Here’s a quiz: which large US corporation calls itself a “devices and services” company?
b) General Electric
The answer is, surprisingly, the last. Microsoft, which everyone for years has simply known as a software company (because that is how it started and is overwhelmingly where it makes its money) has changed its self-image. Steve Ballmer, its chief executive, is remarkably upfront in his annual shareholders’ letter about how it has to abandon its roots – sorry, develop its strategy:
The full value of our software will be seen and felt in how people use devices and services at work and in their personal lives. This is a significant shift, both in what we do and how we see ourselves — as a devices and services company.
Something clearly has to change because Microsoft is still in the doldrums in terms of its appeal to shareholders. It has returned $10.7bn to them in dividends and stock buybacks this fiscal year, but has underperformed not only the main market but other technology companies.
Did I mention Apple, whose market capitalisation is more than twice Microsoft’s although their price/earnings ratios are about the same? Apple is simply making more money than its old nemesis.
Devices was the aspect of the business Microsoft used to ignore (with exceptions such as the Xbox) because it had lower margins than shrink-wrapped software. But Steve Jobs proved not only that devices could be profitable but that customers – especially retail customers – wanted an integrated product.
The question is how ambitious Mr Ballmer is to change Microsoft in the image of Apple, and in the process upset device manufacturers that depend on Windows. While insisting it is now a devices company, he adds:
We will continue to work with a vast ecosystem of partners to deliver a broad spectrum of Windows PCs, tablets and phones.
Something, surely, has to give.