Editor’s note: Microsoft has a strong grasp on how customers’ IT environments are evolving and the company has put the commercial assets and roadmap in place to drive long-term growth as customers hybridize their IT and become more mobile.

HAMPTON, N.H. – Microsoft has a strong grasp on how customers’ IT environments are evolving and the company has put the commercial assets and roadmap in place to drive long-term growth as customers hybridize their IT and become more mobile.

Revenue contraction of 5% year-to-year and a 460 basis-point-decline in operating margin in 1Q16 show that Microsoft’s portfolio mix is shifting, alongside customers’ IT environments, to be increasingly cloud. However, cloud growth is starting to mitigate declines in on-premises alternatives, as shown by flat growth in total Commercial Office revenue. While this growing annuity revenue (now 86% of Microsoft’s commercial business) causes near-term margin contraction, subscription-based offerings give Microsoft the opportunity to cross-sell premium services such as security and analytics, therefore growing lifetime customer value. Investments in making its on-premises and cloud portfolios more enterprise-ready and interoperable both within its own portfolio and with competitors’ show a Microsoft ready and able to tackle the changing software landscape.

Opening SQL Server to Linux and offering an Oracle database trade-in promotion will help Microsoft recoup share in the database market
SQL Server is core to Microsoft’s strategy of assisting customers with creating hybrid IT environments. Over the last couple years, Microsoft has invested to make SQL Server mode cloud-enabled and the crux of initiatives like analytics. However, Microsoft has ground to make up in the database market with regards to Oracle. Microsoft announced in March 2016 that SQL Server will be available on Linux in 2017. Making SQL Server compatible with Linux will attract new customers, particularly those running on Linux-friendly databases like those form Oracle, and in-memory database pioneer SAP. TBR believes Microsoft has lost share in the database market due to prior Windows-only compatibility.

To capture this lost opportunity, Microsoft is offering a promotion to current Oracle Database customers where they receive a free SQL Server license for every instance of Oracle Database. The promotion includes free training for database administrators and subsidized deployment services until the end of June. However, customers are still responsible for purchasing any necessary hardware and a three-year Software Assurance license. This allows Microsoft to sill collect the lucrative maintenance streams despite giving the license away for free and quells customer concerns about migration costs.

Microsoft makes Windows 10 more enterprise-grade to spur upgrades
As part of its strategy to extend lifetime customer value, Microsoft wants to enterprises to upgrade to Windows 10, where it can then cross-sell additional services. Microsoft has added new features to make Windows 10 more enterprise-ready and further integrated with the Microsoft family of software and hardware. Upcoming features include those for security like Windows Hello, Microsoft Passport and Device Guard, and new interaction modes like Windows Ink. New security features bring multifactor authentication to Windows 10, including face and iris recognition, and mobile device recognition for managing multidevice business environments.
Windows Ink allows users to write notes on touchscreen devices like Surface, which Windows then interprets and sends to the right applications using Cortana. TBR sees this as particularly applicable for mobile workforces such as sales, where a sales rep could write down notes in a client meeting that can then be imported into Dynamics CRM or an Outlook calendar.

Microsoft squares up against IBM with new cognitive developer services
At Build 2016 Microsoft announced new cognitive capabilities that will enable developers to build natural communication bots and cognitive services into their applications. Bot Framework, which is currently in preview, has three services: Bot Builder, an SDK for creating applications with conversational user interfaces (bots) that can interpret natural language text or voice queries; Bot Connector for integrating bots with applications or other bots; and Bot Directory a catalog of prebuilt bots. Bots can be integrated with Office, enabling users to more naturally communicate with their email, for example.
In addition, Microsoft also announced Cognitive Services on Azure, a set of APIs for voice, vision, language, knowledge and search. Developers can leverage these APIs to build a new type of application, increasing the value of Azure and aligning the platform’s capabilities closer to that of IBM’s and its Watson APIs for Bluemix.

Improving cloud security helps Microsoft quell enterprises’ top cloud concern

While Microsoft has always provided security around its core ecosystem, the company is branching out to protect its customers’ entire hybrid environments, even if those include infrastructure, mobile devices and services from competing vendors. TBR believes this is a natural next step in Microsoft’s cloud strategy as it has the tools to manage organizations IT environments with Operations Management Suite, and has invested and formed partnerships around interoperability with competitors’ cloud solutions. Cloud App Security, launched in April, addresses the issue of shadow IT that many organizations face, where employees adopt cloud applications in their organization without having permission from IT. Cloud App Security, based on technology acquired from Adallom, enables IT admins to detect, monitor and control usage of unsanctioned cloud applications in their IT enviroments.

(c) TBR