Editor’s note: Matthew Casey is Software Analyst with Technology Business Research. He offers insight into Microsoft’s latest earnings report.
HAMPTON, N.H. – Customer and partner dependency on Microsoft (Nasdaq: MSFT) solutions continues to deliver positive financial results amidst the strategic realignment.
The task of overhauling a corporate strategy, realigning internal operations around this strategy, and overturning the leadership of the company can be a daunting task that can have detrimental effects on an organization’s short-term financial results. However, these very circumstances have yet to have a tangible effect on Microsoft, whose 4Q13 results (14.3% year-to-year revenue growth to $24.5 billion) demonstrate the stability provided by deep rooted positioning in its various markets and partner ecosystems.
This stable ecosystem helped deliver positive growth across Microsoft’s commercial businesses in 4Q13, with Commercial Licensing and Commercial Other growing 7.4% and 28.1%, respectively, from a year ago.
Despite shifting its vision from a software provider to a devices and services firm, realigning organizationally to better execute on this vision, and conducting a search for CEO Steve Ballmer’s successor, Microsoft continued to make strides across its business in 4Q13.
Providing the deep roots for Microsoft to weather this transformation is the ecosystem of developers, customers and partners that are heavily dependent on Microsoft in everyday operations. Customer IT environments standardized on solutions such as Office, Outlook and Windows, developers distributing software atop Microsoft’s broad-based platforms and channel partners setting up shop around Microsoft’s solutions provide the cement that solidifies Microsoft in its various markets. For Microsoft, the dependency of customers and partners on Microsoft solutions provides temporary leeway when it comes to realigning and executing on long-term visions.
Realigned corporate structure will permanently change the way Microsoft and its partners interact and engage
While the changes in Microsoft’s strategy and internal alignment will better position the company for long-term growth in a new era of mobile and cloud based IT consumption, the transition will have lasting effects on the way Microsoft engages and works with partners. With Microsoft moving farther up the devices stack with solutions such as Surface and the 4Q13 buy of Nokia’s device business, the former model of relying on partner hardware as the vehicle for its software solutions will begin to shift.
In addition, Microsoft’s model for engaging with channel partners to distribute software solutions will continually evolve as Microsoft’s applications become increasingly cloud based. This evolution was demonstrated in 4Q13 as Microsoft announced 15-50% cuts to cloud sales commissions for its partner ecosystem, opting to begin rewarding channel partners for value-add innovation and services around solutions such as Office 365 as opposed to a referral based model. While partners will have less monetary incentive to simply resell Microsoft’s products, the continued demand for Microsoft solutions as standard core business applications will help sustain the base of channel partners by demonstrating the viability of Microsoft’s cloud solutions as sustainable business drivers for partners.
Engaging developers beyond traditional IT environments will be a key focus
Similar to Microsoft’s dependence on the channel, much of Microsoft’s success to-date stems from developer acceptance of its platform as a viable standard for their business models. As Microsoft continues expanding its solutions to cloud and mobile based platforms, improving functionality of these platforms and providing a viable foundation for ISV businesses will help transition this developer base beyond traditional IT environments.
While continued adoption of solutions such as Dynamics CRM, Office 365 and Surface tablets validate Microsoft’s solutions as long-term platforms for ISV business models, improved features and functionality on platforms such as Azure will help solidify the sticking points for developers. Part of this strategy involves improved functionality of the Azure platform itself, which in 4Q13 announced new features in its development and test capabilities.
Support for staged publishing capabilities, rolled out in 4Q13, provides improved flexibility for testing applications and websites prior to full implementation, while expanded integration with monitoring tools for SQL server databases provides better insight and control for ISVs.
While these features alone will not deliver tangible financial results, the continued focus on improving platform functionality will help Microsoft establish and solidify its developer ecosystem in the cloud.
(C) TBR
