Vendor Rating: Microsoft
Microsoft is the world's largest software vendor, with offerings ranging from end user systems to development tools and platforms. As the market shifts toward Web-based applications, cloud computing and mobile devices, its once-dominant position is fading; however, it will remain a strong player.
Microsoft has been the most influential and dominant player in the technology industry for many years; however, it faces numerous challenges as the PC world dramatically changes. As the market embraces Web-based application models, cloud computing and a shift toward mobile devices, Microsoft's once-dominant market position is fading. It remains strong in the traditional desktop environments, but is currently a weak player in the rapidly growing mobile smartphone and tablet space. It has a strong presence in the data center and has aggressively embraced cloud computing, but faces significant competition from other cloud infrastructure and platform service providers.
On the application front, the Office desktop franchise remains largely intact, but its revenue stream is being pressured by lower-cost alternatives from Google that are gaining share. Perhaps the biggest challenge is to reinvigorate the independent software vendor (ISV) community to build innovative, leading-edge applications on Windows 8, Office and Azure. Microsoft is aggressively addressing the challenges, and we believe it will remain a strong player; however, it will not maintain the same market share it enjoyed in the PC world.
When introducing new platforms, Microsoft is increasingly constrained by its installed base. It is also challenged by disruptive new models, such as cloud computing and the shift to mobile phone and tablet devices — a world that Windows doesn't dominate.
Source: Gartner (August 2013)
Microsoft's core strategy is to build platforms and to develop an ecosystem of partners to build on and/or sell these platforms to consumers and enterprises. It has focused on software, while selectively incorporating hardware where necessary (e.g., Xbox). More recently, the focus has been extended to deliver its platforms as cloud services and integrated device experiences. Microsoft's platforms span OSs (client, server and cloud), middleware and applications. It is facing significant challenges — particularly from Google and Apple, as the market focus shifts toward mobile devices and cloud-based services.
Microsoft has an exceptionally strong balance sheet and operating metrics. It is one of the few enterprises whose generally accepted accounting principles (GAAP) reporting is essentially in-line with its pro-forma reporting — a testament to its diligence and transparency. Microsoft is cash rich, the bulk of which comes from years of continuing exceptional cash flow. Current assets stand at $89.6 billion versus current liabilities of $31.9 billion. Microsoft carries slightly more than $14 billion of debt, which is a prudent and astute move, given the low interest rate environment and Microsoft's exceptional credit rating.
Marketing at Microsoft is driven by three mottos: romance product truths, throw fewer pebbles and make bigger waves, and live and breathe the customer journey. The business units (BUs) drive the majority of the go-to-market activities, with a light touch from corporate in centralized programs such as brand, media buys and corporate communications. Marketing strategy and execution is driven from the product business groups that hold contribution margin goals and steer field marketing and engagement.
Microsoft has traditionally been an engineering and product-oriented company organized around five key business units:
- Servers and Tools
- Online Services
- Microsoft Business
- Entertainment and Devices
Historically, each division has focused on its market, with a loose connection to the others, driven primarily by cross-sell opportunities. More recently, there have been more signs of greater coordination among select groups, and a solution orientation is emerging from the enterprise products group. Organizational changes announced in July 2013 promise greater coordination across the company.
Although the percentage of OS-neutral applications continues to increase, most enterprises have enough critical native Windows applications to make Windows a critical infrastructure component for the foreseeable future. Windows 7 is a successful product; however, the traditional PC market is not growing as it once did, because users are increasingly relying on lighter, smaller tablets and smartphones. In response, Microsoft introduced Windows 8, reimagining the OS with a touch-centric user experience. Although this move positions the OS for the future, it alienated many Windows users with its new user experience. The "Windows RT" edition provides appliance-like reliability and long battery life, but market reaction has been mixed, with many buyers confused by the nuances of the product line. Microsoft also now competes with OEM partners with its own Surface brand hardware devices (see "Don't Let Windows RT Confusion Derail Your Windows 8 Plans,""Prepare Now for the End of Windows XP and Office 2003 Support in Less Than a Year" and "Custom Support Will Be Available for Windows XP at a Price").
Windows Phone 8 (WP8) shares the Windows 8 kernel, foretelling future consolidation of the Windows and Windows Phone platforms. With the addition of native encryption, Windows Phone becomes a viable enterprise option; however, the Windows Phone market share remains a distant third place (see "The Windows Phone 8 Is Acceptable for the Enterprise"). The application store contains 145,000 apps that will continue to stymie its adoption, relative to Apple and Android, which have more than 700,000 each. Fragmented announcements by Microsoft and its partners and a corporate focus on the Windows 8 and Surface launch have hampered WP8 growth in an exploding market.
Windows Embedded offerings are based on core Windows client technologies. Windows Embedded should be significant in markets such as ruggedized handhelds (see "Windows Embedded 8 Handheld Is the Future Choice for Ruggedized Handhelds"), industrial machines and automotive. More than 90% of Windows embedded sales are outside the handheld device space in the broader market to support the Internet of Things.
Microsoft's latest browsers are strong offerings that should stabilize its desktop browser market share. However, most enterprises are using older versions. The inability to run multiple versions of Internet Explorer (IE) leads many to multibrowser strategies with alternatives for advanced needs. Microsoft's support for HTML5 is broad, but support for various subsets is less aggressive than that of some of its competitors (see "Examining the Piece Parts of HTML5, a Multifaceted Initiative" and "Browser Vendors' HTML5 Strategies Are Not the Same"). This issue is of more importance in the mobile space, as open-source efforts derived from WebKit become more of a standardization vehicle. Moreover, mobile Web browsing is a fast-growing area in which Microsoft is almost nonexistent, due to its insignificant presence in mobile OSs.
The Xbox 360 game console and Live Marketplace are leading the U.S. console game market. Considerable investments have been made in the Xbox 360's nongaming content support — live and on-demand TV programming, movies and music. The objective is to make Xbox and Live the leading contenders in the race to be the dominant media hub solution for consumer living rooms. Kinect provides innovative gaming and unique content-navigation and consumption experiences. Recent announcements around the Xbox One introduction are aimed at supporting the company's attempts to more fully exploit Kinect's potential for use in a broader set of applications.
Windows Server has the largest share of the data center OS market and is growing its footprint. Users are generally satisfied that it delivers to expectations. Positioning Windows Server as a key element for building private cloud services and the increasing synergy with Azure support a hybrid cloud approach (see "Windows Server 2012 Will Provide Administrative and Operational Advantages" and "Time to Adjust Your Windows Server Migration Plans").
With better planned and unplanned downtime and high availability (HA), Hyper-V in Windows Server 2012 competes on feature function with market leader VMware. Hyper-V in Windows Server 2008 R2 was really only used for planned downtime and not HA, and this differentiation allowed VMware to maintain share. Microsoft has a price advantage, especially in price-sensitive verticals around the public sector. Hyper-V is gaining ground in some VMware legacy accounts with depreciated assets that are not progressing with ESX and consider virtualization part of the OS upgrade (see "IT Market Clock for Server Virtualization and Operating Environments" and "Magic Quadrant for x86 Server Virtualization Infrastructure").
Since 2005, SQL Server has matured as a database management system (DBMS) engine. SQL Server 2012 (GA in April 2012) is an enterprise DBMS capable of supporting mission-critical applications, including HA environments for online transaction processing (OLTP) and data warehousing. The latest version also includes xVelocity Column Store for in-memory analytics. Microsoft has a single pricing option for the DBMS, now core-based, with all features bundled. Also, clients report that SQL Server requires fewer technical resources to manage, compared with the other commercial DBMSs. Finally, Microsoft offers the Parallel Data Warehouse V2, a massively parallel processing (MPP) data warehouse appliance using SQL Server 2012 as a base (see "Magic Quadrant for Data Warehouse Database Management Systems").
System Center 2012 eliminated a la carte options, and Config Manager and Ops Manager have been significantly enhanced. Microsoft added some basic capability to support non-Microsoft platforms; however, supplemental products will often be needed for sophisticated heterogeneous environments. Microsoft's software assurance has been simplified, removing all a la carte options. As a buying vehicle, it offers a significantly different approach that gives the appearance of being free; however, in practice, some solutions require more staffing, customization and supplemental products — e.g., software change and configuration management (SCCM) and Microsoft's System Center Operations Manager (SCOM) system. Microsoft provides "good enough" management solutions at an attractive price point for mainly Microsoft environments (see"Magic Quadrant for Client Management Tools").
Microsoft's first-generation cloud management platform with System Center 2012 is made up of various mature solutions (e.g., SCCM and SCOM), as well as new functionality that ties all the system center tools together. The cloud suite provides base capability, which is likely to be good enough for Windows-centric buyers, but is not feature-rich and integrated enough for most multiplatform management environments. Microsoft offers basic integration between System Center and Azure for hybrid cloud. System Center 2012 has some promising capabilities. App Controller is an infrastructure provisioning portal front end to virtual machine manager (VMM), making service manager a full-service provisioning portal. Pairing operations manager's full five-dimensional APM support for .NET with a service center orchestrator (SCO) provides visibility and action-oriented workflow to the suite (see "Cloud Management Platform Vendor Landscape").
Windows Azure encompasses Microsoft's infrastructure as a service (IaaS) and platform as a service (PaaS) offerings (see "Market Trends: Platform as a Service, Worldwide, 2012-2016, 2H12 Update"). Thus far, usage has been greatest with ISVs and startups. Although half of the Fortune 500 is using some Azure services, much of the activity we have seen involves noncritical workloads. However, Azure's internal design and scope of functionality is improving and, increasingly, it will match the high-end requirements of enterprise IT organizations. Enterprise adoption was slowed by the lack of a simple "on ramp" for established applications. The recent addition of IaaS and increasing technical compatibility with on-premises equivalents via private clouds built with Windows Server and System Center and support, especially for migration of existing applications with a manageable amount of change, begin to address this gap.
Microsoft Office is one of Microsoft's most profitable products, with a dominant market share. Microsoft has done a good job keeping it from falling into commodity status by embracing the cloud with Office 365 and delivering a continuous stream of enhancements (see "Office 2013 Advances Office, but Should Not Divert Attention From Migrations Off Windows XP"). Nevertheless, the Office franchise is under attack, and Google is having some success selling Google Apps. After organizations move to Google's email, at least some users often try the lightweight Docs suite, which is included at no additional cost. Consumerization empowers end users who often don't run Office on emerging mobile devices. Google's QuickOffice gives it a foothold on mobile devices, while Microsoft is still notably absent on iPads with native applications, except for OneNote and Lync. Nonetheless, there have been relatively few complete defections from Office, and Microsoft can succeed on mobile platforms if it acts soon, although time is running short.
Office 365, Microsoft's "Office System in the Cloud" product, is a major Microsoft initiative (see "Microsoft Office 365 Finally Breaks Free From Its On-Premises Legacy" and "How to Evaluate Microsoft Office 365 Versus Google Apps for Business"). Many of the new features in the 2013 versions of Exchange, Lync, SharePoint and Office encourage customers to move to Office 365. This upgrade should be the last disruptive "forklift" refresh for the online service, with new features and bug fixes coming in a steady stream from now on. Microsoft has made impressive progress with its online offerings; however, some users report issues or concerns with the migration experience, future alignment with the on-premises product versions and integration of Yammer where its functionality overlaps with other Microsoft products (see "Users Share Problems With Office 365 Email Migration").
Microsoft continues to dominate the email market. The recently released Exchange 2013 includes capabilities for data loss prevention, e-discovery, integration with SharePoint and a new public folder architecture. Microsoft's only real rival for the enterprise email market is Google, which offers a low-cost suite of collaboration services via Google Apps for Business. The bulk of the migration to Exchange 2013 is likely to come from the Exchange 2003 and Exchange 2007 base, although some of those organizations will move directly to Exchange Online, the email component of Office 365 (see "Understanding the Microsoft Exchange Hosting Landscape").
SharePoint is a popular multifunctional platform for content management and collaboration. SharePoint 2013 enhancements include a less-cluttered user interface (UI), deep use of FAST search to increase overall ease of use, SkyDrive Pro for enterprise synchronization of content between devices, and better interaction with Windows, iOS and Android smartphones. However, the Yammer acquisition has added confusion for customers — it is the future of Microsoft's enterprise social strategy but uncertainty about how Yammer and SharePoint will align creates concerns. Uncertainty about release cycle parity between the on-premises and online versions of SharePoint is another issue (see "SharePoint 2013: Good Progress but Missed Opportunities").
Lync is Microsoft's UC offering for IM, presence, conferencing, voice and mobility with support for Android, iOS and Windows Phone clients (see "SWOT: Microsoft, Unified Communications as a Service, Worldwide"). It has strong user and channel mind share, abetted by integration across the Microsoft IT suite (see "Microsoft Lync 2013: Don't Base Upgrades on New Features Alone"). Most users now leverage Lync's voice capabilities, although only a limited portion has opted for full PBX replacement. Recent upgrades include simultaneous viewing of multiple video streams and voice-enabled mobility. There is also a cloud version branded as Lync Online, delivered with Office 365. However, the Lync Online functionality is less complete than the on-premises version. The Lync team is now part of the Skype group, which was acquired in 4Q11. Gartner expects the Lync and Skype clients to merge eventually (see "Magic Quadrant for Unified Communications").
Microsoft Dynamics AX has been boosted by strong product improvements in its AX 2012 release, making it an attractive solution for upper midmarket and lower enterprise customers (see "Key Takeaways From Early Adopters of Microsoft Dynamics AX 2012"). The AX partner channel lacks maturity and scale, plus global system integrators (SIs) have yet to build credible AX practices. GP and NAV are available as single-tenant cloud ERPs based on Azure, with AX to follow in its next major release; however, partners will be slow in adapting its business model. Each solution makes good use of Microsoft technology. Mobility features are burgeoning, while social ERP features are still rudimentary (see "Magic Quadrant for Single-Instance ERP for Product-Centric Mid-Market Companies").
A common data model and shared code between the on-premises and online versions of Dynamics CRM — and integration with other Microsoft products, such as SharePoint and Lync — are attractive to Microsoft offices. The usability of Dynamics CRM Online and the relatively low price are attractive for sales organizations, because Microsoft has focused on improving the functionality and intuitiveness of sales force automation (SFA) tools (see "Magic Quadrant for Sales Force Automation"). We do not see the same innovation in the customer service and support area (see "Magic Quadrant for CRM Web Customer Service Applications"), but it is successful where large and complex contact centers are not needed (see "Magic Quadrant for Contact Center Infrastructure, Worldwide"). Microsoft is expanding offerings in marketing automation and social for CRM via acquisitions (see "Magic Quadrant for Integrated Marketing Management" and "Magic Quadrant for Social CRM"), but it still lacks a full spectrum of CRM offerings. It also needs to improve the mix of complementary software and consulting partners.
Microsoft offers a competitive and expanding set of business intelligence (BI) and analytics capabilities (see "Magic Quadrant for Business Intelligence and Analytics Platforms"). Its packaging and pricing appeal to Microsoft developers, independent distributor channels and business users, through enhanced BI and data discovery capabilities in Excel 2013. The company's strategy has been to enhance the BI capabilities in three of its core offerings with each release, including Microsoft Office (specifically Excel), Microsoft SQL Server and Microsoft SharePoint, to increase their value and drive upgrades (see "Survey Analysis: Customers Rate Their BI Platform Vendors, 2012" and "User Survey: Customers Rate Their BI Platform Functionality, 2012"). However, Microsoft's tool-oriented approach, its lack of significant direct BI sales and slow upgrades to the latest release of Office limit Microsoft's BI growth potential.
Microsoft now includes enterprise search in its SharePoint offering, and, with the 2013 generation, it will no longer provide enterprise search via any other product. The technology remains strong and effective, but its increasingly tight relationship to SharePoint makes it much less attractive to enterprises seeking transformational business opportunities. Its interface essentially now resides within SharePoint (see "Magic Quadrant for Enterprise Search").
Microsoft's sale of its Atlas Solutions division to Facebook completes a long transition of its ad business from tools to media. Its ad portfolio remains diverse, but its focus is on promoting Windows 8 Ads in Apps and Search Advertising through the Yahoo Bing Network, which looks to colonize the mobile world. Microsoft's alliance-based advertising strategy often appears aimed at containing Google, but the business is on track to fortify its role by starting to deliver profits.
The application life cycle management (ALM) offerings have strong reach and moderate pricing. Microsoft is gaining market share, and recent releases are providing more wins in companies transitioning to Agile development or to Azure. It has a proven, scalable ALM architecture and solid development tools and is working to address challenges, particularly keeping up with the evolution of Microsoft's platforms, including the shifts driven by the emergence of cloud and mobile computing (see "Magic Quadrant for Application Life Cycle Management").
Microsoft is an engineering-focused company that makes significant investments in research. It demonstrates innovation at times (e.g., Kinect), but, most often it reacts to market shifts, such as cloud computing, rather than leading these disruptive transformations.
Microsoft's complex and changing license models, coupled with ambiguous contract use rights, continue to challenge its customers to license correctly (see "Research Spotlight: A Hybrid Approach to Microsoft's Volume Licensing Agreements Could Reduce Costs and Compliance Risks"). Increased conformity, in which consistency, simplicity and ease of compliance often take a back seat, combined with high-pressure sales tactics, has exacerbated the situation (see "Survival Guide to the Microsoft Compliance and Audit Jungle"). Inconsistency in license model and packaging changes across Microsoft's product groups add to the confusion. The addition of more stratified offerings for Office 365 makes selection challenging. In other areas, Microsoft has eliminated some choices (products, editions, etc.). This arguably simplifies licensing, but the result was increased costs for many customers. However, some clients have advised that Microsoft has been willing to work with them through these license model transitions.
Windows runs on more than 80% of the PCs and notebooks in the world, leaving PC hardware partners no viable alternative OS. As a result, Microsoft is in a strong position to dictate pricing and terms. However, Microsoft remains an outsider in the critical phone and tablet businesses.
Microsoft has one of the largest ISV communities in world, but its dominance has recently been challenged, especially from the likes of Google (Android), Apple (iOS) and salesforce.com (Force.com). The once vibrant ecosystem is facing pressure from the advent of cloud, mobility and bring your own device (BYOD) programs. The ISV/developer community is a disconnected ecosystem that's separate from the Microsoft Partner Network (MPN). This creates less-than-optimal cross-company leverage within the broader MPN partner community.
Microsoft has a vast global network of more than 600,000 channel partners generating more than 90% of its revenue. They participate in the MPN and exploit $4 billion in annual sales incentives and program dollars globally. Partners continue to have opportunities across Microsoft's entire portfolio, but will need to make some business model changes and investments. Microsoft needs programs to encourage this shift and to attract new, cloud-oriented partners.
Overall, Microsoft is developing support by shifting from selling support hours toward a focus on business outcomes for customers. Microsoft makes improvements to two proactive and prevention-based initiatives: Microsoft's System Center Advisor (SCA), which is now available to all customers, and Microsoft's Risk Assessment Programs (RAPs). The company is proactively taking these initiatives to its customers. Gartner's key criteria for success are widespread customer adoption and the addition of continuous monitoring. RAP is a one-time snapshot; SCA runs continuously. One disadvantage is that both tools require the customer to initiate their use. In the future, Microsoft will need to foster widespread customer adoption and evolution to continuous monitoring.
Headquarters: Redmond, Washington