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Microsoft Is Dead, Long Live Microsoft

- By Shudeep Chandrasekhar

The Microsoft (MSFT) we know does not exist anymore. Welcome to Microsoft 2.0, created by CEO Satya Nadella, a software as a service company - or maybe it would be better if we called it simply Microsoft-as-a-Service .


Gone are the days when everything about Microsoft was actually about product; the time has arrived when the company is constantly thinking about how to push those products as monthly or annual service rather than as standalone software.

When Nadella took over, he started by stating how he sees everything through a cloud first, mobile-first strategy. But that strategy is looking more and more like an "as-a-service" one.

Microsoft earned billions of dollars using the OEM licensing model, where Windows was preinstalled in computers and Microsoft made money by charging users for the license. That model is outdated, and today, mobile operating systems such as Android are being given away for free. To earn revenues, Google (GOOG) (GOOGL) has created an ecosystem around it consisting of applications and advertising.

With PC sales declining, this is one of the biggest revenue streams that Microsoft needs to replace, and they seem to have taken the as-a-service route to mitigate the slowdown on the commercial licensing and consumer licensing model.

windows 10 as a subscription
windows 10 as a subscription
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iNaC2-5leQOa5rLYYAuJJxmFX9UC3-MukT8psPzE

Source: Microsoft Blog

As of this week, Microsoft has decided to offer a Windows 10 subscription option to Enterprise users. It's interesting that they've only opened this up to companies; the likelihood of a Windows 10 consumer version as a monthly subscription will clash with their free upgrade offer that ends on July 29. But I believe it is inevitable that they will open this up to the general public sooner or later, if only to make the annual fee look more attractive. This is standard SaaS pricing protocol, and applies for Office 365 as well as Azure, so there's no reason for Windows 10 not to go the same way.

One of the biggest benefits for enterprise users, however, is that they can pick and choose the services they want without having to pay for the entire package. Case in point is Facebook (FB) CIO Tim Campos announcing that the company will be using Office 365 for all of its 13,000 employees around the world, but will be using their own Facebook Messenger for video calls and chats. That leaves Skype for Business and Yammer out of the bundled plan they will be paying for. Other companies may want Skype, but may opt to sign up with Google Apps for Gmail or Drive service, which allows real-time document collaboration like nothing Microsoft or anyone else has.

The shift to an Operating-System-as-a-Service itself is a significant one because everything operates on the cloud. Whether we want it or not, every new service that is up for subscription adds to the growing volume of data sitting on the cloud. But it also does another thing that's mostly overlooked - it puts all the other services from that company at arm's length.

By putting Windows on their own Azure cloud and offering it as a SaaS, Microsoft also ties in the Azure service and makes it available at the click of a button. These interconnected services will soon see companies gravitate toward not necessarily the best service possible, but the most convenient one possible. If you're already on an Office 365 subscription, for example, Azure - and now Windows 10 - are just one click away. And the bigger your company, the more sense it makes because you can divest yourself of all that redundant hardware and software that you're paying millions of dollars to maintain each year.

Let's take the case of a small start-up whose employees use Mac PCs for their work. They still need a productivity suite, and may use Google or Microsoft for that. They may also be using Amazon (AMZN), IBM (IBM) or Microsoft infrastructure services for their IT operations. Now, imagine how easy it will be for the company to start getting everything they need from the same vendor - Microsoft - instead of using Mac for work, Amazon for infrastructure and Microsoft for their office suite. Admittedly, some companies may well do that, but Microsoft is making sure that their own "one stop shop" is the more attractive option.

The sheer breadth of their as-a-service bundle should be enough to pull most companies into their client list.

A lot of people think that Nadella's mobile first, cloud first mantra is about what the company wants. No. It's about what the consumers want. They want mobility and they want access from anywhere in the world on any device in the world. But most of all, they want convenience - and that's exactly how Microsoft is positioning itself.

And there's no better person to put that into words than the Chief Information Officer of Facebook Tim Campos:

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"We collaborate on everything online--no files, no fragmented information stores--and we provide our employees with the ability to work anywhere and in any way they want," Campos wrote in a blog post. "Our IT has to be flexible and available over the web, on mobile and across platforms -- wherever our employees need it. This is why we've implemented Office 365."

I use both Microsoft 365 as well as Google Drive. Gmail is still my preferred email service because I personally feel that Outlook has a long way to go before they can match the ease of use that Gmail offers. On the other hand, when it comes to office productivity, it is Google's product that I find lacking in finesse and capability. The collaborative nature of Drive, Docs, Sheets, etc. is unmatched, but it doesn't let me do things as easily and quickly as MS Office does.

But I believe this will be a long war in which only Microsoft and Google are the real combatants. No other company has the enterprise productivity tools and cloud offerings that these two possess. Others may have one or the other, but not everything that a company's employees need to be more productive at work.

In a sense, that's what these two companies are becoming, and for now, Microsoft seems to have the edge.

This is the Microsoft that you will be investing in - not the staid old software vendor they used to be. And these are the products and segments that serious investors should be looking at to see how well they're performing. I can recommend a BUY for Microsoft right now because they're much closer to achieving that goal of mobile first, cloud first. Google is a double-edged sword at this point - they desperately need to diversify from their advertising-heavy revenue model, but they just don't seem to have a goal or even a direction in mind for the company. That's a bold statement, I'll admit, but anyone that has been following the company knows this to be true.

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This article first appeared on GuruFocus.


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