Microsoft held its annual Financial Analysts Meeting yesterday. There were 8 hours of presentations by Bill Gates, Steve Ballmer, Ray Ozzie, Chris Liddell, and other top Microsoft execs. There is a ton of good information in these presentations, but from my perspective, there are three big highlights; Advertising, Software + Services, and Consumer Entertainment.
Advertising - Microsoft is getting real serious about the advertising business. Steve Ballmer said in a C/Net story "We are hell-bent and determined to allocate the talent, the resources, the money, the innovation to absolutely become a powerhouse in the ad business."
Earlier I wrote about Microsoft's AdCenter, and the acquisitions of aQuantive, Massive, and AdECN. Microsoft has signed high profile ad deals with Facebook, Digg, and EA Sports. Web search is one of the biggest venues for advertising and Microsoft's Live Search gained 3 points of market share last month to get to 13%. Still small, but growing.
Software + Services - This shift from client based software to web based services has been happening for several years. It has been called SaaS, or "Cloud Computing" or "On Demand" computing. Whatever the name, the meaning has been all your applications and data will be hosted on a server "in the cloud".
Pundits have said this spells trouble for Microsoft. Possible, but I don't think so. First, because I don't think ALL your applications and data will be "in the cloud", and second, because Microsoft is working on a "best of both worlds" scenario that seamlessly blends client or server based software with hosted services.
Ray Ozzie has been leading the charge on S+S, pushed for the billions of dollars to build massive data centers, and led the Windows Live and Office Live teams in building out the base services for business and consumers. This is a big shift for Microsoft and will represent billions in future revenues.
Nick Carr brings an interesting historical perspective on his blog. Nick reminds us that back when the PC first came out IBM claimed "we are the only company in the industry" with the customer base, the capabilities, and the cash to dominate the next generation of computing. But as a small upstart named Microsoft showed Big Blue, that ain't necessarily so. Nick's quote is compelling because these are exactly the same words Ray Ozzie is using to explain why Microsoft will be successful in this paradigm shift. Hmmm... my view is that Microsoft is tenacious and unrelenting, while IBM was distracted, at that time, by a dozen other bigger opportunities. However, Microsoft needs to deliver early and often to avoid history repeating itself.
Consumer Entertainment - Xbox 360, Windows Live, Windows Mobile, Zune, Halo, IPTV, MediaRoom, Surface Computing, and many others are big businesses opportunities for Microsoft. These are highly competitive businesses, but Microsoft is committed to investing the time and resources necessary to compete and win.
Big shift - These three areas; Advertising, S+S, and Consumer entertainment, are multi-billion dollar opportunities, and a big shift from Microsoft's roots in PC software. But Microsoft has made big shifts before. Fifteen years ago Microsoft had no presence in server software. It was laughable to think of a PC software company moving into enterprise server software. Today, Windows Server, SQL Server, and Sharepoint Server are multi billion dollar revenue producers with growing market share.
Big shifts don't happen very often. We are seeing three big ones unfold simultaneously. It will take years to fully realize the potential, but there is no doubt this is the right direction.