Company / division: Microsoft
Apple Officially Joins Partnership on AI (Jan 27, 2017)
I commented on the reports that Apple was about to join the Partnership on AI yesterday, so I won’t revisit all of this today. Two notable things from today’s announcement, though: Apple’s representative will be Tom Gruber, who runs Siri at Apple, and that may be indicative of where Apple sees ownership of AI residing within the company (it has no formal head of AI); secondly, Apple has been involved with the Partnership from the outset, but hadn’t formalized its membership until today. That might signify that there were some details of Apple’s membership which needed to be worked out before it felt comfortable joining -I’d love to know what those were. Separately from Apple’s involvement, it’s worth noting that the board now has representatives from a number of other organizations beyond tech companies including several universities. So the Partnership won’t just be about driving the agenda of the tech industry here.
Cloud was the big theme on Microsoft’s earnings call once again, with a $14 billion annual run rate and nearly 50% gross margins across its cloud businesses, and a 95% growth rate in the Azure business alone. Surface revenue was down a bit, predictably because the product line wasn’t refreshed as fully as in previous years, but not by much, and it seems commercial sales actually grew (probably a reflection of the long sales cycles in enterprise). The phone business continues to dwindle to nothing (just over $200m in revenue this quarter by my estimate, down 81% year on year), but that’s so small now it barely impacts results. Windows did well overall, with some revenue growth from slightly stronger shipments in the PC market, though the PC market overall was still down overall last quarter. Monetizing its consumer business continues to be one of Microsoft’s biggest challenges – its Office consumer subscribers appear to be plateauing at around 25 million, most of its other consumer apps are offered free, and gaming is performing decently, though overall gaming revenue was down year on year. Overall, the results feed the narrative that Microsoft is undergoing a comeback, though it’s a slow and subtle one from a financial perspective.
You might also be interested in the Microsoft Q4 2016 deck which is part of the Jackdaw Research Quarterly Decks Service.
This was one of those rare cases where many of the big tech companies banded together to support one of their number on an issue of concern to all of them. The case concerns data held by Microsoft in a data center in Ireland but requested by US authorities investigating a crime (there’s a good summary of the case here). Microsoft and its pals have argued that this data should not be subject to US law enforcement requests because it resides outside the US, even though Microsoft is a US-headquartered company. Were the government’s argument to be upheld, data held anywhere by a US-based company could be obtained by the authorities in the US, regardless of whether the user has any ties to the US, which could dramatically impact tech companies’ ability to operate in overseas jurisdictions. That’s precisely why Microsoft has had the support of Apple, Amazon, and others, because the effects of upholding the government’s arguments here would be significant. This is a victory not just for Microsoft but the sector as a whole, and I would hope that the Supreme Court either refuses to hear the case or upholds the current verdict.
Minecraft Pocket Edition will no longer receive updates for Windows mobile devices | Windows Central (Jan 19, 2017)
It’s becoming ever clearer that Microsoft is going to go through yet another revamp of its smartphone OS strategy, on top of Windows Mobile and Windows Phone (you could argue Windows 10 Mobile as it currently stands is already a third, but it was very much an update to Windows Phone in reality). Other developers have been abandoning their Windows Phone apps for some time now, but for Microsoft itself to do it is the clearest sign yet that there’s no meaningful future for Windows on consumer mobile devices as it currently stands. The article holds out hope for the full Windows on ARM strategy Microsoft is working on, but it still seems very likely that this will end up being a marginal and enterprise-centric play rather than something that gets Microsoft back into the consumer smartphone market.
We’re going to see a lot more of this kind of thing in the coming months, accelerated by Alexa’s amazing performance at CES this year. But as I’ve argued previously, Amazon is only “ahead” in voice if you look at the category very narrowly – Echo is one endpoint for Alexa, and really the only one Amazon has with any meaningful numbers behind it, while Siri, Google’s various assistants, and Cortana each have many more users by virtue of much larger installed bases of devices. Amazon is only ahead if you narrow the market to home-based voice speakers, though it definitely is there. The big question remains whether Amazon can get into devices that leave the home in meaningful numbers, and whether the experience will be any good on smaller devices like phones. Meanwhile, it continues to be much easier for the major competitors to add a home speaker to their device portfolios (as Google has already done) than for Amazon to get out of the home.
Maluuba looks like an interesting company – unlike so many other AI acquisitions from the last few years, this one doesn’t appear to have a product: it’s mostly a research company that’s done a variety of partnerships to apply its expertise to various thorny problems. As such, it’s a great fit for Microsoft, which is itself looking to apply AI and machine learning across its suite of products, and of course its Cortana assistant. Apple has made lots of AI acquisitions in recent years, but it’s been hard to fathom where exactly in the products and services launched since those acquisitions have paid off – perhaps most of them have yet to make it into consumer products. But you would hope the fruits of this acquisition would be more obvious at Microsoft in the coming years.
Silicon Valley Takes a Right Turn – The New York Times (Jan 12, 2017)
The headline is an exaggeration – two of the four big companies mentioned are based in Washington, not California, and it’s their corporate PACs which have begun to favor Republican candidates, while their employees remain very firmly left-leaning. But the article does do a great job talking through some of the changes in recent years as big tech companies have shifted their donations towards Republicans while a Democratic president was in office. The data doesn’t go back far enough to indicate whether this is just a cyclical thing, but there’s some evidence the donations were motivated by hopes for more lenient regulatory and taxation policy under a Republican administration. Now that we’re heading into Republican control of both Congress and the presidency, we’ll see how that pans out in practice.
Gartner Says 2016 Marked Fifth Consecutive Year of Worldwide PC Shipment Decline – Gartner (Jan 11, 2017)
This is Gartner’s quarterly press release on PC shipments for the end of 2016 (IDC’s equivalent release is here, with slightly different numbers, and definitions). The thrust is that the PC market continues to decline, with a 6.2% drop for the full year, and a more modest 3.7% decline in Q4 alone. But the other thing worth noting is that there’s a stark difference between the performance of the big players and the rest – the top six grew by 1.4% and the top five by 2%, but everyone but the top six collectively declined by 18.8% over the full year. The big players are mostly doing OK, but at the expense of a plethora of smaller players, and this is the shape of things to come, with the big question being the number of “big” players that will be able to sustain this performance – Asus and Acer saw declines in Q4, while Apple did better thanks to the new MacBooks.
Apple has invested enormously in its green initiatives under Lisa P Jackson, arguably one of the biggest and most visible changes under Tim Cook, who seems determined to use Apple’s power for good beyond the influence of its products alone, to a much greater extent than Steve Jobs was. For Apple to come out on top of the major tech companies is still quite an achievement, though Google and Facebook also did well. It’s not clear that most consumers care all that much about any of this, but there’s an argument to be made that these companies are seen as leaders in the field, and Greenpeace’s endorsement puts pressure on others to fall in line, which has broader environmental benefits.
Microsoft has been rapped over the knuckles by regulators and attacked by privacy advocates over its data collection in Windows 10. Over-collection of data combined with lack of notification for users have to be the most common twosome in privacy abuses among tech companies. Tech companies often collect far too much data by default, and then fail to inform users what’s being collected or why. This change is a positive one, but I’d hope that Microsoft (and others) will learn from the backlash here and do better from the outset in future releases of Windows and other products.
Given that so many big tech companies are falling over themselves to grab a slice of in-car technology, Microsoft’s strategy is somewhat striking – it doesn’t want a direct role in, say, autonomous driving, but instead wants to provide a set of services to enable others to build that and other in-car technology. That’s a subtle distinction, but a sensible one for Microsoft, and one that will allow it to be seen as less of a threat to the carmakers than either Google or Apple, which each appear to have deeper ambitions in the car.
The PC is interesting again – The Verge (Jan 4, 2017)
Rather than linking to a whole set of separate CES press releases from various PC makers, I’ll link to this. It’s a great summary of what we’ve seen in PCs at CES and to some extent over recent months in general. Though PC sales overall are declining, there are still some interesting things happening with form factors, performance, and more, and increasingly spec- and performance-wise, Windows PCs are now the equals of the Mac. The big question, then, becomes philosophical differences in approach as regards things like touch, convergence of operating systems across device types, and so on.
We’ve arrived remarkably quickly at the specialization phase of voice assistant technology – this usually only arrives once the generic version of a technology has gone mainstream. This device looks clever – though the article is frustratingly silent on when or where it might be available – but the broader point is that we’re going to see lots of companies playing in this space, leveraging Microsoft, Amazon and other platforms and technologies combined with their own expertise. Voice is hot, and that means a rapid entry into the market of dozens of new competitors, many of whom won’t survive there long.
This will arguably be the year of piling on in VR, with many companies jumping on a bandwagon led by Sony, HTC, and Oculus. Lenovo, of course, has two possible routes to VR – mobile and PC-based. This article is about a PC solution, but at a price closer to some mobile VR technology than most of the PC stuff out there today. Microsoft does seem to be getting some big names on board, though of course we’re months from seeing how these products actually perform in the wild. See also this piece from The Verge with some more details.
The Verge 2016 tech report card: Microsoft – The Verge (Dec 29, 2016)
This is a good summary of Microsoft’s 2016, which was the year in which a significant turnaround or even a comeback seemed to become plausible. The company made some big advances in key areas, although there was no real advance in first-party tablets or laptops, and it all but killed off its Lumia smartphone business. There’s lots of potential here, but we’ll see in 2017 both whether Microsoft can really turn around its consumer business, and whether it can make its hardware business grow again.
Microsoft might add ‘game mode’ to Windows 10 for maximum gaming performance – The Verge (Dec 28, 2016)
This isn’t coming out of left field – one of the big consumer features of Windows 10 has been its gaming emphasis, so this is a natural evolution. Gaming has been one of the big consumer success points for Microsoft amid broader questions about its strategy and especially monetization among consumers going forward.
Warm Takes on Microsoft’s Surface Pro 4 – Medium (Dec 27, 2016)
Part of the recent version of the Apple is Doomed narrative has Microsoft in the ascendant, ready to eat its lunch. As with the rest of the narrative, that’s overblown, and this piece does a nice job of highlighting the challenges for Microsoft in winning over Mac users. It’s also a good entry in another couple of narratives – Hardware is Hard, and Microsoft and Hardware, pouring some cold water on the plaudits for Microsoft’s recent hardware efforts.
America’s Big 5 tech companies increase patent filings, Microsoft holds lead in AI technologies – IPWatchdog.com | Patents & Patent Law (Dec 22, 2016)
Interesting and valuable analysis. But clearly an oversimplification to make patents held the arbiter of a “lead” in AI. Ultimately, whether you lead in AI comes down to the customer benefit you drive from it, not the patents themselves.