Ballmer: Microsoft's a 'devices and services' company now

In his annual letter to shareholders, the Microsoft CEO emphasized the shift in both its consumer and enterprise businesses

Stop thinking of Microsoft as just a software company; it's not anymore, according to CEO Steve Ballmer.

"It truly is a new era at Microsoft," he says in his annual letter to shareholders, and that means the company is focused on selling hardware augmented by cloud services.

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"This is a significant shift, both in what we do and how we see ourselves as a devices and services company," Ballmer says in his letter.

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That includes both consumer products and those built for businesses, with a significant overlap that he hopes will leverage the bring-your-own-device movement to promote the use of personal devices in enterprise networks.

"Fantastic devices and services for end users will drive our enterprise businesses forward given the increasing influence employees have in the technology they use at work a trend commonly referred to as the Consumerization of IT," he says in the letter.

All of this is where Microsoft has been headed and where it needs to go, says Jim McGregor, a principal analyst with Tirias Research, particularly Internet-based services. "All applications need to move to the cloud," he says, as the company is doing with Office 365.

The need to create its own devices is not so clear, McGregor says, and might even be a risk. Historically vendors who tried to make everything from silicon to operating system to applications to devices failed. Apple, with the iPad and iPhone, has managed to make the model succeed wildly, but not by the excellence of the individual pieces, he says. "Apple may not be the very best at every one of those, but when you put it all together, you get the best solution," he says.

Microsoft is taking a run at doing that but it may take years since it is not likely to get everything right the first time. "It can be years but not a decade," McGregor says, but so long as the company remains committed to the devices and services model and shows improvement, it can succeed, he says.

Risky or not, even if the device effort fails, Microsoft is big enough and has enough resources to absorb the failure, he says.

Microsoft remains a software company whether Ballmer mentions it in his letter or not, McGregor says. "What he is saying is that we need to be in hardware; our partners have not gotten us where we need to be," McGregor says.

The Surface is an attractive device, he says, that Microsoft needed to make because it needed hardware to show off its software and services to its best advantage. "They came out with it because they weren't happy with what they were getting with their OEMs," he says.

That could well be the case with Windows Phone 8, he says, given the slow sales of Windows phones made by partners.

In his letter Ballmer says the company will embrace new form factors for devices such as the Surface tablet/PC, but skirts whether that means the rumored Windows 8 Phone handset. But he emphasizes that tying services to all types of hardware is key. "Further, as we develop and update our consumer services, we'll do so in ways that take full advantage of hardware advances, that complement one another and that unify all the devices people use daily," he says.

One important goal for the company: "Firmly establishing one platform, Windows, across the PC, tablet, phone, server and cloud to drive a thriving ecosystem of developers, unify the cross-device user experience, and increase agility when bringing new advancements to market," the letter says.

McGregor says that in all this it's important that Microsoft present something different from Apple. "You can't be a copycat and you can't do this haphazardly," he says. "You need unique devices and a unique user experience."

That uniqueness could come through Windows Runtime, the new development platform underlying Windows 8 and Windows Phone 8, making it easier to develop apps for PCs, tablets and phones.

Applications for the platform from third parties are what's lacking, McGregor says, because Microsoft needs to offer unique content. "Maybe they need to invest in or buy Netflix or invest in some gaming company," he says. "It's hard to pick one area, but they need to pick one and build on it."

Ballmer says that beyond its device and services, Microsoft expects that businesses' shift to both public and private cloud infrastructure will be good for his company. That's because more cloud use means the need for more servers. "The volume of Internet services used will continue to grow as people connect to the Internet from more devices for more purposes fueling incredible opportunity in our server business," he says in the shareholder letter.

(Tim Greene covers Microsoft for Network World and writes the Mostly Microsoft blog. Reach him at and follow him on Twitter!/Tim_Greene.)

Read more about software in Network World's Software section.

This story, "Ballmer: Microsoft's a 'devices and services' company now" was originally published by Network World.

Copyright © 2012 IDG Communications, Inc.

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