work, school, or in their personal lives, so there’s clearly a need here Apple itself hasn’t worked all that hard to meet. That opportunity is likely even larger on Android, where an even higher portion of the base uses a Windows PC. These are early steps, and they certainly don’t execute on the vision Microsoft laid out at Build in its entirety, but it’s a good start.
Microsoft has today announced that it’s killing off its own streaming music service, Groove Music, and will be partnering with Spotify instead as the latter builds an app for Windows 10 and the Xbox One. This isn’t a huge surprise – Microsoft’s various incarnations of music streaming services have never done as well as its base of Windows users should have enabled them to – but it’s an admission of how completely Microsoft has failed when it comes to consumer content services, where it’s basically a non-player. That, in turn, is indicative of Microsoft’s continued challenges as a consumer ecosystem, especially relative to Amazon, Apple, Facebook, and Google, which dominate much of consumer time and content consumption. Microsoft’s consumer presence is largely limited to its de facto standard status as a maker of paid productivity software and increasingly free standalone productivity apps on mobile platforms, alongside its search and gaming platforms. None of that engenders much positive loyalty to Microsoft from consumers, and it generates very little revenue for the company on the consumer side. And yet it continues to try to straddle the consumer and enterprise worlds in a way few have ever managed to do successfully. Giving up in music is a logical and sensible step, but it’s certainly not going to get Microsoft any closer to cracking the consumer market. Meanwhile, it’s yet another channel – albeit likely not a big one – for Spotify to sign up more streaming music subscribers.
via The Verge
Microsoft Confirms Plans for First UK Store (Sep 21, 2017)
Microsoft’s retail presence is about to add another country: the UK. Microsoft confirmed plans for its first UK store after some reporting over the last couple of days about an imminent lease for property in London’s Oxford Circus area, after years of rumors and apparent attempts and failures to secure appropriate space. Microsoft has just under 90 full stores worldwide and ten or so additional kiosk-type stores in the US, with all but one of its stores in North America (most in the US, with a few in Canada and one in Puerto Rico), with just one in Australia. Apple, by contrast, has just under 500 stores globally, including over 270 in the US and 38 in the UK, which was for a very long time its second largest retail presence, eclipsed by China only in the past year or so. But Microsoft’s retail presence has in general never been nearly as successful as Apple’s, in part because it’s never had enough of its own hardware to show off there, and has to rely instead on a mishmash of first and third party gear, with store employees often poorly informed about the details of individual products. The key driver behind the stores, though, has been wanting to pull all of the products based on Microsoft’s platforms together in one place in a more compelling way than big box retailers, which tend to do a terrible job ranging and displaying premium Windows laptops in particular. Just launching a new store in a new country is therefore not really what Microsoft’s retail strategy needs – instead, it needs a rethink of its entire purpose and role in Microsoft’s broader strategy.
Microsoft Promotes Xbox Head to Senior Leadership Team (Sep 19, 2017)
Satya Nadella has appointed Phil Spencer, who runs the Xbox team at Microsoft, to the company’s Senior Leadership Team, which now comprises 16 individuals. I just spent some time breaking down that SLT and there are 10 individuals in functional roles, from the CEO to the CMO and heads of HR, Legal, Finance, etc.; plus six individuals who run product or customer segment organizations, now including Spencer. Looked at that way, Spencer has been an odd omission from this team, given that gaming has generated 9-12% of Microsoft’s revenue annually for the past ten years, certainly up there with other groups like Windows and Devices (15% this past year), and LinkedIn (3%). But the Xbox has always been a bit of an oddity at Microsoft, a company which has always been much more geared towards business than consumer markets – indeed, Spencer is the first explicitly consumer-focused executive on the current SLT. More broadly, gaming is one of the bigger individual chunks of revenue, and as Mary Jo Foley points out in the piece linked below, even beyond Xbox hardware gaming is an increasingly important part of Microsoft’s strategy to monetize its consumer efforts, many of which today are free to the user. Arguably the next logical person to add to the SLT would be whoever is running Bing today, since advertising contributed 8% of Microsoft’s revenues last year and it’s another important chunk of its consumer business, albeit with a much lower executive profile (despite spending some time searching, I can’t actually figure out who that is, which tells you something).
Skype Adds PayPal for P2P Payments (Aug 2, 2017)
Microsoft is adding some clever AI-powered image recognition, search, and automation features to the latest version of its Windows Photos app. It doesn’t sound like there’s anything here that will exceed the functionality of existing apps from Google or Apple, but just achieving parity would be a big step forward for Microsoft, which has always been bafflingly slow in addressing people’s needs to manage their photo libraries. Given how many people must store their photos on Windows computers, this is something Microsoft should have addressed long ago. Nokia was another company that always emphasized photography and yet never gave people a great way to manage the pictures they took on their phones, so the fact that Microsoft didn’t jump on the opportunity when it acquired the devices business from Nokia was another odd omission. At any rate, Microsoft now seems to be taking some of these advanced consumer features more seriously, as evidenced by the fantastic video creation tools in the forthcoming version of Windows, and these Photos changes are another positive move in this direction. This is low-hanging fruit as Microsoft looks to burnish its consumer and creativity credentials.