I’ve blogged for a couple days now on the evolution of the service providers into software-driven services versus bit-driven services. News is now floating about that Microsoft is going to transform itself from a software company into a devices and services company. So you may wonder how these two things go together, and what it might mean for Microsoft and the market overall.
IMHO, the real question is likely less whether Microsoft is reorganizing somewhat as rumored than what “services and devices” might mean. Obviously Microsoft is going to chase the tablet and phone markets but they’re already doing that. Gaming is an area where they have some persistent success so that’s clearly going to stay as a high priority. Do they think they’ll have their own glasses and watches, or maybe belt-buckles or rings? The problem with the “device” part of the speculative reorg is that it would seem to put Microsoft in direct competition with Apple for cool new stuff at the very moment when Apple may be running out of that very thing. So I think that we have to presume that what Microsoft may have in mind is first the services part and second device-symbiotic services, a partnership between devices and services.
The cloud as a platform has been distorted by early market developments. We have successfully penetrated a heck of a lot less than 1% of the total cloud opportunity space and yet some are already saying that Amazon has a lock on things. No it doesn’t. The cloud isn’t IaaS, it’s SaaS where the first “S” stands for both “Software” and “Services”. What the cloud is building toward is being the experience hosting point, and the network is evolving to be the experience delivery technology. The “experiences” here can be content, social, or behavioral stuff aimed at consumers or it can be productivity-enhancing stuff aimed at the business market. So this vision of cloud services would in fact fit the Microsoft rumors nicely. This new SaaS space, unlike IaaS, needs platform software to deploy things efficiently, operationalize them at little incremental cost, and launch new experiences when a market whim shows even a vague sign of becoming exploitable. That’s true whether the service provider is a telco trying to transform its business model or a software giant trying to do the same.
I’m describing a PaaS platform on which Microsoft would try to create a new version of its old Wintel developer partnership, and of course Microsoft already has Azure which is PaaS so you might think that’s a starting point. It might be, but Azure wasn’t designed to do what Amazon now does with EC2 applications, and that’s to provide direct support for a mobile device experience from the cloud. Microsoft would need to make Azure into something more a platform for the experience dimension of services versus just the business software dimension. So Microsoft, to remake itself, will have to remake its cloud. In doing that, it will have to do a whole lot of optimizing around the consumer space, where applications are highly transient in their execution, and where the device is most likely to launch a cloud process and wait for the result rather than gather all the info and figure things out for itself.
This concept of agency, I think, is the key to Microsoft’s reorg success. Apple, bastion of device coolness, isn’t likely to go to a model of device that’s a camel’s nose under the cloud tent. Neither is Google, who needs enough profit in the device space to keep its current partners loyal to Android. But will Microsoft actually try to promote a handset that can be less than current Apple or Android models? They wouldn’t really have to, they’d only have to accept that there would likely be a drive to simplify the handset if the agent concept were promoted by a big player. Microsoft would then have to make the agent device more capable in other missions, perhaps offline activities, to justify a higher value device.
Some operators are already very interested in this sort of thing, with Mozilla’s Firefox OS being an example. Telecom Italia and others have looked at this featurephone-plus model of service delivery already, and most operators would like to see handsets get cheaper, which is why the availability of an agent-model device would likely put more commoditization pressure on handsets. But clearly operators would be willing to continue to deploy smarter and more expensive devices if that’s what consumers wanted. So Microsoft, in pushing an agent-model service relationship with devices, would have to make consumers value add-on features or see its own handset market commoditize—including Windows Phone, which is only now gaining ground.
Windows Phone and Windows RT are Microsoft’s biggest assets and liabilities at the same time. To make its reorg work, it will need to drive Phone and RT to the service-agent model, which puts them (and the rest of the mobile device market) at risk. But so what? Microsoft isn’t the leader in tablets or phones so the other guy has more to lose anyway. If Microsoft were to be bold here they could mark Apple/Google territory and open relatively little risk to themselves by comparison.