Microsoft Shifts Its Strategy to “Cloud First” (Premium)

As you may know, Microsoft is plotting a major reorganization this week, and my sources say that as many as 10,000 employees could exit the company through layoffs and other means. But the bigger news, to me, is the strategy shift that this change telegraphs: After utilizing some version of “mobile first, cloud first” for the past several years, Microsoft is finally admitting to its true future. Which is “cloud first.” Period.

This reorg and the resulting planned layoffs aren’t the first indication of this shift, of course. Back at Build 2017 in May, Microsoft began discussing something called “Intelligent Edge, Intelligent Cloud,” which at first blush seems like yet another take on “mobile first, cloud first.” (Which was itself another take on Steve Ballmer’s “devices and services” motto.)

But then it was meant to be subtle.

“Intelligent Edge, Intelligent Cloud” allows Microsoft to avoid the very real implication of its former strategy, which is that the “mobile first” bit has been an embarrassing failure. And I don’t just mean the obvious stuff. Yes, Windows phone and the Nokia acquisition were costly, time-sucking mistakes. But anyone who thought that Microsoft could somehow make a viable business from selling mobile apps is sorely mistaken. The only Microsoft mobile apps that make any sense at all are those that help customers use the Microsoft cloud services for which they are paying. Sorry, sprinkles.

The good news, for Microsoft enthusiasts at least, is that this reorganization does not spell the end of the software giant’s consumer efforts, though I feel that that, too, is inevitable. For now, Microsoft will maintain the two sides of its house, which are divided between commercial (enterprises and small to medium-sized businesses) and consumer.

To date, the commercial side of Microsoft’s business has generated about two-thirds of its revenues, and I expect that to continue if not increase. But … who cares about that? Let’s examine, instead, what this reorg means to the consumer side of the fence.

According to Bloomberg, Microsoft’s consumer efforts moving forward will focus on the following.

Existing businesses. Windows software, Surface hardware, consumer versions of Office 365, and the Xbox video game platform.

New businesses. Internet of Things (IoT), voice, mixed reality, and artificial intelligence (AI).

Tracking metrics. To determine the success of its products and services with consumers, Microsoft will look at such things as Windows 10 Pro sales (as opposed to lower cost offerings like Windows 10 Home or Windows 10 S) and competition from Chromebooks and iPad/iPad Pro.

Target creatives. Microsoft’s shift from “knowledge workers” to “doers” to “creators” is mostly semantics, and it’s based on the same basic strategy Microsoft has employed for decades: People want the same tools at home that they use at work.

The evolution of gaming. Video games are big business. And while Microsoft trails in this area at the moment, the opportunity is huge, thanks to “eSports, game broadcasting, and mixed reality content,” Microsoft says.

It’s important to view each of these points in the context of Microsoft’s overall strategy, which is all about the cloud. For example, sales of Windows-based PCs, Surface devices, and Xbox hardware all serve the same role, to provide customers with high-quality machines on which they can use Microsoft software and cloud services for which they are paying a subscription fee. These efforts play a support role across both commercial and consumer bases, but with the consumer side in particular.

And that, folks, explains the phrase “Intelligent Edge, Intelligent Cloud.”

With “mobile first, cloud first,” Microsoft had unfortunately placed mobile devices on equal footing with cloud services, had, in fact, placed them above cloud services. With the new strategy, “Intelligent Edge, Intelligent Cloud,” Microsoft is shifting the focus where it belongs, to the cloud. That is, Microsoft’s cloud is intelligent because it’s powered by AI and machine learning. And the “edge,” as they put it, is some random collection of whatever devices, which are made intelligent by Microsoft’s apps and services. And these devices will more often than not run Android or iOS, and not some Microsoft platform.

It’s a terrible phrase, but then there’s no good way to signal such a shift without it looking like a major defeat. I’m going to call it “cloud first.” But I understand why Microsoft will not. Not yet, anyway.