Why Microsoft will be successful transitioning it's business model from the desktop to mobile
Microsoft is caught in an interesting business dilemma. Microsoft has to convert it's core business from generating revenue from high cost operating system upgrades and large desktop software suites to revenue growth from mobile apps, digital media, and tablet technology.
I have been observing Microsoft carefully to unpack their business strategy based on what I have seen over the last few months with the release of Windows 8 and the Surface tablets.
I actually think they have a great strategy. At first I was wondering why they were holding out on making the transition to mobile and tablets so late in the game, but now I see it hinges on one important business issue.
Microsoft relies extensively on operating system upgrade sales, OEM deals, and sales from large productivity suites like Office. This model has been lucrative and is not about to die anytime soon. The tablet is eroding the desktop and laptop markets, Intel is noticing a decrease in Intel processor sales due to desktop system sales declines. This is exactly the right time for Microsoft to make the transition to a new business model that is very similar to Apple's model. They can still collect from the older revenue streams and they have minimized the canibalization of sales by waiting until now to make the transition in full force.
I have full confidence that Microsoft waited deliberately for this time. The timing is actually pure genius. There are a number of reasons why I feel this way:
(1) Wait and See Strategy Works Well
Microsoft takes a wait and see approach to see what competitors have done, what succeeded, what did not, and what gaps exist in the marketplace. They then typically formulate a plan learning from this information to minimize risk and hit the market in full force. I would argue Microsoft is reapplying this tested strategy once again.
One cavete, in the fast moving mobile echosystem this strategy is starting to fail becasue it is has become too slow for Microsoft to adequately keep pace with innovation. The competitors have become so agile that they are outpacing Microsoft's wait and see strategy.
(2) Timing The Crossing Over To New Revenue Streams
The best time to transition to a new business model is during that point where the growth of the new revenue stream crosses over the decline of the other revenue stream. This seems to be that time. Intel is the best indicator of this. Intel has not been able to keep pace with the mobile chipsets that are common in tablets such as Apple's A4, A5, A6 series and ARM processors.
ARM technology is the most popular processor type in tablets and smartphones. Intel's decline this year is an indicator of the cross over from Intel desktop to mobile ARM processor technology. Microsoft has picked this time carefully to take advantage of this cross over to minimize the effect revenue canibalization from the new business model. Risk is minimized using this approach.
(3) Parallel Convergence Approach To Desktop and Mobile Operating Systems
Apple chose to take a parallel convergence approach to their desktop and mobile operating systems and technologies. iOs and MacOS are developed in parallel while they converge over each release to become close and closer to one another in features, UI, and UX. Very smart. Microsoft chose a rapid and immediate change using Windows 8, which on the surface changes the Windows experience radically in one sharp punch. In fact Microsoft has an Windows Operating system that is marketed as a big switch with the Metro interface but really it has a lot of technology convergence bundled into it.
There will be tablets that run both older Windows Applications and new Metro Apps. There will be tablets that will just run Metro apps (Windows RT).
There will also be desktops and laptops with touch that can convert to tablets with a screen rotation design. Their tablets have keyboards in the cover to give them more of a laptop advantage. Microsoft actually provides users more choices with their strategy while they converge in a more immediate and drastic way. Users can choose to make the gradual switch to the new Metro UI or they can take a hybrid approach if they want to. Microsoft's strategy is actually less risky and more inclusive than Apple's if you look at it more carefully.
(4) Disruptive Digital Media Model
Microsoft launched XBox Music first because it can generate revenue from this quickly using a disruptive business model. Microsoft disrupts the market with a fully streaming subscription models that work on XBox, iOS, Android, and Windows. They are aiming squarely to compete and exceed what Apple offers using iTunes. Once again, pure strategic genius. The risks are lower with this because Apple has demonstrated that they can generate significant revenue from media sales, in fact it has become a cash cow. Microsoft is betting on repeating this success with their Xbox Music strategy through a disrupt, replicate, and beat the competition approach.
(5) Microsoft Can Leverage Their Thriving Software Legacy
Although Microsoft doesn't have a thriving App developer community, they do have a large customer base from their older desktop software, corporate customers, and media partners. These can all be leveraged by offering easy ways for existing software developers for Windows to transition to Metro mobile software using a mobile app model.
If Microsoft is smart they could also develop technologies to easily migrate software from desktop Windows to Metro. They can even deliver tools for Android and iOS developers to port or easily migrate code to Metro. This is less likely to be an option that Microsoft may consider. BlackBerry is allowing easy porting of Android software to BlackBerry 10 using software compiler tools. Microsoft may take a similar approach.
There is so much Windows software written for Windows that Microsoft could leapfrog Apple quickly with the right tools and incentives.
So the more I think about it, the more I can see that there are only bright sunny skies for Microsoft and Windows 8. Microsoft delivered Windows 8 to ground the strategic growth of their new revenue streams. This is only the beginning of a successful rollout of mobile technologies built with Windows inside.