Is Microsoft truly changing under Satya Nadella?

Satya Nadella, chief executive officer of Microsoft Corp, is landing in the country on Monday at a time when his company is “streamlining” its troubled global smartphone hardware business even as the growth of India’s smartphone business is accelerating.

On 25 May, the Redmond, Washington-based company said it is now focusing its “phone efforts where we have differentiation—with enterprises that value security, manageability....and consumers who value the same”. Besides, it was only on 18 May that Microsoft said it will sell its “entry-level feature phone assets to FIH Mobile Ltd”.

Microsoft is expected to provide more details in its fourth-quarter earnings announcement on 19 July and in its 2016 Annual Report.

The global market share of Windows smartphones fell below 1% in the first quarter of 2016, according to research firm Gartner. In India, too, the marketshare of Windows smartphones is estimated to be less than 2%, with Google’s Android operating system (OS) smartphone market share at over 80%—both globally and locally.

Moreover, the Android OS smartphone market share is expected to increase to nearly 85% of the overall smartphone OS market by 2020. Besides, Android is also the most often used OS for tablet computers worldwide, with a 67% share of the global market in 2015, according to market research firm, Statista Inc.

Do these numbers spell trouble for Microsoft? Not really.

First, the Redmond-based company has already written down more than the $7.2 billion it spent to acquire Nokia Oyj’s handset business in 2014. The amount may look big but the about $87 billion Microsoft has $102.6 billion cash in hand, according to a 20 May Moody’s Investors Services report. Apple, of course, ranked first with $215.7 billion.

Second, Nadella is gradually phasing out some of the legacy decisions he inherited from former chief executive officer Steve Ballmer—one, of course, being Nokia’s phone business and the other was the bashing of Linux and everything that was open source. Nadella, who took charge of Microsoft as its chief executive officer on 4 February 2014, stunned the tech world when he said “Microsoft loves Linux” during his speech at a San Francisco media event on 20 October, 2014.

Third, Microsoft made another important shift when the world’s biggest software company introduced its new OS, Windows 10, on the cloud last July. Labelled “Windows as a service”, the company now provides free upgrades. Microsoft has also assured users that it will keep the new OS updated for the supported lifetime of a device for free.

It was Microsoft’s bid to retain its edge, and stay relevant in a world where consumers are increasingly doing more personal and official work on mobile devices, such as smartphones, tablets and phablets, which run on free operating systems like Google Inc.’s Android and Apple Inc.’s iOS, rather than on desktops and laptops, most of which run on Microsoft’s Windows OS. Today, Microsoft’s office suite already runs on rival Apple’s iOS and Google’s Android OS devices. This is a better strategy than trying to convince phone buyers to shift to Windows.

As Bhaskar Pramanik, chairman of Microsoft’s India unit, put it succintly during a July interview, “...you have Windows running on any device—phone, tablet, PC, XBox game console, TV. It doesn’t matter what device you have. For us, it’s the unifying layer across all devices. You can create any application or a service, and it can run on any device. There is nobody else that can offer you the same thing”.

Similarly, when Nadella was down in India last November, he indicated that he wants Microsoft to help companies reinvent their productivity and business processes with the help of tools like OneNote, Windows 10 and Office 365; build an intelligent cloud with the help of Azure; and introduce new types of computers such as the Surface Pro tablet, wearables such as Microsoft Band and mixed reality gadgets such as HoloLens. He also pointed out, then, that Microsoft was already using Windows 10, Cortana (Microsoft’s digital assistant that uses Machine Learning and competes with Apple Inc.’s Siri and Google’s Now) and Skype are really integrating e-commerce capabilities of companies like Snapdeal and PayTm in the country.

Microsoft believes that with these changes, it is ushering in an “era of personal computing” but there’s no denying that the moves were prompted by intense competition from technology firms, like Apple, Google, Hewlett-Packard Corp. and International Business Machines Corp. (IBM)—both in the consumer and business segments. In December 2013, Apple, also traditionally known for its proprietary software, began offering OS X Mavericks at no cost to its users. Linux and Android have always been based on open source and free-to-download, should users choose to install them on their own.

According to an 18 May note by Forrester analyst Jeffrey Hammond, “...Microsoft is pushing ahead pretty rapidly with Hololens, and Samsung and HTC are making headway in VR (virtual reality) as well. Of course Google has cardboard, but they really need to take a step beyond that”.

Fourth, the setting up of data centres in India makes it evident that the Indian market is vital to Microsoft’s success, especially given that the company completed 25 years of existence in the country last year.

According to a 10 May report on the public cloud market by research firm Forrester, there are six leading services providers, with Amazon Web Services (AWS), Google Inc, International Business Machines Corp (IBM), Microsoft, and Salesforce.com capturing most of the revenue. “The next wave of growth will be driven by enterprises, which increasingly view public cloud platforms as best, not only for customer-engagement apps but for analytics and core-business apps as well,” the report said.

Undoubtedly, the three India data centres will help Microsoft in reducing network latency, which in turn improves user experience and pushes adoption. They may also help Microsoft to get more business from Digital India initiatives. Globally, Microsoft and Facebook Inc. said on 26 May that they will jointly build a “new, state-of-the-art subsea cable across the Atlantic” called “MAREA”, which “will help meet the growing customer demand for high speed, reliable connections for cloud and online services for Microsoft, Facebook and their customers”.

Fifth, Microsoft has wisely joined hands with the world’s largest open Internet of Things (IoT) standard group with other founding members, including Cisco, General Electric, Intel, and Samsung. This move is expected to help the world’s largest software maker to position Windows 10 as an OS platform for IoT, and the Azure IoT platform to be its cloud companion.

For instance, Luminous Power Technologies Ltd, a home electrical player in India, has launched its Connected Solar Inverter this year, powered by the iQu Internet of Things (IOT) platform from iBot Control Systems and built on Microsoft’s Azure Hyperscale cloud.

According to an October note by Forrester analyst, J P Gownder, Microsoft has offered “some surprise hardware innovation (SurfaceBook), strengthened existing products with logical iterations (Surface Pro 4, Microsoft Band), and created a roadmap for its most innovative and highest potential future product (HoloLens)”. Gownder believes that Microsoft “continues to build its case that a high degree of integration between its products and services will create user delight and overcome past errors...integration begins with hardware, where Microsoft is the only player to run a single OS across all form factors (phone, tablet, PC, mixed reality, and large screen devices)...(and) extends to software and services, where Office, OneDrive, and Skype have become important components of the overall devices story”.

“Other than the fact that in the past two years, the Microsoft stock has appreciated by more than 30%, the new Microsoft is nicer and friendlier,” said Suresh Ramani, CEO of Techgyan—who specialises in Microsoft technologies and is also founder President of India’s west chapter of the International Association of Microsoft Channel Partners.

He pointed out that Microsoft is striking partnerships with its old foes like Salesforce and Box, and this “collaborative approach means that Microsoft Technologies will work quite well with solutions of other companies”. Moreover, Microsoft now supports many Linux flavours on its Azure Platform. Ramani, though, agrees that the only area of concern is phones for Microsoft. “But here, too, we finally see some clarity with Microsoft getting out of the consumer business and making efforts to become relevant in the enterprise space. But it’s a long and painful journey,” he admits.

According to Alok Shende, founder-director and principal analyst of Ascentius Consulting, the locus of IT investments is gradually shifting towards social, mobility, analytics and cloud (SMAC)-led themes. “A good number of India’s leading enterprises are in the active evaluation and experimentation stage. However, these investments have not grown to the level where it starts driving performance on India’s’ leading IT vendor, including Microsoft’s. While Microsoft has found little traction in the mobility space, the overall adoption of Microsoft Analytics offering has been quite encouraging,” he said.

Microsoft, though, has been facing challenges primarily “from the open source community that has moved beyond linux and now spans across many product categories, categories that are home markets for Microsoft. Secondly, non-traditional IT vendors like Google are targeting Microsoft’s most lucrative markets including Microsoft’s workgroup and productivity solutions. So while there are a new sense of urgency and dynamism that is emanating from the top, the markets for Microsoft is poised on an even keel”, according to Shende.

Sanchit Vir Gogia, chief analyst and CEO, Greyhound Research, believes that while Nadella “has done exceptionally well to dream up a new and improved Microsoft and steer the company strategy accordingly, the company’s ability to actualise this on the ground still remains to be largely work-in-progress and in many ways a distant dream. Albeit this applies to nearly all global markets, it is particularly true for India where the company is up against more aggressive competition like AWS, Google, SAP, Oracle, Ramco among others,” he added.

According to Gogia, despite Microsoft building huge data centres, a Greyhound Research study showed that “more than 70% developers in the Asia-Pacific including Japan (APJ) region continue to focus their investments on Amazon Web Services that allows them a host of opportunities including participating in the swelling ecosystem to help in monetization”.

Also, Microsoft’s efforts to offer Windows 10 as a free upgrade has received “a lukewarm reception”, Gogia said.

Moreover, Gogia has a different take on why Microsoft is actively collaborating with its former opponents.

He argues that “despite Microsoft’s efforts to make architectural changes to their customer relationship management (CRM) and ERP products to make them better suited for a MobileFirst, CloudFirst era, not much progress has been made. This puts Microsoft miles behind its ace competition Oracle and SAP who are aggressively investing muscle to either make code-level changes to their products or acquire smaller companies to make their suite offerings more comprehensive. This inability to compete is also evident in some of the recently made announcements to partner with Salesforce.com and SAP.”