Four needling questions for Microsoft as it hosts Wall Street analysts

Microsoft will host financial analysts on Thursday for an afternoon of executive presentations and question-and-answer sessions. Here are four uncomfortable issues CEO Steve Ballmer and his lieutenants should address as they face the Wall Street crowd in Bellevue, Washington:

Will Ballmer’s successor be expected to toe the line and execute on the exiting CEO’s vision and strategy, or will the replacement get some leeway to rethink the current plans?

A sweeping and controversial corporate reorganization plan was one of Ballmer’s last major moves before announcing he would retire at some undisclosed point in the coming year. While the wheels are already turning on the implementation of the changes, it’s very possible Ballmer will be gone before the process is complete.

Since Ballmer’s reorganization has the blessing of the board, one would assume that the incoming CEO will be told to carry it out without major revisions. However, the reorganization plan hasn’t exactly prompted a consensus endorsement from outside observers. After all, it seeks to unify the company even more than it is today, mesh all of its parts and make sure that, for example, the Xbox team is aware of and has input into what the SQL Server team is doing, and vice versa. Ballmer calls this the “One Microsoft” vision.

The problem here is that many believe that’s the wrong direction to take in order to fix Microsoft’s problems and make it more agile when innovating and responding to market opportunities. This camp thinks it would be better to infuse more autonomy into the company and possibly even spin off some of its parts, because the product lines have become too diverse to be contained in the same corporate bottle.

What does Microsoft plan to do from a product perspective if Windows 8.1 and the second-generation Surface tablets fail to ignite enthusiasm?

Windows 8 and the Surface tablet were not a hit and that is a big problem for Microsoft, which is rushing out a major update for the OS due in mid-October and is also working on a second generation for the Surface tablets.

Windows 8.1 is expected to address the main complaints lobbed at its predecessor, whose radically redesigned Modern user interface freaked out many consumers and IT pros. Likewise, the new Surfaces—both the RT and Pro models—are supposed to be faster, more battery efficient and all around better.

However, it’s not entirely a sure thing that Windows 8.1 and the Surface 2 tablets will be able to undo the damage, in which case Microsoft’s tablet problems remains: Windows and the company will still be chasing on foot the runaway train of tablet sales that Apple and Android vendors have been riding to the bank for several years.

In that case, what is Plan B? Would Microsoft be open to rethinking its OS strategy? Some people feel it was a strategic mistake to attempt to have one OS that works both on PCs and tablets, because Microsoft may have ended up with one that isn’t good enough for either. After all, Apple has done very well having MacOS for its desktops and laptops, and iOS for its tablets and phones.

Oh, as long as Ballmer and company are addressing this question, it’d be great to get an update on the grand plan to unify Windows Phone 8 with Windows 8 to have a common, uniform OS code base from the phone through the server. Is that a pipe dream? Is it even wise?

How long will it take for Ballmer’s reorganization plan to be completely implemented and when will its stated benefits begin to be felt?

Sweeping corporate reorganizations are often counterproductive. They can interrupt the flow of operations, create internal confusion and resentments, and trigger doubts among major customers, ultimately hurting sales and product development. There are many examples of restructurings announced with great hope that ended doing more harm than good.

Ballmer should be specific about the timetable for completing the reorganization and about when customers, partners and investors will start to see its first fruits. He should also provide an update on how the acquisition of Nokia’s smartphone business will affect that reorganization plan, possibly complicating it and delaying its completion.

With investors chronically antsy about Microsoft’s stagnant stock price, Ballmer should explain Microsoft’s latest thinking regarding offering a full Office suite for the iPad and for Android tablets, an issue that is perennially on the table. Microsoft’s reticence at doing this has been explained as a defensive move to protect Windows.

However, it’s also true that Microsoft is leaving a lot of money on the table by not providing what millions are clamoring for.

It may be time for Microsoft to revisit whether withholding Office from iOS and Android tablets is still justified in order to prop up the value of Windows.

Juan Carlos Perez covers e-commerce, Google, web-application development, and cloud applications for the IDG News Service.
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Microsoft to analysts: consumers are the gateway to cloud, enterprise usage

For all of its recent emphasis on its Surface tablet and the Xbox, Microsoft remains focused on the enterprise, and especially on the cloud—but its consumer offerings are a gateway, Microsoft executives said.

Microsoft chief operating officer Kevin Turner opened Microsoft’s 2013 financial analyst meeting by disclosing that more than 55 percent of Microsoft’s revenue comes from the enterprise, a number that he said Microsoft rarely discloses. Other key executives, such as chief executive Steve Ballmer, are expected later in the meeting's day, which runs until 5 PM PDT.

Wall Street may have hoped that Microsoft would answer some uncomfortable questions, beginning with Microsoft’s unexpected shakeup. In July, Ballmer announced a sweeping reorganization that flattened the corporate structure and placed the company’s key technologies in the spotlight, rather than making the individual products the focus.

In August, however, Ballmer unexpectedly said that he would retire at the end of 12 months, prompting feverish speculation about who would replace him: including Stephen Elop of Nokia, among others.

Microsoft’s acquisition of Nokia helped boost Elop’s apparent chances. Unfortunately, Amy Hood, Microsoft’s chief financial officer, introduced the conference by saying that the company would be offering no new updates on the succession process.

Kevin Turner, another candidate to succeed Ballmer, first appeared on stage to present Microsoft’s business strategy and where the company has succeeded. So far, that appears to be in the cloud.

More than 55 percent of Microsoft’s business comes from the enterprise, Turner said, with 20 percent from the consumer market, 19 percent directly from OEMs, and 6 percent from small and medium businesses. Turner said that each field employee generates a total of $2.7 million per employee, a new high.

Microsoft’s Turner also pooh-poohed the negative response from OEM competitors to some of Microsoft’s own hardware plays, like the Surface. Turner referred to the consternation in the OEM channel when Microsoft launched Surface, with OEMs complaining about competition from Microsoft itself.  “We don”t want to make all the devices... but we will make some first-party hardware,” Turner said.

”As a result of having those consumer services, we’re able to deliver world-class business services at scale,” Turner said. "When you think about the opportunity between these two worlds, we know the seams of hardware and software integration.”

Turner also claimed that those OEMs now would claim that those products had improved dramatically.

Turner also took pains to emphasize how Microsoft was winning in the cloud.

Microsoft has 460 million MSN customers, 8 million Xbox Live customers, and Bing fields 4.6 billion queries per month. More than 400 million people use Outlook.com, Turner said, after Microsoft made it “more vibrant” and refreshed it, he said.

In the enterprise, Microsoft should move from a $1.5 billion annual revenue rate with Office 365 this quarter, and “blow that away” later this year, Turner said. Microsoft’s enterprise, public-cloud service in China is the only one of its kind in the world, he said.

In the past year, Microsoft increased deployed users of Office 365 by 350 percent, Turner said.

”Some people have asked, what are you doing with Google in the enterprise?” Turner said. “We’re winning them back, one customer at a time,” and Microsoft sees that accelerating, he said—helped by the fact that “[Microsoft] doesn’t snoop their email or listen in on their Wi-Fi.”

”Microsoft has never been considered a critical-enterprise IT provider,” Turner added. “Today we are. That is the new Microsoft.”

Social media in the enterprise represents a $38 billion opportunity today, Turner said. About 85 percent of Fortune 500 companies use Yammer, while 90 out of the Fortune 100 companies use Microsoft’s enterprise collaboration tool, Lync. Lync is a billion-dollar product; Skype has 320 million users.

Together, Lync, Yammer, Skype, and SharePoint in the enterprise make up a “incredibly compelling story” in the enterprise space, Turner said.

Turner also made a pitch for the upcoming Windows 8.1, and its business features: workplace join, as well as the ability to remotely wipe and clean the device of business data if the employee leaves the company. He also pitched Windows Phone as the smartphone platform of the future.

The Haswell or fourth-generation Core processor from Intel gives Microsoft the capability to have a fanless device on a better platform,” Turner said. That will open up new form factors at new price points, he said, and Microsoft is working hard across with partners to make that happen.

Microsoft has also worked to improve its retail store experience, partnering with 200 Best Buy stores to put Microsoft boutiques within each.  “We have to improve the retail buying experience,” Turner said, referring to early customer reticence to buy PCs using the OS. “It hasn’t been what we liked.”

”The one thing we know about Windows Phone: when people use it, they really really like it,” Turner said. Turner acknowledged that Windows Phone was a distant third behind Android and iOS, but with year-over-year gains like 900 percent in India, the company holds out hope that it will close the gap. Turner talked up its its Nokia acquisition, but also highlighted partners such as Samsung and several Asian partners.

Finally, Turner said that its Xbox Live service has attracted 43 million users, about 40 percent of whom are female.

A power outage then interrupted the meeting. When it returned, Microsoft executives detailed their commitment to Windows RT versions of the Surface tablet.

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Four needling questions for Microsoft as it hosts Wall Street analysts

September 19, 2013 01:22 PM ETIDG News Service - Microsoft will host financial analysts on Thursday for an afternoon of executive presentations and question-and-answer sessions. Here are four uncomfortable issues CEO Steve Ballmer and his lieutenants should address when they face the Wall Street crowd at the Meydenbauer Convention Center in Bellevue, Washington:

-- Will Ballmer's successor be expected to toe the line and execute on the exiting CEO's vision and strategy, or will the replacement get some leeway to rethink the current plans?

A sweeping and controversial corporate reorganization plan was one of Ballmer's last major moves before announcing he would retire at some undisclosed point in the coming year. While the wheels are already turning on the implementation of the changes, it's very possible Ballmer will be gone before the process is complete.

Since Ballmer's reorganization has the blessing of the board, one would assume that the incoming CEO will be told to carry it out without major revisions. However, the reorganization plan hasn't exactly prompted a consensus endorsement from outside observers. After all, it seeks to unify the company even more than it is today, mesh all of its parts and make sure that, for example, the Xbox team is aware of and has input into what the SQL Server team is doing, and vice versa. Ballmer calls this the "One Microsoft" vision.

The problem here is that many believe that's the wrong direction to take in order to fix Microsoft's problems and make it more agile when innovating and responding to market opportunities. This camp thinks it would be better to infuse more autonomy into the company and possibly even spin off some of its parts, because the product lines have become too diverse to be contained in the same corporate bottle.

-- What does Microsoft plan to do from a product perspective if Windows 8.1 and the second-generation Surface tablets fail to ignite enthusiasm?

Windows 8 and the Surface tablet were not a hit and that is a big problem for Microsoft, which is rushing out a major update for the OS due in mid-October and is also working on a second generation for the Surface tablets.

Windows 8.1 is expected to address the main complaints lobbed at its predecessor, whose radically redesigned Modern user interface freaked out many consumers and IT pros. Likewise, the new Surfaces -- both the RT and Pro models -- are supposed to be faster, more battery efficient and all around better.

However, it's not entirely a sure thing that Windows 8.1 and the Surface 2 tablets will be able to undo the damage, in which case Microsoft's tablet problems remains: Windows and the company will still be chasing on foot the runaway train of tablet sales that Apple and Android vendors have been riding to the bank for several years.

Reprinted with permission from IDG.net. Story copyright 2012 International Data Group. All rights reserved.

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Microsoft's Nokia deal could benefit other Windows partners, analysts say

Microsoft’s plan to buy Nokia’s phone business and have a larger presence in hardware devices has so far brought little response from PC and smartphone vendors in Asia. But the deal could end up bringing dividends to Microsoft’s long-time partners in the region by revitalizing the Windows ecosystem, according to analysts.

Windows Phone licensee HTC is still assessing the impact of Microsoft’s $7 billion acquisition of Nokia’s mobile phone business, a spokeswoman said Tuesday.

Huawei Technologies, another licensee, said the acquisition deal would not affect its cooperation with Microsoft, while smartphone maker ZTE also said it would continue developing Windows Phone devices while there was demand for them—and as long as the OS remained fair and open, as with Google’s approach to buying Motorola Mobility, which makes phones running the Android OS that Google develops.

Other Windows Phone licensees such as Samsung Electronics declined to comment.

The U.S. software giant’s previous moves at competing in the hardware space have not always been welcomed by its partners.

Following last year’s unveiling of Microsoft’s Windows Surface tablet, Taiwanese PC maker Acer was vocal in its opposition to the product, stating that it would disrupt the PC ecosystem. Lenovo, while less worried about the Surface product, was also opposed to Microsoft supplying hardware.

The Suface's future will probably not be affected by Nokia's mobile business.

Although shipments of the Surface tablet have been weak, Microsoft’s plan to buy Nokia’s phone business signals the company doesn’t plan to let up in hardware. The deal, which is expected to close in next year’s first quarter, will give Microsoft access to Nokia’s design and sales teams, along with its manufacturing facilities across the world.

“The PC vendors are definitely concerned about Microsoft’s approach,” said Nicole Peng, an analyst with research firm Canalys. “Since Microsoft launched its Surface, PC vendors have been preparing for when Microsoft will have its own hardware team.”

But Microsoft’s acquisition of Nokia’s phone business may not necessarily clash with the direction of its partners, analysts said.

Outside of Nokia, smartphone vendors including HTC, Samsung, and Huawei have all been gradually moving away from Microsoft’s Windows Phone OS in favor of Android, said Melissa Chau, an analyst with research firm IDC. In Asia, over 90 percent of the Windows Phone devices on the market come from Nokia, she added.

“All the shipments we’ve seen have been very small,” Chau said. “I don’t think we are going to see any huge outrage on the smartphone side.”

Microsoft will likely steer clear of the PC space with its Nokia acquisition, mainly because the handset vendor has no history of building tablets or laptops.

The biggest fear PC vendors may have, however, is that Microsoft’s acquisition of Nokia will bring more Surface tablets to the market, intensifying the competition with partners. Many vendors including Acer, Asustek Computer and Lenovo are releasing new tablets and convertible PCs running Windows 8.

But analysts argue that Microsoft will likely steer clear of the PC space with its Nokia acquisition, mainly because the handset vendor has no history of building tablets or laptops.

“I don’t think this will have an impact on PC vendors, because they are still selling PCs, and Nokia does phones,” said Tracy Tsai, an analyst with research firm Gartner. Instead, any tablet that Nokia developed would probably use the ARM-based Windows RT platform, and not the traditional Windows 8 OS, she added.

Already, PC vendors appear to be backing away from Windows RT. Acer has dropped plans to release a product using the OS, and Asus has called the platform “not very promising.”

“I don’t know if there will be a lot of competitors really upset about this,” Chau said. “Almost all of the PC players don’t seem to be upset about Windows RT nowadays.”

Microsoft’s new Windows 8 OS, however, has yet to take off. PC sales are instead partly declining due to the rise of tablets and smartphones. As a result, many PC vendors are releasing more mobile products using the rival Android OS as a way to continue growing.

It’s still too early to say how Microsoft’s plan to buy Nokia’s handset business will shake out in the end, analysts added. But Microsoft has said the acquisition will help build momentum for the Windows Phone OS, in an effort to expand the operating system’s presence. By 2018, Microsoft wants its Windows Phone OS to have a 15 percent market share, the company said in presentation slides posted on Tuesday.

A stronger Windows Phone OS, with better apps and developer support, could help make it a better alternative to Google’s Android OS, analysts said. At the same time, it may help convince consumers to stick with Windows PCs and tablets.

“If you bring on board more users to Windows Phones, they will want to have a similar experience on their tablet and PC,” Gartner’s Tracy Tsai said. “This will be very helpful. Once you increase the install base, you will have more developers and more apps, and have a rich eco-system.”

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Analysts push iPhone 5C price predictions to $450

Computerworld - Some analysts have rethought their expectations on the price of Apple's expected lower-end iPhone 5C, and now believe the Cupertino, Calif. company will play defense by charging as much as $450 for the new plastic smartphone.

"In terms of unsubsidized pricing, I don't see any way the iPhone 5C can be priced below $400," Sameer Singh, an analyst who writes on Tech-Thoughts.com, said in a post Monday. "I think Apple is leaning towards $450 ... [although] they could go as low as $400 if it helps facilitate a deal with China Mobile."

China Mobile, the world's largest mobile carrier, has yet to strike a deal with Apple to carry the iPhone, although Apple CEO Tim Cook has met at least twice this year with company executives.

As recently as two weeks ago, Singh had pegged the iPhone 5C's unsubsidized price at $399.

Ben Thompson, who covers a variety of topics, including smartphones, on his Stratechery blog, also has reconsidered his iPhone 5C price bet. In a post last week, Thompson said he is now leaning toward $450 for the plastic-cased smartphone, an increase from his previous maximum of $399.

The pricing dilemma that Apple faces, said Singh, is that it simply cannot compete at the very lowest end -- the under-$200 unsubsidized price point -- that is the volume driver in emerging markets. Trying to do so would not only reduce profit margins, something Apple has always been loath to do, but the device would not be up to its self-set standards. Producing a cheap smartphone simply to get into the lowest category would not only damage Apple's brand but be contrary to consistent comments by executives, particularly Cook, who has repeatedly said that Apple would not chase market share for its own sake.

But if it cannot effectively compete at the low end, Apple risks losing revenue by pricing the iPhone 5C too low.

"A substantial cut in the iPhone 5C's unsubsidized price is unlikely to increase volumes in subsidized markets, but Apple would effectively be 'leaving money on the table,' especially in Apple's core, subsidized markets," said Singh.

Currently, Apple sells three models at three different price points: the iPhone 5 for $650 unsubsidized, $199 with a contract; the iPhone 4S ($550/$99); and the iPhone 4 ($450/$0).

If it can't reach an unsubsidized price significantly lower than the current lowest -- $450 -- there's no reason to bother, Singh said, as it would only cannibalize sales of the iPhone 4 price point with an even cheaper iPhone 5C, reducing its revenue in developed markets like the U.S. by the difference.

A $350 unsubsidized price for the iPhone 5C would, in other words, cost Apple $100 per unit in missed revenue. Customers would still get a "free" iPhone, but carriers would be paying Apple less than they do now for the two-year-old iPhone 4.

That's a path Apple's unlikely to take.

"[$450] would not help Apple compete much more effectively in unsubsidized/prepaid markets," Singh said. "[But] I think Apple may be incredibly wary of leaving 'money on the table' and is likely to opt for a pricing strategy that is defensive rather than one that eliminates the 'price umbrella' for competitors."

Apple is expected to unveil its new iPhones, including the iPhone 5C as well as a full-priced model to replace the iPhone 5, on Sept. 10, and start selling the new smartphones in a first wave of markets on Sept. 20.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

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Browser privacy tools still lack bite, security analysts say

Browser vendors continue to implement privacy in a halfhearted way, with Internet Explorer's default use of cookie "do not track" technology being the best of a weak job, a new assessment by NSS Labs has argued.

Currently, the latest versions of all four leading browsers—IE, Firefox, Chrome, and Safari—implement Do not track - but only Internet Explorer 10 installs it switched on by default, NSS Labs' latest Comparative Analysis found.

The cookie-tracking setting can be enabled in the other three, but only by locating an option in a menu setting. The authors are especially critical of Chrome, which requires users to find and expand a nested Advanced Settings tab to enable the feature.

Even Microsoft treats the do not track as a design afterthought, burying the settings where only the most curious non-expert users might chance upon it.

NSS Labs interprets this lack of enthusiasm for the setting as revealing each vendor's "philosophical views on consumer privacy," while accepting that do not track remains ineffective as a privacy control while advertisers remain free to ignore it as they please.

"Until legislation is passed that will mandate compliance with the user intent of Do not track, the feature will remain a polite request that will be ignored by the advertising industry," write authors Randy Abrams and Jayendra Pathak.

With third-party cookies, Safari and IE are given the thumbs up, with the former blocking all by default, and IE implementing a partial block. Although Firefox and Chrome don't activate this setting by default, Firefox in particular offers granular control over a setting that is vital to automate access to many commonly used sites.

Other privacy features—the ability to control geolocation, private browsing, and tracking protection lists—all fall down to some extent.

Controlling geolocation (the ability for a site to detect a user's country location), all four browsers prompt as required, but in order to disable the setting completely Firefox forces users to access the technically demanding about:config page.

Uniquely, IE9/10 allows Tracking Protection lists from third-party vendors, essentially lists of sites for IE to block third-party cookies automatically unless the setting is overridden by the user.

Overall, then, IE comes out on top for privacy thanks to the relative simplicity of its slider controls and privacy templates, but none of the four are given a ringing endorsement.

It remains unclear to what extent browser privacy and features such as do not track are valued or even understood by users. A YouGov poll from late last year found that consumers valued ease of use more highly than the ability to block cookies, although the same survey admitted that many disliked targeted ads which follow users even when they have left sites.

Do not track has certainly upset some advertisers, with the Digital Advertising Alliance (DAA) recently lobbying a W3C discussion on how to standardize the way that not track should work.

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