Microsoft's epic challenge

It's make or break for Microsoft as it revamps its Office and Server products while launching new Windows Phone and the Surface. Steve Ballmer is right; 2012 is going to be epic for the software giant.

Last weekend in an interview with The Seattle Times, Steve Ballmer proclaimed this year to be the most epic in Microsoft’s history.

This is almost certainly true; to meet the challenges to its market dominance Microsoft is revamping its Office and Server products while launching new Windows Phone and Surface devices to counter the drift away from the personal computer platforms.

With so much on the line, this year’s Microsoft’s annual TechEd conferences were perhaps more important than ever before as the software giant moves to counter the multiple threats to its business

The conferences are held in various key markets around the world to showcase their latest products, announce upcoming releases and – probably most importantly – engage with their key business partners.

For Microsoft’s huge and diverse partner community of developers, service providers, resellers and customers TechEd is a critical event as it gives valuable insights into both the mechanics of the various product lines and Microsoft’s corporate strategies which most of their livelihoods depend upon.

Office 365, Windows Server 2012

With the move away from desktop and laptop computers to smartphones, tablets and cloud computing services Microsoft’s profitable server and office franchises have become less relevant in a rapidly evolving market place.

One of the most profitable segments of Microsoft’s business is their Server and Tools Division which last year posted a seven billion dollar profit on $18 billion in revenue, up 23 per cent in the last two years.

The stakes are high for Microsoft and one of the threats to their server lines is rival VMware so it was no surprise that Microsoft’s competing Hyper-V virtualisation technology was a focus of the Server 2012 launch.

Microsoft have a good story to tell about their cloud services as Hotmail, the free email service they bought at the end of 1997, has given them a deep understanding of running cloud systems and their boast is that their web services haven’t had an outage since they were moved onto Hyper-V four years ago.

The focus on the cloud during the Server 2012 launch is understandable as this is where the greatest immediate challenge to Microsoft’s revenue lies.

Along with integrating the cloud with their server products, Microsoft also showed off their Office 365 product which moves their incredibly successful office productivity suite onto the cloud.

In many ways this is good for Microsoft as they’ve tried to wean consumers away from software bundled with new computers and the resultant lumpy cash flow to subscription based services for over a decade.

Office 365 is a pretty smooth product and there are no real surprises for anyone used to using the current Office 2010 suite. Over time we can expect the cloud based service to overtake the traditional bundled and boxed products.

Windows Surface still MIA

While Office 365 looked good, the demonstration on a Samsung tablet computer also exposed one of Microsoft’s greatest risks – the Windows Surface tablet is still missing in action.

That the Windows Surface is still not appearing in any preview form so close to its official release date is a concern to Microsoft watchers and the failure to get both the Windows Pro or RT tablets into the marketplace before Christmas will be a great loss of face for Microsoft.

More importantly, the Windows Phone is still not making an appearance. A collective groan came from developers when it was announced during one session that the Software Development Kit (SDK) wouldn’t be made available at the TechEd.

Since then the Windows Phone software has been Released for Manufacture (RFM) by Microsoft but the absence of tools to develop apps on it will create a headache for the company’s partners.

TechEd’s halls of hands on labs and certification exam rooms show how Microsoft values the skills of their army of developers, partners and customers.

Maintaining the support of their army of advocates will be the greatest test of Microsoft’s management in the next few years. Delivering on the Surface and Windows Phone is going to be pivotal to that success.

Steve Ballmer is right; this year is going to be epic for Microsoft. Success or failure in any of their key markets will define the company’s future in an industry that’s rapidly evolving away from their traditional profit centres.