Now it is important to remember where MS came from as it plays into what is going on now. Under Steve Ballmer Microsoft is trying to do the same thing that they were able to pull off when Bill Gates was in charge. The problem is that they are trying to do it the wrong way round. Remember that Microsoft managed to get into prominence because their products were what everyone was using at work and school. This was the core of where we used computers and devices, our home computers were extensions of the ones we used at work and often were low powered versions of our work or school systems.

Not that long ago the market shifted. Now it is not uncommon for the average consumer to have a computer and even internet connection significantly faster than what they use at work. They are also statistically likely to have a gaming console (for their kids) and multiple mobile devices (tablets and/or smartphones). As time passes the percentage of consoles and mobile products grows leading us to more and more cloud services (despite their inherent issues) with each successive generation moving more and more in that direction. When I was younger the gaming console was for simple games, if you wanted to do any hardcore gaming you went to the PC for better graphics, AI, larger game worlds etc. Now that Consoles are stripped down PCs the lines are very blurred and we see the market buying into the experience and low cost to own and maintain them. The same can be said for smartphones and tablets. They are relatively inexpensive entertainment devices which can fulfill a wide variety of usage models including limited productivity.

This is a dramatic shift in technology focus in a very short time. We went from the enterprise driving innovation in the consumer market to just the opposite for most items. This triggered something in the way Steve Ballmer remembered how Microsoft worked in the past.  If you market to the segment that drives innovation and purchases to gain success then Microsoft needed to change their focus from the enterprise to the consumer. To back up this through process they watched as Apple changed their focus and marketing and grew dramatically. However, Microsoft had almost completely gotten out of the mobile business. Windows Mobile was already second fiddle to RIM in the enterprise was dying in the consumer market after the launch of the iPhone. To try and rebrand it Win Mo became Windows Phone, but Microsoft still could not gain a solid foot hold in the market. For a while it looked like anything that tried that was not directly related to the enterprise, Xbox or Windows for consumer was destined to fail right out of the gate. The Zune, ZuneHD and Kin were all commercial failures for reasons that are too numerous to list here. The Xbox and their peripheral divisions did well, but not enough to truly put them in the “hardware” business.

Acting on what had made Microsoft a success in the past, but altering their target for current trends Steve Ballmer and company set about reinventing Microsoft. Microsoft saw that mobile data usage was sky rocketing. More and more people were using their phones for browsing, email, gaming, applications, you name it they were doing it on their phones thanks to Apple’s redesign of the smartphone. Sadly Microsoft did not have a foothold in the mobile market, but they did have a pal over at Nokia. They signed a deal to help them out if they agreed to be Microsoft’s hardware arm for mobile phones. This would be the root of their new eco system. All they needed to do was create the remaining hardware, software and services to flesh it out.

The next item on the list was building a tablet that could bridge the gap from companion device to PC. Microsoft had always been interested in building a tablet and had them in the market going back to 2004 and had limited commercial success with different tablets/convertibles long before Apple and Google pushed their products out the door. However the tablet concept from 2004 would not be enough in the current market, that standard would not be able to compete with devices like the iPad, Asus Transformer, Samsung Tab and all of the others. Microsoft needed to build something different, yet close enough to the existing market standard that consumers would want to buy it. They looked at designs from multiple partners and then decided on a design from Pegatron the manufacturing arm of Asus. So they had a hardware concept and knew they wanted it to work like their phones did (remember they are building to the market driver). So they redesigned Windows 8 to look like Windows Phone.

In Steve Ballmer’s mind the phone was driving the market and not the enterprise. Like the Microsoft of the past they wanted to build a common experience across all of their platforms, but now they were building from the mobile experience. This was Microsoft’s error; they did not have a market leading mobile OS.  Windows Phone was a fraction of what Android and iOS were (and are). At least using Android or iOS you stick to a familiar concept of icons, windows and programs. Microsoft built off of a UI that had critical acclaim, but had been rejected by the consumer and the enterprise. Instead companies were buying into new Android or iOS products for their mobile needs. Mobile data usage is still on the rise, but it is not because of Microsoft systems, it is Android that is now leading the charge with its familiar icons.

Microsoft’s new interface failed to impress the consumer and the enterprise. To compete you need one or the other and they had neither. Still Ballmer was not out of tricks so no one was concerned just yet. They were working on the next Xbox to rule the living room and it would be based off of the same operating systems that Microsoft was still hoping would worm their way into the consumer and enterprise’s heart.

Before we get into the Xbox One part of the story let’s take a step back and look at a part that was going on in the background. As we mentioned mobile data was growing exponentially, Microsoft used this as a core motivator for their new eco system so it was well known. Steve Ballmer was not happy with just getting the hardware and OS sales from this market shift. He wanted a continued revenue stream and wanted mobile data to be part of it. To accomplish this he set to turning the Azure platform into the core of their cloud based services. Azure would power their next generation of cloud Office suite, gaming, storage, music, video and many other services. These would be a central part of Windows for the PC, Windows for Mobile, AND Windows for the Xbox. On top of this Microsoft would work on extending these services to other platforms including their rivals Google and Apple. This would be the money maker and what would help keep the lights on at Microsoft in the future. Microsoft even changed their licensing agreements to make their cloud services more attractive for small to medium sized businesses (if they can price ownership out of their range they might move to the cloud). As anyone that has looked over the new licensing terms for Office, SQL and even Windows can tell you Microsoft wants to get away from letting you own your own software. Microsoft’s new server products are design to connect into their cloud services to make the transition easier for you. Looking inside Exchange 2013, Server 2012, Lync 2013 and others you can see this shift. It is a clever plan, but based on conversations with other corporate IT directors and managers it is also one that is annoying many and stands a large chance of backfiring.

Getting back to the Xbox One, Microsoft showed their hand a little early in the game. By stepping out of the gate with an always on requirement and restricting the transfer of games they gave their intentions away. The new push was to get hardware into the home that was dependent on the cloud and Microsoft services. The Xbox One would be the core of the living room and home while Windows Phone would drive the PC and hopefully the enterprise (with the Bring Your Own Device movement). Their ecosystem and plan was complete they had everything out and ready for the consumer to buy it up… Which is where things sort of fell apart. As we mentioned the Windows UI was not popular with consumers, it was too drastic of a change for many. In the enterprise the new server operating systems and applications cumbersome and chaotic when you configure and manage them. Even the Xbox was getting backlash from the gamers due to the initial restrictions (and to Microsoft’s reaction to consumer feedback). Microsoft now finds themselves in a very awkward position, they are fighting a war on four fronts. In the past even if they had a failure in the consumer market (like Vista) they had the Xbox and the Enterprise to fall back on. Now they have problems in the mobile, consumer, gamer, and enterprise markets where their typical customers are not happy with the product and feel their complaints are not being heard.

Microsoft needs to remember that all four of these markets are very different and have their own set of requirements to compete in them. Ballmer tried to make the jump from a software company to a hardware and services one and missed the mark badly. Now they are trying to pick themselves up while others are rushing in. They (Microsoft) need to stop trying to make a “one size fits all” product and get back to clearly defining their market space. Failing to do this will lead them to more problems and to further alienate the market. It will open doors to the competition including groups like Canonical who have been waiting for this chance.

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