Microsoft Shifts Enterprise Strategy, Following Profit News
In spite of a drop in operating income and profits, Microsoft watchers are calling the company's latest quarterly revenues "respectable." In the meantime, CEO Satya Nadella is talking about strategic changes underway, including changes in Microsoft's pricing for its core enterprise market.
"This quarter's results show the product and business transformation underway at Microsoft," said Nadella. "We saw success in a number of our strategic areas including cloud adoption, redefining and revitalizing the Windows ecosystem, and improving economics in our hardware portfolio."
Nadella added that the last quarter also presented some challenges. Among those, he said, was a slowdown in PC upgrades by former users of the Windows XP operating system. Microsoft's extended support for Windows XP ended in April, setting off a temporary spike in PC sales.
CFO Amy Hood added that last-quarter sales in China and Japan also fell short of expectations, with the ongoing weak economy to blame for Japan's performance. The weak PC market there, Hood said, also contributed to weaker revenues from Microsoft Office applications.
New Per-User Enterprise Licensing
Going forward, one part of Microsoft's ongoing transformation efforts will apparently include a new subscription plan offering for Windows Enterprise through its Enterprise Cloud Suite. Rather than charging enterprise users a per-device licensing fee, which has long been Microsoft's model, the new service will provide access to the Enterprise suite on a per-user basis.
News reports about the subscription service, which began emerging late last week, said Microsoft had confirmed the Enterprise suite would be available at a cost of $7 to $12 per user per month.
The new pricing model appears to indicate that Microsoft realizes the need to reinvent how it generates revenues from its Windows operating system. Growth in revenues from Windows volume licensing is slowing down, with the latest quarterly report showing an increase of just 3 percent. Commercial cloud revenues, on the other hand, increased by 114 percent during that same period.
"Last spring, we made a strategic decision to introduce new Windows pricing programs to drive unit growth in opening price point [meaning low-cost] PCs, as well as in tablets, and this quarter, we saw year over year growth," Nadella said, adding however that Windows for business has faced some challenges.
Microsoft is pinning a lot of hope for resolving such challenges on its soon-to-be-released operating system, Windows 10, which is being developed especially with business and mobile users in mind.
Overall, for the quarter ending on Dec. 31, 2014, the Redmond, Washington-based firm reported improvement in Surface Pro 3 tablet sales, commercial cloud revenues and Bing advertising earnings, while it saw declines in revenues for Office Commercial products and Windows OEM Pro.
Second-quarter revenues totaled $26.5 billion, compared to $24.5 billion in the same period in 2013, while operating income came to $7.8 billion, a 2 percent decline from the previous year.
The income drop was attributed to price cuts Microsoft made last year to some versions of Windows and to its Xbox One game console. The pre-holiday discounting for Xbox One helped boost sales over its main competitor, Sony's PlayStation 4, in the U.S.