SWOT: Microsoft, Windows Embedded Operating Systems, Worldwide

8 November 2013 ID:G00253088
Analyst(s): Alfonso Velosa

VIEW SUMMARY

Microsoft Windows Embedded business sells operating systems for embedded electronics, utilizing its intelligent systems initiative to help clients leverage the data traffic on the Internet of Things. It faces stiff competition from a range of vendors in a rapidly evolving market.

Table of Contents

Analysis

SWOT Analysis

This SWOT analysis reviews the strengths, weaknesses, opportunities and threats for Microsoft's Windows Embedded business (WEB). This business unit at Microsoft was chosen for this analysis because of its critical technologies and business for the Internet of Things (IoT). (Please note that operational technologies [OT] is a subset of this — see Note 1 for definitions.) This includes:

  • Its strong position in operating systems for embedded electronics including OT, medical, consumer and other electronics.
  • Its "Intelligent Systems" initiative that provides database, authentication, analytical and visualization capabilities for the data from the IoT and OT.
  • Its extensive work developing vertical industry solutions for markets incorporating automotive, retail, manufacturing and other industries.

Figure 1 is a graphical proportionate representation of the SWOT characteristics of Microsoft's Windows Embedded business group in relation to one another. This comparative representation of the SWOT analysis for Microsoft Windows Embedded business group adds relative weightings to each of the SWOT elements as part of producing the graphical results.

Figure 1. Graphical Representation of SWOT for Microsoft Windows Embedded Business, Worldwide
Figure 1.Graphical Representation of SWOT for Microsoft Windows Embedded Business, Worldwide

Source: Gartner (November 2013)

Figure 2 provides a list of Microsoft Windows Embedded business unit's key strengths, weaknesses, opportunities and threats.

Figure 2. SWOT for Microsoft Windows Embedded Business, Worldwide
Figure 2.SWOT for Microsoft Windows Embedded Business, Worldwide

IoT = Internet of Things

Source: Gartner (November 2013)

Strengths

Broad Windows-Related OS Portfolio

Microsoft has a portfolio of operating systems that it offers to customers to drive revenue in key embedded and/or IoT and OT markets. These operating systems scale to fit the hardware capabilities of the equipment it is in, such as small, limited capability sensors, mobile systems or large systems that are connected to the electric grid. This portfolio of OS takes into account semiconductor limitations, such as memory, computing processing power and energy consumption. These operating systems include:

  • .NET Micro Framework
  • Windows Embedded Compact 2013
  • Windows Embedded Automotive 7
  • Windows Embedded 8 Handheld
  • Windows Embedded 8 Standard
  • Windows Embedded 8.1 Industry
  • Windows Embedded 8.1 Pro

Note that only .NET Micro Framework operates on microcontrollers with a limited amount of memory; the other operating systems require more sophisticated processors and, therefore, more memory.

These operating systems allow the company to compete and partner in IoT vertical markets, such as automotive, retail or manufacturing. They also leverage Microsoft's core development tools such as C#, Visual Basic .NET and Microsoft Visual Studio. This means that Microsoft's customers have access to an extremely large base of developers (worldwide) that already have extensive familiarity and certifications using its common development tools.

Software Stack for the Internet of Things

Microsoft's WEB group can extend the power of its operating systems by leveraging its portfolio of server and cloud solutions to fuel Microsoft's services approach for the IoT and to provide analysis and visualization of the data traffic from the IoT. Microsoft's complementary capabilities include its SQL Server, System Center, Windows Azure platform, Forefront Client Security, SharePoint Server, among others. The integration of these capabilities with Microsoft's embedded operating systems and vertical market offerings enable it to provide its own internally-developed and upgraded structured stack of offerings for the Internet of Things, that are currently proving difficult for its competitors to match.

However, competition is very hot in this market, with several organizations investing in this space. These range from the megavendor Oracle and its integrated stack, from devices to the cloud, to startups focused on the middleware space such as ThingWorx, Electric Imp or Arrayent (that have cloud platforms for analysis and visualization).

Strong Vertical Market Experience

Microsoft has two significant advantages in the Internet of Things for vertical markets.

  1. Its "Intelligent Systems" initiative
  2. Its vertical development and sales teams.

The integration of the OS and its analysis, cloud and security stack, and management of the IoT, forms the foundation for its evolving intelligent systems initiative that provides the core analytical and visualization service for the enterprise or the consumer. This is an essential starting point for its customers to be able to extract data and information from their IoT deployments and integrate them into their core IT systems. The WEB team has been developing intelligent systems further, with a focus on use cases. It has a core set of vertical market offerings based on this — targeted toward markets such as automotive, retail and manufacturing.

Microsoft WEB has also been able to leverage its overall corporate vertical market experience and its extensive global sales force for existing vertical market intellectual property (IP) to reach customers. The WEB team has worked with other teams to develop R&D and solutions that are adapted toward key use cases in vertical markets, such as smart cities' building infrastructure and transportation. It has also leveraged its global sales footprint, so that its sales force can reach customers in key vertical markets on a regional and country-by-country basis.

Extensive Ecosystem and Partners

The Microsoft WEB team can leverage both its own and the corporate ecosystem that Microsoft has with semiconductor companies, such as Intel on the embedded device side; and system integrators and value-added resellers like Aricent Group, Hitachi, NCR and Dell Wyse for electronic equipment and vertical markets.

Over the years, the WEB team has developed its own extensive relationships with a broad range of firms, such as Continental Automotive Group, Kia Motors and Kuka Robotics. It has even been able to highlight its automotive solutions and public cobranding with Ford on the Ford Sync offering. Also worthwhile noting is that the company already has a pervasive presence in OT equipment with its Windows offerings.

Weaknesses

Limited Presence in Microcontroller-Based Things

Microsoft's core weakness regarding the Internet of Things is that it has a limited portfolio of offerings and presence in "simple consumer and industrial things." To clarify, by "simple things," we mean the electronic equipment that is managed using microcontroller units (MCUs), with their limited memory and processors. These simple things represent the majority of the IoT units (on a numerical basis) that are currently being deployed in the field. This represents two challenges/opportunities for Microsoft.

The first challenge/opportunity is to capture the operating system business options for these. However, Microsoft is late to work on operating systems for MCU-based systems. Many MCU-based simple things or overall IoT deployments either leverage some of the free open-source operating systems such as FreeRTOS, use proprietary systems from the semiconductor vendors, or very basic schedulers.

The second challenge/opportunity is that although Microsoft has its .NET micro-framework which leverages its extensive ecosystem; until recently, it has not yet invested significantly in it. Thus, it has yet to show any significant traction in the market. Microsoft's WEB management recognizes this as an issue, and is currently working to further develop not just its internal capabilities, but also to build out its ecosystem of partners so it can leverage MCU-based things.

Limited Focus for Simple, Consumerized IoT

The consumer side of the IoT is showing significant business activity, with a variety of companies investing in products such as wearable fitness monitors and medical monitors such as glucose meters. There is also increasing activity in toys, and sensors for plants and pets, for example. Companies ranging from Nike, Reebok, Samsung, Medtronic, Basis, and Fitbit have invested in these product markets.

These consumer IoT systems have limited software and computational needs, but their products feed big data systems. Many of these leverage the computing capabilities of the smartphone as their gateway to the data center or the Internet in general. Hence a robust consumer IoT strategy begins with a coherent approach that is not simply thinking about the hardware only, but also analyzing the application that the consumer will use on mobile consumer electronic equipment or the enterprise systems that it supports.

Microsoft's WEB team has not yet demonstrated an in-depth focus or execution in developing its business in this market space, especially for these low-cost consumer IoT devices. This is a gap for Microsoft's intelligent systems strategy, since many of the simple consumer IoT systems will eventually have holistic products and strategies that will compete in the more important and lucrative healthcare, retail, manufacturing and automotive segments.

Limited Cross-Microsoft IoT Strategy

Microsoft has yet to demonstrate extensive synergy with its other partner business units. Currently, there is very limited execution on a cross-Microsoft strategy for the Internet of Things that leverages the company's very extensive portfolio of capabilities. These capabilities include:

  • The extensive set of enterprise software capabilities.
  • The experience acquired from building the Windows Phone 8 and its related app ecosystem.
  • The vertical markets capabilities in other divisions and sales groups, such as the government infrastructure team.

The phone and app expertise will be particularly critical for the consumer IoT market.

The cross-Microsoft synergy has only recently started to be identified via the company's efforts in intelligent systems which aims to pull together all the different aspects of the Internet of Things to provide not just data, but actionable information and analytics from IoT data. However, this is still in the early stages and Microsoft needs to further refine its business model.

A key step was the reorganization in the fourth quarter of 2013, bringing the WEB team under the Operating Systems Group (OSG) division. This will help ensure that the team is aligned with Microsoft platform integration overall, while the WEB unit continues developing the supporting services.

Limited Brand Relevance to IoT Systems Buyers

While Microsoft's brand is very ubiquitous to consumers and IT system buyers, the IoT, particularly OT systems, tend to be the domain of the operational or engineering unit in most organizations. There may be some spill over benefits because of its strong brand and large company connotations. However, it will not have the same relevance for IoT system buyers, who are looking at specific operational functionality and rely more on brands that are most active in operations technology. For example, if an engineer specifies a mining truck, or a doctor requests an ultrasound machine, or a facilities manager orders an air conditioner, then the operational and functional aspects of the brand will be of primary consideration — rather than the suppliers of the embedded operating system or the analytics and visualization software.

Opportunities

"Glue" for Heterogeneous Infrastructure

IoT and OT systems exist in a heterogeneous world. Most hardware systems have been installed over a considerable length of time and OT life cycles may be up to 10 times longer than IT (even if they are serving similar functions — for example, building management systems). Any company with a large portfolio of buildings, hardware or systems will have a significant number of different brands, operating systems, data protocols, data historians, among other issues. This is made even more complex when companies grow via acquisition and therefore add even more diverse and heterogeneous systems. The majority of these different proprietary systems are unlikely to be able to communicate with each other.

To understand the portfolio of assets, enterprises have to optimize their usage. Most enterprises will need to leverage a mix of services and software. Services and consulting companies will be critical to audit their assets, and then put in place the appropriate middleware and related software to connect the systems appropriately to databases and to analytics and enterprise software.

Thus, this heterogeneous infrastructure demand simply highlights the need for solutions from Microsoft, Oracle, the open source communities, the standards organizations and others that can enforce a universal position, safely connecting portfolios of different things. It will also provide the foundation to connect to systems in the future and provide updates for functionality and security.

Most Global IoT OEMs Need Software Partners

Most OEMs developing products and systems based on operating systems have limited software developer teams and capabilities. Some exceptions would be the large OT vendors, like General Electric, Schneider Electric and Siemens, who do have large software development teams, of varying levels of sophistication. Furthermore — and with rare exceptions — the OEMs do not have sufficient expertise in security or in developing channels for functionality, software and security upgrades. The software channel partner is also increasingly important as many more hardware systems are connected to the Internet. This requires a well thought-out "device to the cloud" architectural perspective.

There is a strong technology and service provider (TSP) opportunity for companies like Microsoft to serve OEMs as a partner they can trust, not just for embedded operating systems, but also to whom they can turn to for architecture frameworks, software development and vertical solutions. This TSP opportunity will not be the domain of just one single company, but rather an ecosystem, where TSPs from semiconductor vendors, software companies and service providers leverage each other's capabilities to collectively deliver enhanced value.

The IoT Lacks Dominant Technology Brands

The Internet of Things is a not a single, coherent market (and never will be). At best, it can be described as a collection of very diverse niche markets that are still in development which share some common technology and communications aspects. Also no dominant technology brands have yet emerged that either OEMs or consumers trust.

There is an opportunity for at least a couple of ecosystems or consortia of technology companies, to establish portfolios of integrated offerings and aligned brands to reassure business units for end users, OEMs and even consumers, on the value and the capabilities of IoT devices.

We currently see some thought-leadership and marketing investments by major technology companies such as: Cisco Systems, General Electric, Microsoft, Oracle, Intel, ARM Holdings, IBM, AT&T, Telefónica and others, to drive the direction of the IoT. These investments are tied to branding efforts that align with the IoT. However, at the moment, no individual company or ecosystem has succeeded in establishing itself as the key information technology brand for IoT deployments. Given the complexity of the very diverse niche markets, it is rather unlikely that one ecosystem will dominate all niches.

Fragmented Competition

A corollary to the fact that the IoT is not a single market, but rather a collection of many subcategories only unified at the moment by a useful marketing term, is that many different companies contribute key business and technology aspects to some of the many functional aspects of the IoT. Thus, there is no monolithic ecosystem or company for Microsoft to have to compete with.

Since the IoT (by definition) works in a diverse range of operational markets, the most important aspect of the system may be its specific vertical capabilities and broad deployment prospects. For example, the most important aspect of a particular system may be the medical analysis functionality it has, or engine efficiency, or optimized heating and cooling. Therefore, for the IoT, the important companies are those that provide the key vertical functionality that the consumer or the enterprise requires, such as vehicle location services, or people calculations, or fitness monitoring, for example. This large number of vertical market apps are served by a significant amount of companies.

IT companies like Microsoft can leverage this IoT fragmentation (built on reproducible core solutions) promoting its operating systems and intelligent systems initiative to help firms shorten time-to-market; meanwhile leveraging a core technology partner with proven methodologies and technologies — as well as a large pool of certified developers.

Few Standards in the Market

Given the diversity of markets for the IoT and embedded electronic equipment in general, we encounter an environment with few standards. This presents an opportunity for enterprises like Microsoft to participate or increase its participation in a broad variety of the industry-specific and technology-focused standards organizations and the opportunity to influence development directions. Embedded electronic equipment markets are still nascent enough that Microsoft can assist the standards organizations, meanwhile helping itself at the same time.

Relevant standards bodies include (but are not limited to):

  • Eclipse Foundation
  • European Telecommunications Standards Institute (ETSI)
  • International Electrotechnical Commission (IEC)
  • International Telecommunication Union (ITU)
  • Internet Engineering Task Force (IETF)
  • IP for Smart Objects (IPSO) Alliance
  • OneM2M
  • Open Mobile Alliance (OMA)
  • Organization for the Advancement of Structured Information Standards (OASIS)

Threats

Strong Competition

Microsoft's WEB unit faces strong competition in the IoT for both its operating systems as well as its intelligent systems initiative.

OEMs focusing on markets such as embedded electronic equipment and the Internet of Things have a range of operating system options. This includes both pay and "free" open-source operating systems. Thus an OEM can work with a variety of operating systems that include both license fee-based systems, "free" systems, and systems bundled with their semiconductor chips.

On the license-fee software side, Oracle continues to invest in Java software even as it leverages Linux; meanwhile BlackBerry's QNX continues to have a strong presence in automotive markets. There have also been inconclusive media reports of Apple negotiating terms with OEMs in a variety of vertical markets.

Oracle in particular, not only has the most competitive software stack approach that rivals the breadth of Microsoft's intelligent systems initiative, but acquired Java and its high IoT functionality with its acquisition of Sun Microsystems. This allows it to treat a broad range of the elements of the IoT architecture. It can leverage its own middleware and software on 32-bit microcontrollers, gateways and data centers. Furthermore, it has been investing (along with a broad variety of hardware, software and services partners), in starting to develop its overall stack as the platform of choice for the IoT.

The competitive IoT pressure is exacerbated by:

  • The significant fraction of the IoT that is managed by microcontrollers. Most of the semiconductor companies with microcontroller solutions offer a broad set of operating system solutions that include free, licensed and proprietary operating systems, as well as vertical industry software and APIs that may integrate with Microsoft's competitors.
  • The fragmented nature of the IoT as a collection of vertical markets (such as automotive or fitness monitoring) provides opportunities for competitors that understand the specific niche markets and have relationships in place that prove critical for driving business.
  • The large number of startup firms focused on serving niche parts of the IoT, such as consumer electronics or the building services market, with their proprietary operating or data analysis platforms.
  • The significant level of intellectual property (IP) that ARM Holdings is developing for the IoT. While in general ARM Holdings is not a substantial competitor of Microsoft, it is collaborating extensively with competitive software companies such as Oracle. This includes the work invested in the mbed platform as well as the IP and standards contributions from its August 2013 Sensinode acquisition.
Movement of Functionality to the "Cloud" Devalues Complex Operating Systems

The increasing use of smartphones to connect to cloud-based data by consumers and enterprises, along with the cloud architecture approaches used by many companies targeting the IoT vertical markets have moved functionality away from the IoT device and toward their gateways and the cloud. This creates a feedback loop in a variety of markets that limits the value of a complex device-based operating system such as Windows Embedded 8 Standard or Windows Embedded 8 Handheld that requires a microprocessor or an application processor on board.

Instead, it emphasizes the flexibility of IoT devices, leveraging microcontrollers and small operating systems. This is further exacerbated by systems that have severe power and bill of materials (BOM) cost pressures and will lean toward the simplest, lowest complexity MCU-based designs.

A particularly noteworthy point of clarification for this threat is that while it threatens the OS business for Microsoft WEB, it still provides a business opportunity for its intelligent systems initiative.

Heterogeneous IoT Security Risks

Since the IoT is a heterogeneous environment, it therefore presents systemic security risks — especially for enterprises that have large fleets of "things" to protect, such as buildings, cars, manufacturing equipment, among many others. This means that we have a very broad mix of connected systems:

  • That are from multiple vendors
  • That use different operating systems
  • That have different ages and life cycle stages
  • That have different update or patch protocols, mean-time between failures (MTBF) and SLAs.

In connecting these systems together there are many interface gaps that present security vulnerabilities. It is likely that these security risks will be exploited in very public ways, affecting peoples' lives very dramatically. Some examples of this include a highly-publicized stalking homicide case via poorly-secured video security systems; or major performance breaches for a manufacturing or building system that is hacked; or financial losses from idle systems due to disruptions in the supply chain.

The negative impression from this may create a societal rejection of the "big brother" aspect of the IoT that precludes the benefits we could get from its widespread adoption. This could limit the market potential not just of Microsoft's embedded operating systems, but more importantly the rejection of intelligent systems, and any related data revenue that intelligent systems may bring.

Recommendations for Partners and/or Competitors

Microsoft has strong core competencies in both embedded operating systems and in the core building blocks for intelligent systems, such as authentication and database software. Furthermore, it has an extensive sales force focusing on key markets such as automotive and retail. Additionally, its OS and intelligent systems leverage the large number of its developers on a global basis that are certified in Microsoft's development environment and have experience with tools such as Microsoft Visual Studio.

Therefore, prospective partners need to consider Microsoft as one of the few technology partners that can bring a complete technology stack for the Internet of Things. Partners will have to push Microsoft to ensure they add specific vertical industry elements to Microsoft's intelligent systems stack. This will help the partners:

  • Optimize their own product's IoT architecture
  • Shorten their time-to-market for IoT products
  • Optimize Microsoft's data analysis solutions for the IoT
  • Leverage Microsoft's methodology and approach for functionality and security updates, and patches for the IoT.

Competitors can tackle Microsoft in a variety of ways:

  • By leveraging as close to a complete stack with a portfolio of OS, connectivity and enterprise software as possible. This effort is really reserved for megavendors such as Oracle, IBM or SAP.
  • Focus on adeptness to invest more in a key vertical market such as consumer IoT, automotive, city lighting, or elaborately transformed devices, based on their embedded solutions, in order to produce higher value in a select set of niche markets. (Many of the midsize and startup companies that offer their own IoT platform are taking this approach.)

Note that for many pragmatic companies, the best option is to present both competition and cooperation to Microsoft WEB. They will integrate their products with best-of-breed products from Microsoft or its competition as appropriate.

Implication for Company Being Profiled

Microsoft's WEB is a leader in embedded operating systems and for the nascent IoT, plus it is investing in developing its intelligent systems offering. It has a strong portfolio of technologies, products and customer relationships.

Given Microsoft WEB's strengths and history, the business unit has to continue to translate these strengths into sales success. While ensuring it continues to have access to the corporate entity's resources, it will need to continue to invest in its sales capabilities, obtain sales credit for intelligent systems-related sales of Windows Azure, Microsoft Dynamics CRM, SQL Server and other software that is sold as part of a greater intelligent systems solution. It also needs to maintain and grow its technology portfolio — particularly as the small, MCU-based part of the IoT continues to flourish.

Thus the main priority for WEB unit managers is to expand the company's sales of its embedded operating systems, meanwhile building its intelligent systems business. A key part of this will be to build the dedicated and matrixed sales force that drives this business unit. Microsoft will also need to address established competitors such as Oracle, while meeting the challenge — not just of creating a suite of free operating systems for small systems — but also the increasing number of startups offering platforms for niche vertical markets in the IoT.

Company Overview

Table 1. Key Facts: Microsoft Windows Embedded Business Unit

Microsoft

Information

Business

Windows Embedded business unit

Website

www.microsoft.com/windowsembedded

2012 Revenue

$72.9 billion

2012 Total operating profit before tax

$19.6 billion

2012 Research and development

$10.1 billion

2012 Server and Tools Division revenue

$19.3 billion

2012 Windows Division revenue

$18.9 billion

Source: Gartner (November 2013)

Historically, the WEB unit has been part of the Server and Tools Division. After a reorganization in October 2013, the unit is now repositioned as part of the OSG Division. Note that the revenue derived from the WEB unit is not detailed explicitly by Microsoft. Among the key milestones for the WEB unit is that over 5 million Ford vehicles now have the Ford Sync installed.

Its customers include:

  • Ford
  • Fiat
  • Kia Motors
  • Kuka Robotics
  • Areva
  • Giletta
  • Continental Automotive Group
  • Royal Caribbean International

Methodology

The provider analyzed in this SWOT, Microsoft's WEB, was selected as it is a leading supplier of both operating systems for embedded electronics and vendor for integrated software stacks for the Internet of Things. The Gartner Vendor SWOT analysis is designed for the use of providers as well as individuals in strategic planning, marketing and competitive analysis roles as a supplement to their planning processes. Its primary value is as an independent analysis of the provider's competitive situation.

The SWOT analysis provides a unique, independent view of the strengths, weaknesses, opportunities and threats for a specific part of a provider's business in a specific market and geography.

Evidence

The analysis and advice provided in this document is collated from regular reviews of the market, as well aggregated Gartner analyst experiences and ongoing interaction with end users, financial organizations, technology providers and policymakers. Additional data was used from industry association meetings.

Multiple sources of information were used to gain further insight on the subjects covered in this SWOT analysis:

  • Research discussions between Gartner analysts with expertise in the Internet of Things, covering the complete spectrum, from devices to big data.
  • Previous Gartner coverage and analysis of Microsoft's WEB in its many markets.
  • Conversations with industry participants and Gartner customers.
  • Conversations with Microsoft WEB unit management.
  • Microsoft corporate financial filings.

Note 1
Definitions

Gartner defines:

  • The Internet of Things (IoT) as the network of physical objects that contain embedded technology to communicate and sense or interact with their internal state or the external environment.
  • Operations Technology (OT) as the industrial subset of the IoT.
  • A smart city as an urbanized area where multiple sectors cooperate to achieve sustainable outcomes through the analysis of contextual real-time information shared among sector-specific information and OT systems.