Microsoft’s value has doubled over the past three years. In 2015, it was part of the Nifty Nine that saved the S&P from a decline. Why is the world so optimistic about Microsoft’s future? Read on for everything you need to know about Microsoft this year.
Only two years ago, you could have been forgiven for thinking the future belonged to Apple and Google and Microsoft was on a one-way journey to the scrap heap.
The end of Steve Ballmer’s reign as CEO sent Microsoft on the right path. It is under Satya Nadella that the fire was truly lit though.
Under Satya, the company has shifted focus to the future. It is attempted to become a true ecosystem of products. Microsoft has been far more willing to engage with other companies. The lumbering giat has been reinvigorated and is firmly placed amongst the vanguard of technology.
This is a long post covering the major parts of Microsoft but feel free to jump to the bits you are interested in!
Traditionally, the operating system is where Microsoft have made most of their money. Now they are giving it away for free!
Microsoft made a bet that they could make more money from selling services on devices on Windows 10.
In order to encourage developers to make apps for Windows 10, there has to be enough users. Microsoft have struggled to get developers on board for its phones for this reason.
This ploy seems to have paid off with over 200 million devices with Windows 10 so far. With upgrades recently becoming automatic, this number will swell further.
Microsoft look on track to meet their target of 1 billion devices with Windows 10 by 2018.
Part of the reason for Windows 10 being free is about image. Windows 8 was widely seen as a flop. Windows 10’s feedback has been far more positive. Understandably, Microsoft wants to be associated with its best operating system.
Businesses are still being charged for Windows 10. By allowing consumers Windows 10 access for free, it gives decision makers the opportunity to try it out and make a more informed decision. Microsoft are due to start charging consumers for Windows 10 in June but do not be surprised if they delay this.
While there are not statistics to back this up, it is likely that more businesses have bought Windows 10 than would have done had they not been able to sample it for free personally.
The XBOX One’s software is now based on Windows 10. The HoloLens and rumoured Surface Phone also will use Windows 10 creating a greater ecosystem for Microsoft to exploit.
The key to Microsoft’s turnaround is a part of the business most consumers have never heard of.
Microsoft Azure is an enterprise cloud offering.
Many large companies have data centres where they keep all their data which are expensive to maintain and grow.
Microsoft build massive warehouses, drastically reducing the cost per server and rent out space to other companies. Companies can access their data easily without the hassle of maintaining the physical servers. This is known as Infrastructure as a Service (IaaS).
The second part of Azure is Platform as a Service (PaaS). This is often used by developers where they can use the services without concerning themselves with where it is stored.
The market for PaaS and IaaS is expected to grow to a $144 bn industry by 2020 according to Forrester Research Inc! It is very plausible that Azure could be the highest grossing product of Microsoft by this time.
Microsoft have the second biggest market share after Amazon Web Services (AWS). Gartner estimated the market share for IaaS in the first half of 2015 as 27.6% for Amazon and 16.2% for Microsoft.
Amazon had a head start by releasing in 2006, four years before Azure. However, Azure is catching up, in the year ending January 2016, Azure had grown by 126% and AWS by 69%.
Microsoft is growing faster for several reasons. One being the lower base; in absolute terms, AWS revenue grew by more.
Microsoft has an inherent advantage that no one else in the market has. Most major companies have pre-existing relationships with Microsoft. It would be hard to find many large companies not using Windows, Office or SQL Server!
For these companies, when they move to the cloud, Azure is the default option. Research found that 64% of Azure subscribers chose it because of their pre-existing relationship.
With many companies expected to shift to Windows 10 soon, the close integration between Azure and Windows 10 comes into play. Companies may pick Azure over AWS because of the simplicity transferring their current setup.
Amazon’s profits are small fry compared to Microsoft. A price war has emerged between the two companies but in a race to the bottom, Microsoft has a far greater capacity to absorb losses. This should prevent Amazon from loss leading to outcompete Microsoft.
AWS does have several advantages over Azure.
It has more servers than Azure combined with all of the other players including IBM put together! While there may be a limit to cost savings for this scale, it is certainly an enviable position.
AWS has several huge names already using the system. Netflix, the CIA, Comcast, Airbnb and Capital One are examples. This success gives an air of reliability to other large companies looking to migrate.
AWS has a more diverse range of services. Both companies regularly increase options but Azure is not innovating at a fast enough rate to catch up.
With Satya Nadella, the former head of Azure, now leading Microsoft, expect the company to continue to close the gap. Microsoft has trialled creating data centres underwater. This makes the running costs even cheaper and would give it another advantage over Amazon.
The HoloLens is at the frontier of making Microsoft cool again.
Most people have heard of virtual reality. Virtual reality is a device which immerses you in another world as if you actually there.
HoloLens is augmented reality. Augmented reality lays virtual images on top of what you see. This means you can still see the rest of the world around you whilst seeing virtual objects.
With HoloLens, filters can block out the outside world. This means it could potentially be used as a virtual reality machine too!
Google glasses is an example of augmented reality. HoloLens has a lot more features that make it truly sensational.
The true competition will come from Magic Leap, a company Google has invested in. The other backers include Alibaba, Warner Brothers, Fidelity and JPMorgan Chase.
It is still some time off being available for consumers but the first developer kits are being sent out in early 2016. Microsoft wants to get developers involved early so that when the launch does come, there is an ecosystem of impressive apps.
The potential market for this product is massive. Digi-Capital estimates the market size in 2020 as $120bn. Unlike virtual reality, you don’t have to be connected to a computer and you will be able to see obstacles. No toe stubbing!
The use list is endless but I’ve complied some of the ideas that have the most potential:
In the video, we can see someone using a surface to draw virtual arrows to help someone change their plumbing.
The market potential for just this use is incredible.
Imagine complex surgeries that are delayed because of the absence of highly specialised doctors. This could allow a doctor on the other side of the world to walk someone through the operation whilst giving visual cues.
The police find a bomb but bomb disposal experts are too far away. This could be used to allow an expert in the office to examine the bomb and give pinpoint instructions.
When precision is needed but no one with the knowledge is available this fills a gap. Yes, it could be done with a call but this mitigates risk of miscommunication.
It is often thought that virtual reality as a truly immersive experience will trump augmented reality for gaming.
This could well be the case with firms such as Oculus Rift making waves but augmented reality could also be a lucrative market.
Microsoft have demonstrated games in which your environment is used as the map for the game. Imagine catching Pokémon in your back garden or protecting your house from a zombie apocalypse! The technology may not be there yet but these ideas would certainly gain traction with hard core and casual gamers a like.
Minecraft was demonstrated in the video. Minecraft could be vitally important. Minecraft is the second highest selling game of all time. That’s more than any Mario, Grand Theft Auto or Call of Duty game! Minecraft fanatics could well be convinced to part with their cash to see their creation in the real world. Many new fans could be gained through the simplicity and interaction with the real world.
One of the fantastic aspects of augmented reality over virtual reality is that we still have awareness of the real world.
Imagine an artist who can travel to areas of natural scenic beauty from his armchair and paint with his feet up on the sofa.
Classes of school children being transported to ancient Rome without having to worry about bumping into a table.
This isn’t a pipe dream. NASA have announced a partnership to map surfaces from Mars to allow their researchers to wander around and see in 3D objects that spike their interest. Instead of staring at photos on their computer they can make their observations whilst still being able to see their computer screen.
Perhaps the most profitable use of augmented reality will be in 3D modelling.
For engineers and designers, this means being able to visualise their creations and stress test holographs of them.
This could provide crucial cost and time savings for companies by reducing the number of prototypes they have to physically make.
The architecture industry in another which would benefit. Architects could bring their creations to life whilst in the concept stage.
There have been several notable drawbacks on the other hand. While Microsoft’s advertising shows limitless potential, the machine is not actually capable of everything they show.
People who have used the prototypes have described the field of vision as a square screen directly in front of you. In effect, a computer screen you can only see with the HoloLens on.
This is a far cry from the advertising where the entire world around you is transformed. Much of the optimism for augmented reality appears to not be reality yet. Satya Nadella has described HoloLens as a five-year journey. Expect more demonstrations and clarifications of the precise capabilities of HoloLens.
While the first generation is unlikely to become the new smartphone; not at $3000 a pop at least. In the long term, augmented reality could be the PC/Tablet/Smartphone killer. There is a lot at stake in the battle for market supremacy.
Disclosure, this article is being written from a [amazon text=Surface Pro 3&asin=B00KHR4T8U].
Traditionally, Microsoft was a software company. It left the building of the laptops to its partners such as HP and Dell.
The explosion in popularity of MacBooks meant that machines running windows were lagging behind. The MacBooks popularity amongst younger generations was a particular concern as Microsoft may have lost lifetime Windows users.
Microsoft wanted to give a jolt to the Windows market but did not want to be seen as actively competing with its partners.
This gave rise to the 2-in-1 Surface. By now the iPad had experienced significant sales and this was a direct attack on that market. The Surface concept was that people would only need a surface. With tablets almost costing the same as a laptop, this could save consumers a substantial amount of money.
Unfortunately, the first two iterations and their pro versions based on Windows 8 were failures. This was due to the flaws of the operating system that was given widespread negative reviews.
The [amazon text=Surface Pro 3&asin=B00KHR4T8U] changed the game.
For design it was 33% thinner and 107 grams lighter than the [amazon text=Surface Pro 2&asin=B00FF6J532]. The kickstand now offered a continuous range compared to the 2 lock fixed [amazon text=Surface Pro 2&asin=B00FF6J532].
They managed to offer the top of the range i7 processor in addition. This means heavy users experience crisper performance.
The [amazon text=Surface Pro 3&asin=B00KHR4T8U] sold well and rebuilt the trust in the Microsoft surface brand. They are still selling well, maintaining high residual value.
In November, the [amazon text=Surface Pro 4&asin=B01606IDL0] and [amazon text=Surface Book&asin=B0163GNS5S] were released which also did well contributing to the 29% increase in sales of the Surface line in 2015 compared to 2014.
The [amazon text=Surface Book&asin=B0163GNS5S] is Microsoft’s answer to the MacBook. It is a laptop with a detachable screen that can act like a tablet.
According to TechRadar, the “[amazon text=Surface Book&asin=B0163GNS5S] easily outshines the MacBook Pro” if you would otherwise get a tablet too. They argue in terms of “sheer performance… you get more out of the [amazon text=Surface Book&asin=B0163GNS5S]” but it is much more expensive for a comparable device.
Unfortunately, both the [amazon text=Surface Book&asin=B0163GNS5S] and [amazon text=Surface Pro 4&asin=B01606IDL0] have been plagued by issues. Users are reporting issues with batteries draining, mice freezing and overheating.
The 2016 editions of the Surface Pro and [amazon text=Surface Book&asin=B0163GNS5S] are crucial. While the features of the current editions have consumers salivating, the execution left them disappointed. Microsoft must use greater resources to test.
The devices have contributed to Microsoft’s newly discovered cool factor. The success of the 2-in-1 category has meant Microsoft has been a leader again. Both Apple and Google have since released similar concepts. Anything less than a hit could derail their fragile momentum train.
Bing has been quietly gaining market share. From being a laughing stock in 2011 with less than 4% market share, it had 15.8% in January 2016 according to netmarketshare.com.
Google is still by far the dominant player but it is not as invincible as some assume. Over the same period, Google’s share fell to 65.4% from 83%.
The main reason for this is the rise of Windows 10 and Cortana. We know that Microsoft 10 already has 200 million users. The default search engine on Windows 10 is Bing and everything Cortana searches for is through Bing as well.
This share is likely to increase as Windows 10 growth continues. Added in the fact that Cortana is now available for Android and iOS, the spread of Bing can take off even faster.
Bing has done well in winning over people on pure quality. Try bingiton.com. Personally, I have always used Google because of reputation. When taking the challenge, Bing won 5 rounds out of 5! I was literally converted to Bing while writing this article.
Bing Rewards is another way Microsoft has enticed switchers in the USA. Bing offers users up to 15 credits per day for searches. These credits can then be redeemed for coupons at major retailers such as Amazon.
It takes 1050 searches minimum to earn $5 of coupons so the program won’t break Microsoft’s business model. The idea is great to reward users for actions they would be doing anyway at a rival.
One way Bing is gaining attention is through its predictions. It has a mightily impressive record. 15/16 matches correct at the 2014 Football World Cup. 95% of US Midterm election results. 84% Oscar winners.
Bing uses huge swathes of data available online to make these predictions and is a strong show of dominance against rivals. If Bing can keep its record up, it benefits the whole company with Microsoft basking in the reputation for reliability.
Do not underestimate the importance of search engine supremacy. Google’s success in that one market allowed it to become the behemoth it is today. Bing stealing some market share takes the battle to Google’s door. This must be a pleasant change for Microsoft who have been accustomed to having to protect themselves from Google’s entering their markets.
[amazon text=Microsoft Office&asin=B00HV9IM58] has long been a bedrock of the company. Most major companies use the office suite as well as students across the globe.
Revenue declined dramatically this year but things aren’t as bad they sound. Microsoft has switched to a subscription service for Office rather than the old one off purchase.
This more flexible arrangement benefits both consumers and Microsoft.
For consumers, if their usage is short term, it is cheaper to buy a short subscription than to buy the whole package. For long term consumers, the subscription means that Microsoft is constantly adding enhancements. This scenario is better than being stuck using Microsoft Word 2000 because your firm doesn’t want to pay to upgrade.
Microsoft can expect greater revenues in the long term and greater consistency. A subscription model is much easier to forecast by nature.
[amazon text=Microsoft Office&asin=B00HV9IM58] has changed from the traditional package in which most people only ever used Word, Excel and Powerpoint to a more complete suite.
Outlook has recently been integrated into [amazon text=Office Online&asin=B00HV9IM58] for example. OneNote is strongly integrated with the Surface series and as such as seen a sharp rise in users. Microsoft bought the popular app Sunrise to improve their calendar offering.
This move to online tools appears squarely aimed at the popularity Google Docs. By making an alternative online hub, with nearly full powered features, it can stem the flow of defections.
The big shift in mentality from Microsoft in building apps for iOS and Android has reaped dividends. There are over 100 million downloads of the Office app on these devices. This makes Office relevant to everyone who uses a device not just Windows users.
Xuedong Huang, Chief Scientist of Speech at Microsoft predicted that within the next 5 years, computers will be able to understand speech just as well as humans.
He is a major part of that push himself as part of Project Oxford. The code name signifies all work that Microsoft is doing surrounding artificial intelligence.
This comprises of vision, speech and language. Previews available on Microsoft’s website also demonstrates software which can detect and identify faces and emotions. There have been viral apps demonstrating the capability of Project Oxford such as Mimicker Alarm and twinsornot.net
The department feeds into Cortana Microsoft’s virtual assistant. All this work will enable the virtual assistant to almost replace a human personal assistant.
Apple started the mass appeal virtual assistant Siri and Google followed with Google Now. There is a huge battle going on between the companies in this area. This has manifested itself in a series of high profile takeovers. Microsoft recently bought SwiftKey, the most downloaded keyboard for iOS and Android because of its ability to predict what word the user will enter next.
The strong integration between Cortana and Bing shows just one way the virtual assistants can drive profits. It can be the difference in sales between sales in the [amazon text=Surface Book&asin=B0163GNS5S], MacBook and ChromeBook in the future. AI could drive enterprise decisions in which software they choose by increasing productivity.
Whoever can build the most intelligent software will have a crucial advantage in the overall software war.
The [amazon text=XBOX One&asin=B0118GJKIW] has always been a side show in terms of what it contributes to the company. That has changed now with the latest update meaning it now runs on a specialised version of Windows.
This has several important implications. The PS4 has absolutely dominated the Microsoft device in this gaming generation. Estimates reveal the PS4 sales are twice [amazon text=XBOX One&asin=B0118GJKIW]’s.
While the Windows 10 integration won’t significantly improve the sales comparison, it creates a much larger audience for games.
Windows 10 has an app that allows you to play [amazon text=XBOX One&asin=B0118GJKIW] games directly on your PC already. Starting with the [amazon text=Quantum Break&asin=B00CMQTTZ2] game, people who buy the game for [amazon text=XBOX One&asin=B0118GJKIW], get a free PC version. The save data synchronises automatically through the cloud.
Before people would have to buy both games as completely separate entities. With over 200 million people using Windows 10, it dwarfs the number of PS4 out there.
The process can work in reverse, with people buying games for the PC and being convinced to buy an [amazon text=XBOX One&asin=B0118GJKIW].
This is part of Microsoft’s subscription focus. [amazon text=XBOX One&asin=B0118GJKIW] gamers can buy games directly from the XBOX LIVE store. They have to pay $60 to play multilayer online. The concept is similar to the Microsoft app store and the subscription Office 365. Microsoft can sell subscriptions for people to play their games on multiple devices, generating greater revenue.
Microsoft pulled off a master stroke of a partnership with Oculus Rift. An [amazon text=XBOX One Controller&asin=B00YJJ0OQS] will be shipped with every Oculus Rift sold, which gives Microsoft a stake in the Facebook owned headset’s success. The controller only works with Windows 10 meaning Oculus Rift users have an incentive to install Windows 10 onto their machine.
It’s well known that Google and Apple are making their own cars.
This gives Microsoft an unexpected edge. Car firms want to partner with Microsoft because they are sure that Microsoft will not be a competitor in the future.
It makes sense, why use Apple and Google when those companies will be using that data to improve their own offering?
It is still early days but Microsoft should strengthen its position over the year. There is already a deal with Nissan which uses Microsoft Azure.
Integration with the virtual assistant Cortana means that it could be easy to reply to emails, schedule meetings and join conference calls through voice commands.
In the next 5-10 years, it is possible nearly all cars use some form of software. Just by keeping the number of cars sold per year constant at 2015 levels of 72 million (Statista.com), it represents a huge potential market.
While the automobile industry is in flux with no one knowing who will dominate the car industry, Microsoft is well placed to benefit as the choice of the incumbents.
One of the rumours that has people most excited is the Surface Phone.
Yet through the [amazon text=Lumia&asin=B012CKVZ18] brand, Windows has less than a 2% share of the global mobile phone market.
There is speculation that Panos Panay, the man behind the Surface Pro design is working on a new phone design.
The Surface Phone would most likely be aimed at business users who could make best use of the full power of Office on their phone.
The Continuum feature which allows you to connect the phone to a screen and run like a desktop particularly stands out on recent
[amazon text=Lumia&asin=B012CKVZ18] devices.
If the phone is powerful enough this could revolutionise hot desking and meetings. Employees would no longer need to lug their laptops around. Simply plug your phone into a screen and start work. At meetings, impromptu demonstrations can be made by someone who can show their client pieces of work without having to send the data to the PC.
As technology progresses, if a full feature windows PC can be run from a phone with enough storage, there would be no more need for PCs. This could cannibalise huge swathes of the declining PC market. As Microsoft doesn’t make PCs, they cut out the middleman and keep more profit for themselves.
This hinges on a partnership with Intel whereby the Surface Phone will be able use x86 apps. In essence, this means anything that can be run on your desktop PC could be run on the phone.
It is likely that the business market will be the focus market. Businesses will gain the most from the unique features of the phone. It would be harder to convince casual users that they need to be able to run these memory heavy programs.
Windows phones have had the traditional weakness of a sparse app store. Windows 10 should alleviate that as developers can make apps for audience of over 200 million users across devices. Microsoft sore also working on making it easier for developers to port android and iOS apps to Windows through projects Astoria and Islandwood.
The Surface Phone could be announced at the Mobile World Congress event at the end of February. Of course, this could be the internet rumour mill and the Surface Phone never surfaces!
Microsoft is in a strong position and well placed in the new wave of technological innovation.
Microsoft Azure cloud and the HoloLens could be the greatest growth stories for the company with massive potential revenue. The markets are immature at the moment but Microsoft has invested well and can use its pre-existing relationship with enterprises to its advantage.
The Surface series including the new Surface Phone are in a very competitive environment and in terms of hardware sales, Microsoft will not catch Apple anytime soon.
Bing is a dark horse quietly doing well for Microsoft and growth should continue throughout the year as more users upgrade to Windows 10 and news of Bing’s quality spreads.
The increase in Windows 10 users will encourage more developers to make apps. The network effect will further grow users through integration with Xbox and Oculus Rift.
Office will continue to motor on as the office suite of choice and through apps on Android and iOS maintain relevance even to people who do not use Windows.
Project Oxford is yielding exciting apps but it is difficult to predict who will win the AI race. The automobile industry is another grey area where a winner cannot be foreseen but not being competition for most firms is a great bonus for Microsoft.
The signs point to a great year for Microsoft but with competitors as fierce as Google, Apple and Amazon exciting times are ahead.