Browsing Tag

satya nadella

Microsoft Makes Clever Moves

mobile internet, software By February 1, 2015 Tags: , , , 19 Comments


by Jean-Louis Gassée

While Microsoft Office for mobile is a satisfying success, the company can’t seem to create — or even buy — a mobile operating system that can compete with iOS and Android. Perhaps they’ve been looking in the wrong direction and can return to their “trusted” Embrace and Extend tactics.

Microsoft published its numbers for its Fiscal Year 2015 2nd quarter ending in December 2014. While the company isn’t the money machine it once was, it is healthy: Revenue grew 8% to $26.5B, Operating Income declined only a bit (- 2%) at $7.8B, there will be another $.31 dividend for the quarter, and cash reserves stand at $90B.

Such numbers give Satya Nadella the space he needs to implement the Mobile First – Cloud First vision he outlined last year. A key component of this plan is to spread Office applications across all platforms and devices: PCs, tablets, and smartphones – native apps as well as Web versions. Last week, Microsoft took another step in this direction with the release of its historic Outlook PIM (Personal Information Manager) app for Android and iOS.

While the Outlook release was warmly received, I’ve learned to take enthusiastic press reviews with caution. I prefer to “play customer”: I buy and use the product in klutzy ways engineers can’t foresee and, as a result, I get a better idea of how the product will fare in the real world. So, I installed Outlook on my iPad mini and, not to pour salt on some wounds… It Just Works. It runs my Exchange account at work, and it speaks Gmail and iCloud as well. No ifs, no buts.

Perhaps the most interesting aspect of the release is that it completes the core components of the native MS Office bundle: Word, PowerPoint, Excel, and now Outlook. It doesn’t matter which platform you use — Windows, Mac, Android, or iOS — you now have the full complement of Microsoft’s productivity apps built specifically for your device.

I used to think that if Apple could get its software house in order and work out the  (numerous) bugs, iWork could easily displace Microsoft Office on Mac, iCloud, and iOS. After all, iWork is free… Now, I’m not so sure. With this release, MS Office provides a fit and finish, a safe and effective cross-platform solution that’s worth the price of admission, particularly in the Enterprise world.

But Apple isn’t the competitor Microsoft worries about. Cross-platform Office is a powerful countermove against Google Apps. Microsoft doesn’t have a dog in the old Web vs. Native Apps fight, it offers both everywhere.

In other matters, however, things aren’t entirely rosy for Microsoft. Its smartphone hardware business isn’t doing well. A look at the recent 10-Q and at the slide presentation for the Earnings Release shows hardware revenue of $2.3B, for 10.5M Lumia phones and 39.7M on-Lumia devices:

Phone Hardware

Microsoft’s smartphone business is still dealing with the Nokia acquisition trauma, so these numbers are less reliable than in a stable business. But even if we proceed with caution, when we divide the $2.3B revenue number by 50.2M (the total number of devices), we get a meager ASP (Average System Price) of $46.

One could argue that the computation is misleading because it throws Non-Lumia phones — such as the Nokia X running Android — into the same pot as worthier Lumia devices. So let’s take take another stab at the numbers: Let’s imagine that all non-Lumia phones are simply given away, $0 ASP. That leaves us with 10.5M Lumia phones divided into $2.3B revenue for a yield of $219 ASP. Compare this to the $687 ASP Apple got for its iPhones last quarter. Playing with numbers a bit more, if you assume a $20 ASP for non-Lumia “dumbphones”, the ASP for Lumia smart devices comes to $143.

As discussed here last December, even with “forever” cash reserves, why bother? Big enterprises such as Bank of America and Chase that have discontinued Windows Phone support agree.

After fruitlessly jumping into a Broad Strategic Partnership with Nokia and then promptly Osborning it, Microsoft acquired the company’s smartphone business rather than letting it die. It’s still not working and, as the most recent industry numbers show, there’s little hope that Microsoft’s phone hardware business, while saddled with the hapless Windows Phone OS, will be anything other than a waste of time, money, and reputation. Many have suggested that Microsoft drop its OS efforts and fork Android, returning, in Ben Thompson’s words, to “its roots of embracing and extending”.

That brings us to Cyanogen. In the grand tradition of Homebrew Computing that gave birth to Microsoft, Apple and countless others, developers have taken the Open Android operating system and opened it even more, creating a raft of improved versions.

Initially, many thought these variants were just for the hacker who wanted to play with his Android device, reflash its ROM, and grow hair on his chest. But one Android strain, CyanogenMod, exhibited such vitality hat it spawned an organized, for-profit company. In 2012, Benchmark and Redpoint led a $7M Series A investment in Cyanogen, Inc. (“Series A” is typically the first serious VC money, after a Seed Round.) In December, 2014, there was a more substantial $23M Series B round, led by another member of the Valley’s VC nobility, Andreessen Horowitz. And now, there is talk of a $70M round…  in which Microsoft might be a “minority” player.

Kirk McMaster, Cyanogen’s CEO, has been unusually candid about the company’s goal [emphasis mine]:

“I’m the CEO of Cyanogen. We’re attempting to take Android away from Google.”


We’ve barely scratched the surface in regards to what mobile can be. Today, Cyanogen has some dependence on Google. Tomorrow, it will not. We will not be based on some derivative of Google in three to five years. There will be services that are doing the same old bulls— with Android, and then there will be something different. That is where we’re going here.”

Ambitious words, indeed, but they’re backed by some of the Valley’s smartest money.

Microsoft’s role in Cyanogen is probably just a minor one; perhaps it will help with the patent portfolio it unleashes on Android OEMs. But the company’s involvement at all could be seen as part of its long battle with Google. Recall that “Google acquired Android in 2005 as a defense against Windows Mobile dominating smartphones just as Windows dominated PCs.” Later, in 2008, Microsoft acquired Android founder Andy Rubin’s previous company Danger, whose Sidekick design inspired Google’s pre-iPhone G1 devices.

Cyanogen has long been in Google’s cross-hairs. In its early days, CyanogenMod (since renamed to Cyanogen OS) was perceived as such a nuisance — or a threat — that its users suddenly found that they needed to perform contorted workarounds to load Google’s proprietary apps (Google Map, YouTube, GTalk, and so on). Can Microsoft resist the temptation to aid this Google irritant?

Tantalizing as the Cyanogen investment is, it might not be enough to keep Microsoft in the brutal smartphone hardware business, but it’s consistent with the company’s efforts to undermine Google’s ecosystem by any means necessary. Including gathering allies to do to Android what Bill Gates once did to Lotus 1-2-3.

Let’s keep in mind that the mobile industry is no more mature than the PC industry was in the mid eighties. Things could get interesting as Cyanogen reveals more of the business model its muscular investors have bought into. And they will become particularly interesting if the company can corral support from industry players who are eager to get out from under Google’s thumb.


Microsoft’s New CEO Needs An Editor

software By July 13, 2014 Tags: , 111 Comments


Satya Nadella’s latest message to the troops – and to the world – is disquieting. It lacks focus, specifics, and, if not soon sharpened, his words will worry employees, developers, customers, and even shareholders.

As I puzzled over the public email Microsoft’s new CEO sent to his troops, Nicolas Boileau’s immortal dictum came to mind:

Whatever is well conceived is clearly said,
And the words to say it flow with ease.

Clarity and ease are sorely missing from Satya Nadella’s 3,100 plodding words, which were supposed to paint a clear, motivating future for 127,000 Microsoftians anxious to know where the new boss is leading them.


Nadella is a repeat befuddler. His first email to employees, sent just after he assumed the CEO mantle on earlier this year, was filled with bombastic and false platitudes:

“We are the only ones who can harness the power of software and deliver it through devices and services that truly empower every individual and every organization. We are the only company with history and continued focus in building platforms and ecosystems that create broad opportunity.”

(More in the February 9th, 2014 Monday Note)

In his latest message, Nadella treats us to more toothless generalities:

“We have clarity in purpose to empower every individual and organization to do more and achieve more. We have the right capabilities to reinvent productivity and platforms for the mobile-first and cloud-first world. Now, we must build the right culture to take advantage of our huge opportunity. And culture change starts with one individual at a time.”

Rather than ceding to the temptation of quoting more gems, let’s turn to a few simple rules of exposition.

First, the hierarchy of ideas:


This admittedly simplistic diagram breaks down an enterprise into four layers and can help diagnose thinking malfunctions.

The top layer deals with the Identity or Culture — I use the two terms interchangeably as one determines the other. One level down, we have Goals, where the group is going. Then come the Strategies or the paths to those goals. Finally, we have the Plan, the deployment of troops, time, and money.

The arrow on the left is a diagnostic tool. It reminds us that as we traverse the diagram from Identity to Plan, the number of words that we need to describe each layer increases.  It should only take a few words to limn a company’s identity (Schlumberger, oil services; Disney, family entertainment), describing the company’s goals will be just a tad more verbose (“in 5 years’ time we’ll achieve $X EPS, Y% revenue growth and Z% market share”), and so on.

The arrow also tells us that the “rate of change” — the frequency at which a description changes — follows the same trajectory. Identity should change only very slowly, if ever. At the other end, the plan will need constant adjustment as the company responds to rapidly shifting circumstances, the economy, the competition.

Using the old Microsoft as an example:
— Identity: We’re the emperor of PC software
— Goals: A PC on every desk and home – running our software
— Strategy: Couple the Windows + Office licenses to help OEMs see the light; Embrace and Extend Office competitors.
— Plan: Changes every week.

Returning to Nadella’s prose, can we mine it for words to fill the top three layers? Definitely not.

Second broken rule: Can I disagree? Any text that relies on platitudes says not much at all; in a message-to-the-troops that’s supposed to give direction, irrefutable statements are deadly. Some randomly selected examples in an unfortunately overabundant field:

“[…] we will strike the right balance between using data to create intelligent, personal experiences, while maintaining security and privacy.”


“Together we have the opportunity to create technology that impacts the planet.”


“Obsessing over our customers is everybody’s job.”

If I’m presented with statements I cannot realistically disagree with – We Will Behave With Utmost Integrity – I feel there’s something wrong. If it’s all pro and no con, it’s a con.

There are other violations but I’ll stop in order to avoid the tl;dr infraction I reproach Nadella for: Never make a general statement without immediately following it with the sacramental “For Example”.

For example:

“[…] we will modernize our engineering processes to be customer-obsessed, data-driven, speed-oriented and quality-focused.”

… would be more believable if followed by:

Specifically, we’ll ask each each software engineer to spend two days every month visiting customers on even months, and third party developers on odd ones. They will also spend one day per quarter seconding Customer Service Representatives over our phone banks.” 

Satya Nadella is an unusually intelligent man, a Mensa-caliber intellect, well-read, he quotes Nietzsche, Oscar Wilde, and Rainer Maria Rilke. Why, then, does he repeatedly break basic storytelling rules?

Two possible explanations come to mind.

First, because he’s intelligent and literate, he forgot to use an unforgiving editor. ‘Chief, you really want to email that?’ Or, if he used an editor, he was victimized by a sycophantic one. ‘Satya, you nailed it!’

Second, and more likely, Nadella speaks in code. He’s making cryptic statements that are meant to prepare the troops for painful changes. Seemingly bland, obligatory statements about the future will decrypt into wrenching decisions:

“Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New ideas will be heard. New hires will be made. Processes will be simplified. And if you want to thrive at Microsoft and make a world impact, you and your team must add numerous more changes to this list that you will be enthusiastic about driving.”

In plainer English: Shape up or ship out.

Tortured statements from CEOs, politicians, coworkers, spouses, or suppliers, in no hierarchical order, mean one thing: I have something to hide, but I want to be able to say I told you the facts.

With all this in mind, let’s see if we can restate Nadella’s message to the troops:

This is the beginning of our new FY 2015 – and of a new era at Microsoft.
I have good news and bad news.
The bad news is the old Devices and Services mantra won’t work.

For example: I’ve determined we’ll never make money in tablets or smartphones.

So, do we continue to pretend we’re “all in” or do we face reality and make the painful decision to pull out so we can use our resources – including our integrity – to fight winnable battles? With the support of the Microsoft Board, I’ve chosen the latter. We’ll do our utmost to minimize the pain that will naturally arise from this change. Specifically, we’ll offer generous transitions arrangements in and out of the company to concerned Microsoftians and former Nokians.

The good news is we have immense resources to be a major player in the new world of Cloud services and Native Apps for mobile devices. We let the first innings of that game go by, but the sting energizes us. An example of such commitment is the rapid spread of Office applications – and related Cloud services – on any and all mobile devices. All Microsoft Enterprise and Consumer products/services will follow, including Xbox properties.

I realize this will disrupt the status quo and apologize for the pain to come. We have a choice: change or be changed.

Stay tuned.

Or words (about 200) to that effect.

In parting, Nadella would do well to direct his attention to another literate individual, John Kirk, whose latest essay, Microsoft Is The Very Antithesis Of Strategy, is a devastating analysis that compares the company’s game plan to the advice given by Sun Tzu, Liddell Hart, and Carl von Clausewitz, writers who are more appropriate to the war that Microsoft is in than the authors Microsoft’s CEO seems to favor.

The CEO’s July 10th email promises more developments, probably around the July 22nd Earnings release. Let’s hope he’ll offer sharper and shorter words to describe Microsoft’s entry into the Cloud First – Mobile First era.


Nadella’s Job One

Uncategorized By February 9, 2014 Tags: , 21 Comments


Microsoft has a new CEO – a safe choice, steeped in the old culture, with the Old Guard still on the Board of Directors. This might prevent Nadella from making one tough choice, one vital break with the past.

Once upon a distant time, the new CFO of a colorful personal computer company walks into his first executive staff meeting and proudly shares his thoughts:

“I’ve taken the past few weeks to study the business, and I’d now like to present my top thirty-five priorities…”

This isn’t a fairy tale, I was in the room. I didn’t speak Californian as fluently as I do now, so rather than encourage the fellow with mellifluous platitudes — ‘Interesting’ or, even better, ‘Fascinating, great vision!’ — I spoke my mind, possibly much too clearly:

“This is terrible, disorganized thinking. Claiming to have thirty-five priorities is, in fact, a damning admission: You have none, you don’t even know where to start. Give us your ONE priority and show us how everything else serves that goal…”

The CFO, a sharp, competent businessman, didn’t lose his cool and, after an awkward silence, stepped through his list. Afterwards, with calm poise, he graciously accepted my apologies for having been so abrupt…

Still, you can’t have a litany of priorities.

Turning to Microsoft, will the company’s new CEO, Satya Nadella, focus the company on a true priority, one and only one goal, one absolutely must-win battle? For Nadella, what is Microsoft’s Nothing Else Matters If We Fail?

In his first public pronouncement, the new Eagle of Redmond didn’t do himself any favors by uttering bombastic (and false) platitudes (which were broadly retweeted and ridiculed):

“We are the only ones who can harness the power of software and deliver it through devices and services that truly empower every individual and every organization. We are the only company with history and continued focus in building platforms and ecosystems that create broad opportunity.”

One hesitates. Either Nadella knows this is BS but thinks we’re stupid enough to buy into such pablum. Or he actually believes it and is therefore dangerous for his shareholders and coworkers. Let’s hope it’s the former, that Nadella, steeped in Microsoft’s culture, is simply hewing to his predecessor’s chest-pounding manner. (But let’s also keep in mind the ominous dictum: Culture Eats Strategy For Breakfast.)


Assuming Nadella knows the difference between what he must say and what he must do, what will his true priority be? What battle will he pick that, if lost, will condemn Microsoft to a slow, albeit comfortable, slide into the tribe of has beens?

It can’t be simply tending the crops. Enterprise software, Windows and Office licenses might not grow as fast as they used to, but they’re not immediately threatened. The Online Services Division has problems but they can be dealt with later — it continues to bleed money but the losses are tolerable (about $1B according to the Annual Report). The Xbox One needs no immediate attention.

What really threatens Microsoft’s future is the ebullient, sui generis world of mobile devices, services, and applications. Here, Microsoft’s culture, its habits of the heart and mind, has led the company to a costly mistake.

Microsoft has succeeded, in the past, by straddling the old and the new: The company is masterful at introducing new features without breaking older software. In Microsoft’s unspoken, subconscious culture, the new can only be defined as an extension of the existing, so when it finally decided they it needed a tablet (another one after the Tablet PC failure), the Redmond company set out to build a better device that would also function as a laptop. The best of both worlds.

We know what happened. Users shunned Microsoft’s neither-nor Windows 8 and Surface hybrids. HP has backed away from Windows 8 and now touts its PCs running Windows 7 “Back By Popular Demand”  — this would never have happened when Microsoft lorded over its licensees. And now we hear that the upcoming Windows 8.1 update will boot directly into the conventional Windows 7-like desktop as opposed to the unloved Modern (née Metro) tiles.

Microsoft faces a choice. It can replace the smashed bumper on its truck with a stronger one, drop a new engine into the bay and take another run at the tablet wall. Or it can change direction. The former — continuing to attempt to bridge the gap between tablets and laptops  — will do further damage to the company’s credibility, not to mention its books. The latter requires a radical but simple change: Make an honest tablet using a version of Windows Phone that’s optimized for the things that tablets do well. Leave laptops out of it.

That is a priority, a single, easily stated goal that can be understood by everyone — employees and shareholders, bloggers and customers. To paraphrase a Valley wag, it’s a cri de guerre that’s so simple you can remember it even if you’re tired, drunk, and your spouse has thrown you out in the rain at 3 A.M. in your jockey briefs.

This is an opportunity for the new CEO to make his mark, to show vision, as opposed to mere care-taking.

But will he seize it?

Nadella should know the company by now. He’s been with Microsoft for over twenty years, during which time he’s proven himself to be a supremely technical executive. The company is remarkably prosperous — $78B in revenue in 2013; $22B profit; $77B in cash. This prosperity bought the Board some time when deciding on a new CEO, and should give Nadella a cushion if he decides to redirect the company.

Of course, there’s the Old Guard to contend with. Bill Gates has ceded the Chairman role to John Thompson, but he’ll stay on as a “technical advisor” to Nadella, and Ballmer hasn’t budged — he remains on the Board (for the time being). This might not leave a lot of room for bold moves, for undoing the status quo and for potentially embarrassing (or angering) Board members.
I can’t leave the topic without asking another related question.

We’ve just seen how decisive Larry Page can be. He looked at Motorola’s $2B red ink since they were acquired by Google — no end in sight, no product momentum — and sold the embarrassment to Lenovo. If regulators approve the sale, Motorola will be in competent hands within a company whose leader, Yang Yuanqing also known as YY, plays for the number one position. (Lenovo is the company that, in 2005, bought IBM’s ailing PC business and has since vaulted over Dell and HP to become the world’s premier PC maker.)

With this in mind, looking at the smartphone space where Apple runs its own premium ecosystem game, where Samsung takes no prisoners, where Huawei keeps rising, and where Lenovo will soon weigh in — to say nothing of the many OEMs that make feature phone replacements based on Android’s open source software stack (AOSP) — is it simply too late for Microsoft? Even if he has the will to make it a priority, can Nadella make Windows Phone a player?

If not, will he be as decisive as Larry Page?