Microsoft has realigned its strategic focus, investments and financial reporting around three key ambitions: reinvent productivity and business processes, build an intelligent cloud platform and create more personal computing. Aligning complementary assets such as Azure with server products, Office 365 with Dynamics, and Windows with devices, search and gaming will be beneficial as Microsoft aims to grow lifetime customer value.

TBR believes Microsoft’s cloud adoption has hit an inflection point, where net-new subscriptions and renewals will more than offset any declines in traditional licenses as Microsoft upsells premium services such as analytics and security. Though total revenue declined 12% year-to-year as a result of license cannibalization and a struggling phone business, operating margin improvement of 320 basis points from the year-ago quarter in the midst of high growth in low-margin cloud offerings showcase a leaner Microsoft that has reached a critical mass in its subscriber base. TBR expects the trend will continue with a positive bottom line impact going forward.

Microsoft will quickly make up ground in the CRM market by folding tuck-in acquisitions into Dynamics

Microsoft’s recent investments in Dynamics CRM make the solution more competitive to partner Salesforce’s CRM. Over the last two years, the companies became closer partners and it seemed like Microsoft was pulling back on its CRM investments in favor of a potential acquisition of Salesforce. However, TBR believes a possible failed acquisition of Salesforce spurred Microsoft to increase its own investments to more seriously play in the CRM space. Microsoft’s first step in this effort came with the engineering team realignment in June, which un-siloed Dynamics development and put it into the Cloud and Enterprise (C&E) group. Since then, Microsoft has made three acquisitions that add tuck-in functionality.

In July Microsoft purchased FieldOne Services to complement and add to the field service management capabilities that came from the company’s 2014 acquisition of Parature. In August Microsoft acquired sales gamification platform provider, Incent Games which will add game-like features to Dynamics CRM for improving employee engagement and increasing the portfolio’s stickiness. Lastly, Microsoft acquired assets from Adxstudio in September that will add web portals into Dynamics CRM, improving the portfolio’s self-services capabilities.

Windows IoT Core helps Microsoft capture additional opportunity in the IoT space

TBR believes Microsoft aims to become the backbone to its customers’ IoT initiatives, providing solutions across the IoT stack from powering the connected devices to storing and analyzing the data collected from these devices.

In August Microsoft furthered its ability to fill this role with the release Windows 10 IoT Core, an operating system that allows developers to embed Windows 10 into a wide array of devices. Windows IoT Core is similar to Windows Embedded, but it can be tied into small devices that may or may not have screens. TBR believes Microsoft targets new developers to its platform by making IoT available on Raspberry Pi, a small computer used as a learning tool for new developers.

Cortana will become the interface for aggregated business data

In October Microsoft announced integration between Cortana and LinkedIn on Windows 10, allowing users to bring information about their LinkedIn contacts into their Outlook calendar appointments. As Microsoft aims to “reinvent productivity and business processes”, TBR expects Cortana will become increasingly integrated with other enterprise platforms, both Microsoft-based and non-Microsoft-based. We believe the most logical next step for Microsoft will be building similar functionality into Dynamics CRM so that users can create more complete profiles of their customers through a single interface. TBR expects ISVs will be an integral part in making Cortana the interface for seeing a variety of data in a single view as these partners build Cortana into their own applications.