What 'Tough Choices' Are in Store for Microsoft?

Microsoft CEO Satya Nadella yesterday warned employees against believing the company's culture can remain "static" and cautioned that some "touch choices" will be made. The letter, obtained and published by Geekwire and confirmed as authentic by Mary Jo Foley's All About Microsoft blog, doesn't specify what those though choices will be but it's a reasonable guess they could have a major impact on Microsoft's smartphone ambitions.

The memo also said that Microsoft will evolve last year's goal to become a productivity and platforms company in a mobile-first, cloud-first world, to "reinvent productivity services for digital work that span all devices."  As Foley pointed out as she read "between the lines" of Nadella's memo, "Tough choices is many times a sign for layoffs and/or product-line phase-outs." That's true and as Nadella put it, "we will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value."

The market share for Windows Phone remains static in the 3 percent range and there's little evidence that share will increase at all. At the very least, it wouldn't be surprising if Microsoft writes off its $7.2 billion acquisition of Nokia's handset business. Despite limited demand for Windows Phone, it would be surprising to see Microsoft give up on it before the release of Windows 10, which potentially could prop up demand for Microsoft's mobile platform. Last week's decision to combine its devices business with operating systems does suggest there will be some job reductions, certainly in areas where there's overlap. The move reaffirms Nadella's commitment and further moves to support the One Microsoft mission initiated two years ago by former CEO Steve Ballmer. Microsoft also appears committed to gaming, which, as Foley pointed out in this month's Redmond magazine column, is important.

Also worth pointing out, Nadella said in his memo that Microsoft will invest "in three interconnected and bold ambitions" which aim to:

• Reinvent productivity and business processes. "We will reinvent productivity services for digital work that span all devices. We will also extend our experience footprint by building more business process experiences, integrated into content authoring and consumption, communication and collaboration tools. We will drive scale and usage by appealing to 'dual-use' customers, providing productivity services that enable them to accomplish more at work and in the rest of their life activities with other people."
•  Build the intelligent cloud platform. "All these experiences will be powered by our cloud platform -- a cloud that provides our customers faster time to value, improved agility and cost reduction, and solutions that differentiate their business. We'll further provide a powerful extensibility model that is attractive to third-party developers and enterprises. This in turn enables us to attract applications to our cloud platform and attach our differentiated capabilities such as identity management, rich data management, machine learning and advanced analytics."
• Create more personal computing. "We will build the best instantiation of this vision through our Windows device platform and our devices, which will serve to delight our customers, increase distribution of our services, drive gross margin, enable fundamentally new product categories, and generate opportunity for the Windows ecosystem more broadly. We will pursue our gaming ambition as part of this broader vision for Windows and increase its appeal to consumers. We will bring together Xbox Live and our first-party gaming efforts across PC, console, mobile and new categories like HoloLens into one integrated play."

As Foley pointed out, Nadella never mentioned Windows Phone, though he used the term mobile. Some have also raised the question of whether Microsoft will continue to put resources into Bing, which Nadella didn't mention.

What tough choices do you think Microsoft should make?

Posted by Jeffrey Schwartz on 06/26/2015 at 10:11 AM