Microsoft's Restructuring May Become Successful
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft’s (NASDAQ: MSFT) new mission statement on uniting the company had almost zero statistical information, and it didn’t try to define its success using numbers. What the management team came out and acknowledged was how it was falling short on how it was integrating its products and teams.
"We will create fully integrated experiences across the many screens in our lives, with maximum return to shareholders. All parts of the company will share and contribute to the success of core offerings, like Windows, Windows Phone, Xbox, Surface, Office365, and our EA offer, Bing, Skype, Dynamics, Azure, and our servers."
The basic rundown of the announcement is that the company will try its best to bring a wholly integrated consumer experience by fully integrating the company to deliver upon the mission of an ecosystem-based strategy. From now on, the company’s product strategy will be built on building the “Microsoft experience” rather than placing emphasis on individual product features.
The Microsoft application store will allow for the average user to transition the computing experience across tablet, laptop, desktop, Xbox, and smartphone. This is because the application store will centralize purchases of software and in extension will allow the average user to enjoy the benefits across any and all computing devices.
The effects on the stock price
It’s almost been a week since Microsoft announced its restructuring. The company has been able to drive value to shareholders over the past year by being able to offset the weakness in declining PC shipments with Windows 8 license upgrades, and by building a wholly integrated product system that will be competing with Google’s (NASDAQ: GOOG) Android ecosystem, and Apple’s (NASDAQ: AAPL) ecosystem.
Microsoft has been able to experience a significant rally. Part of this is driven by favorable market sentiment. The recent One Microsoft announcement has been able to push the stock above its 52-week high.
The stock should be able to sustain higher rates of growth because of its recent offering of Office 365 onto iOS and Mac OSX. The low-end iPad Mini and Windows RT tablet devices will become entry-level devices in emerging markets.
Most computer users will end up using Office 365, so the company’s monetization strategy for Windows RT and Windows Phone 8 will generally depend on the company’s office suite offering, rather than through hardware-driven revenue. I estimate that Office 365 could contribute an additional $10 billion in net income per year by 2017.
Can it counter Google and Apple?
One of the toughest things about being invested in technology is that the landscape frequently changes. You often see spontaneous growth in product categories that haven’t even existed before. Google came onto the scene with its Google Android operating system just when the average user was just starting to adopt the smartphone. The unification of major handset manufacturers like Samsung, Sony, LG, HTC, and Motorola brought the Android ecosystem to the hands of hundreds of millions of people. The company has been able to corner 75% of global market share as a result.
One of the biggest shortcomings I see with Google’s strategy is that it’s heavily dependent on the success of the handset manufacturers within the Android ecosystem. The Android ecosystem is largely about the application store and the fact that it provides standardization for mobile devices regardless of the manufacturer.
The real downside is that Android applications cannot be carried over to Apple or Microsoft. In other words. I don't find much compatibility between my Android smartphone and Windows 7 operating system. That's the greatest weakness to Android. As a result, Microsoft is building up and marketing an ecosystem that Google doesn't have.
Apple is the reigning king of ecosystems
From the very outset, Apple wasn’t a one-year, or a five-year story. The company has been around for quite a while, and while the success of the company seems fairly recent. The company has had an install-base of customers for quite a while. What the company attempted with iTunes and its later addition of iPod, iPod Touch, and iPhone was build a unified ecosystem of products.
The ecosystem was unified through Apple ID. The whole idea was to make the user experience transferable across any and all Apple products and to ensure that a software or multimedia purchase would have the same effect on your iPod as it would have on your iMac. This is what forced the software community to explore alternative business models like subscriptions so that the average user can share the same experience across different devices for the same price.
Examples of cloud-based offerings include Adobe Creative Cloud, Salesforce.com, Spotify, and Office 365. The whole idea behind the cloud for consumers (not business) is that the computing experience should be heavily standardized so that the average user can enjoy the benefits of programs and content across all devices and operating systems.
Apple leveraged cloud-based synergies before any of its major competitors were even able to recognize cloud-based programs as a viable alternative to downloadable programs.
I believe that Apple established an early lead in building a compelling product and software ecosystem. Microsoft has a unique portfolio of both hardware and software that is formidable to what even Google can hope to offer.
Microsoft’s greatest difficulty is winning the support of mobile phone manufacturers to its current ecosystem. For now, Microsoft will push products through a retail strategy that involves a partnership with Best Buy. Hopefully Microsoft’s retail-driven marketing strategy will be enough to push Nokia into being a consumer friendly device.
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!