The Xbox, the Zune, Windows Phone: in ten years, these products will be the model for Microsoft, as it evolves away from a software company into a hardware-and-services provider. At least, that’s the corporate vision outlined by Microsoft CEO Steve Ballmer this weekend.
Ballmer formalized the shift in strategy in an interview published by the Seattle Times over the weekend. Among other topics, Ballmer talked about the blurring lines between tablets and PCs – and dropped hints about the price of the company’s upcoming Surface tablets.
An Epic Year For Microsoft?
Microsoft is updating all of its major product lines this year, with the new Windows 8, Office, Windows Server and Internet Explorer releases, plus ongoing updates to the software used by its Xbox gaming platform. But while Ballmer called the year “epic,” he appears ready to if not jettison those products, at least subsume them in a new wave of devices around which Microsoft can develop platforms.
“I think when you look forward, our core capability will be software, [but] you’ll probably think of us more as a devices-and-services company,” Ballmer told the Times. “Which is a little different. Software powers devices and software powers these cloud services, but it’s a different form of delivery….
“Doesn’t mean we have to make every device,” Ballmer added. “I don’t want you to leap to that conclusion. We’ll have partners who make devices with our software in it and our services built in… We’re going to be a leader at that.”
Surface Pricing Secrets?
The latest example of Microsoft’s newfound love of devices is the Surface tablet, which will be designed by Microsoft in both the Surface RT and Surface Pro configurations; the basic model will use the Windows RT operating system and an ARM chip, while the more powerful model will use a traditional x86 Intel chip and the new Windows 8 OS.
One of the most important unanswered Surface questions has been what Microsoft plans to charge for the devices; analysts have said they believed that Microsoft would be justified in charging a premium, perhaps up to $1,000 for the higher-end surface configuration.
But Ballmer’s interview might have given away a little more of his thinking on the subject. Ballmer was asked whether or not the Surface would compete with the Apple iPad on price or on features. Ballmer didn’t reply directly, but framed his answer by noting that cheaper devices are often expected to be less full-featured.
“If you say to somebody, would you use one of the 7-inch tablets, would somebody ever use a Kindle (Kindle Fire, $199) to do their homework?” Ballmer answered. “The answer is no; you never would. It’s just not a good enough product. It doesn’t mean you might not read a book on it…
“If you look at the bulk of the PC market, it would run between, say, probably $300 to about $700 or $800,” Ballmer said. “That’s the sweet spot.”
So will a Surface RT be priced about $300, with the higher-end models running between $700 to $800? Sure sounds like it.
Microsoft Moving “Away” From Software?
It’s a real stretch to imagine Microsoft ditching its cash cows: Windows, Office and its enterprise products like Windows Server, SharePoint and related services. After all, those produts make up the bulk of the company’s revenues.
But a transition to a cloud-based services model does make sense. Today, Microsoft delivers more than 200 online services to more than 1 billion customers and 20 million businesses in more than 76 markets worldwide, the company recently claimed.
Of course, the majority of these are delivered by the original computing “device,” the PC. But as rivals like Google capitalize on their own services and advertising-driven models, Microsoft has to take additional steps in this direction. While the new Microsoft Office Web Apps make a conscious effort to avoid giving away Microsoft Office’s value-added features for free, they clearly pave the way toward a services-driven future.
Xbox And Beyond
In devices, Microsoft manufactures the Xbox, its own platform for online movies and music sales. And though it has done so quietly, Microsoft also sells its “own” PCs: the “Signature” line of notebooks that it buys from its OEM partners, optimizes by removing adware, and sells directly to consumers.
Ballmer took pains to avoid stating that Microsoft would in fact, make every device that uses its software. But his statement offers ammunition to those who think that Microsoft may end up buying Nokia, its premier Windows Phone partner which just happens to have an ex-Microsoft exec, Stephen Elop, as CEO. Microsoft’s “Signature” strategy could eventually morph into a Google Nexus-like approach of building a “flagship” notebook that hardware partners could use as a reference model.
Windows 8 Is All About Mobile
Ballmer also offered one more telling tidbit: “[Windows 8] also brings us into this world of much more mobile computing and more mobile form factors,” Ballmer said. “I think it’s going to be hard to tell what’s a tablet and what is a PC.
Microsoft’s decision to enter the tablet hardwrare market has already proved problematic for at least one notebook manufacturer, Acer, which has publicly complained about Microsoft’s decision to manufacture the Surface tablet. But Ballmer’s statement can also be read another way: that making traditional notebooks is a backward looking strategy, and those companies who cling stubbornly to their old business models may be passed by.
Ballmer photo by Fredric Paul.
Money and question mark images courtesy of Shutterstock.