Foley on Microsoft

Hardware's New Supporting Role at Microsoft

Microsoft is using its modest hardware offerings to deliver its expanding portfolio of services and software.

• By Mary Jo Foley
• 04/27/2015

Nearly a year ago, Microsoft CEO Satya Nadella issued a memo that recast Microsoft from a devices and services company to a productivity and platforms company.

So has the demotion of devices from a mainline business to a supporting one made a difference for the company?

My two cents: Yes, it has. And Microsoft's positioning around new devices such as the Microsoft Band, the Surface Hub conferencing system and the Surface 3 tablet makes the impact of this shift quite clear.

Microsoft hasn't thrown in the towel on building hardware. Truthfully, I don't expect the company will totally exit the hardware business any time soon. It's quite possible Microsoft will never stop offering hardware. Yet it's abundantly clear Microsoft is no longer in the business of making hardware simply for hardware's sake -- or because the company is trying to be Apple.

What is Microsoft really trying to sell by hawking the Microsoft Band? I'd argue the company is far more interested in using the Band to gain share for its services than for the Band hardware itself.

Microsoft Health, the core service around which the Band is made, builds on a bunch of Microsoft Azure services, including Application Insights, Azure DocumentDB (the company's NoSQL service), Azure HDInsight (Hadoop on Azure), Azure Service Bus, Azure Data Factory, Event Hubs (the Microsoft telemetry ingestion and processing service), Azure Stream Analytics (real-time stream processing) and Azure Machine Learning.

The retail price of the Microsoft Band is $200. But the company stands to make more in recurring revenues by getting your data and input (and, eventually, money) for its services.

Another example: the Microsoft Surface Hub, with its souped-up videoconferencing system that builds on the large-screen Perceptive Pixel multi-touch displays the company bought a few years back. While Microsoft makes multiple thousands for each Perceptive Pixel-based system sold, it stands to take in far more from the services that are core to these devices. Those services include custom versions of Skype for Business (aka Lync) and OneNote.

Convincing more people to use OneNote also is one of the raison d'etres of the Surface 3 tablet that Microsoft will begin shipping this month. The new Surface 3 doesn't ship with a Microsoft pen in the box, but Microsoft has made sure that clicking the button on its pen automatically activates OneNote -- yet another way to try to make OneNote a must-have. Likewise, the free one-year Office 365 Personal subscription potentially will draw more customers to renew.

And while the new Intel Atom x7-based Surface 3 tablet initially will ship with Windows 8.1, it will be freely upgradable to Windows 10. In fact, as Microsoft execs noted in a Reddit Ask Me Anything session in early April, Microsoft built the Surface 3 with the goal that it would be the ideal device to showcase Windows 10.

When making the shift from devices and services to platforms and productivity last year, Nadella said with the new Microsoft, hardware's purpose would be to highlight Microsoft software and services. At the time, I'm not sure many had confidence (or wanted to believe) this was the future of Microsoft, or understood the far-reaching implications of his new mission statement.

Now it's becoming quite clear that Microsoft is looking at the hardware and devices it makes as first and foremost vehicles for its software and services. Chris Capossela, Microsoft chief marketing officer for the company, recently reinforced this message. The Microsoft better-together campaign -- making its own products integrate tightly and work best when used in tandem -- is alive and well, Capossela told attendees of the Microsoft Convergence conference earlier this year. OneNote might be good on iOS and Android, but it's going to be even better on Windows due to the deep integration possible because Microsoft owns all of those products and services. Ditto OneDrive, Outlook, Cortana and more.

Bottom line: Microsoft these days is all about the software and services. Hardware, even though it still gets an inordinate share of the headlines, is just a supporting cast member