Microsoft CEO Steve Ballmer will be celebrating today. He is the clear winner of the latest Super Buzzword Bingo competition, with his entry for the internal memo announcing Microsoft’s biggest organisational shake-up in many years.
It is “a far-reaching realignment”, to “best empower people” and “enable enterprise value”. It’s about a “frontier of high-value scenarios” based on “compelling, integrated experiences” designed to “meet the shipment cadences” of Microsoft and its partners.
Or, perhaps more succinctly, it’s “PCs are dying, the cloud is growing faster than we expected, we need to change the way we work before it’s too late”.
The announcement came on the day that Gartner figures showed the continued dramatic decline in PC sales – down 17% year on year in Europe. That’s the real reason for the scale of change Ballmer is, in his own special corporate-speak way, having to deliver.
It would be easy to portray this as a last roll of the dice for Ballmer, who has been widely criticised for losing so much ground to Apple and Google during his tenure, and for the underwhelming performance of Microsoft shares as the mobile, cloud and social media sectors took off.
Let’s not forget what Ballmer said when the iPhone was launched in 2007: “There’s no chance that the iPhone is going to get any significant market share. No chance.”
“Would I trade 96% of the market for 4% of the market?” he said. Well, he’s making a pretty good go of it so far. Apple’s iPhone business is now bigger than Microsoft – all of Microsoft. That’s not to mention the iPad, Android, Samsung…
Such a huge reorganisation of Microsoft is inevitable and necessary. But as anybody who has been through a corporate restructuring knows, it is one thing announcing a new structure and strategy, and quite another to make it work effectively and deliver through to the bottom line.
Ballmer’s announcement does not change Microsoft – it merely starts the process of changing Microsoft. And even then, once Microsoft has changed, it needs to change the way it is perceived by consumers and corporate customers who see the supplier as a laggard and often a hindrance.
Here’s a couple of relevant stats to ponder: 53% of firms are already using some form of cloud service (based on TechTarget research); but only 3% of enterprise IT workloads are in the cloud (says 451 Research).
In other words – most of the market is evaluating and investigating cloud, but very few have yet made the change. Those stats tell us one important thing, in my opinion – that the shift to cloud will happen very quickly. Once that 53% decide the time is right, the 3% figure will grow exponentially. We’re not far from that tipping point.
Microsoft knows this. I was told recently by a Microsoft partner that the software giant changed its sales commission plan last year, reducing the bonus available for selling on-premise software licences, and incentivising sales reps to instead sell Office 365 and other cloud services.
But Microsoft still suffers from the dilemma that it cannot switch off its profitable software licensing revenue and change to a pay-as-you-go subscription model overnight. Office 365 does, at least, give sales reps an answer when customers ask why they shouldn’t move to Google Apps.
Microsoft believes – hopes; needs – the world will move to a hybrid model, with some on-premise licensed software and some on-demand cloud software. On that, Ballmer is probably correct. The challenge is to make sure that the lost on-premise revenue doesn’t become someone else’s on-demand revenue.
Don’t forget that for all the changes underway in Redmond, for the vast majority of Microsoft users, there is little or no direct contact with the software firm at all. Most companies buy from Microsoft resellers – smaller suppliers who rely on not just the licence revenue but all the ancillary implementation, service and support deals they can sell as a result.
Drive Microsoft users to the cloud, and suddenly a big chunk of that services revenue disappears for a lot of those resellers. They will need a strong incentive from Microsoft to encourage their customers to make such a move.
IT buyers will have plenty of questions for Microsoft as this restructuring unfolds, and in the short term at least, I suspect they will see less actual change in their relationship than Ballmer’s words imply. Nobody at Microsoft will be hurrying to persuade CIOs not to renew their Software Assurance licensing deals in favour of a cloud-based subscription. But the relationship will have to change.
The biggest questions surrounding the new strategy will concern the degree to which Ballmer and his team are focused internally on changing the company, and how much they are looking externally to understand what their customers really want – as opposed to what Microsoft hopes they want.