Microsoft to analysts: consumers are the gateway to cloud, enterprise usage

Microsoft COO Kevin Turner

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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.

Microsoft’s focus: cloud, social, mobility, Big Data

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. Finally, Microsoft chief executive Steve Ballmer appeared on stage to outline his four keys to Microsoft's future and his pledge to serve as a cheerleader for the company even after he steps down as chief executive.

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