REDMOND, Wash. -- Microsoft's army of product "evangelists" has long preached the
benefits of a Windows-centric universe.
They still do. But something slightly blasphemous has started to take root at the world's largest software maker. The company's latest, coolest products actually work seamlessly on Apple and Google Android products.
"Microsoft is allowing interoperability between competitors, something they've been vehemently opposed to in the past," says Aamir Shah, a business manager for En Pointe Technologies, a Los Angeles-based reseller of Microsoft products.
Indomitable forces are at work. Global sales of PCs fell 14% in the first quarter of 2013, the deepest plunge since research firm IDC began tracking PC shipments in 1994, as consumers and businesses flocked to smartphones and touch tablets. Beleaguered Microsoft CEO Steve Ballmer remains obsessed with maintaining the Windows PC operating system and Office suite of productivity programs as cornerstones of computing.
But to do so, Microsoft, which reports its fiscal third-quarter earnings on Thursday, must demonstrate that it knows how to play well on the wildly popular mobile devices sold by rivals Google and Apple. "Microsoft is a superpower in the technology business," observes Karl Volkman, chief technology officer of SRV Network. "Superpowers first try to beat the others, and when that becomes difficult, they turn to alliances."
Take Bing, Microsoft's try-harder search engine, and its Xbox gaming and entertainment system, for instance. Both have been optimized to work well on Apple's and Google's mobile device platforms.
In fact, Bing trumps Google in touch-accessed services designed expressly to help iPhone and iPad die-hards have cooler experiences shopping and finding restaurants online.
"The guys and gals who build Bing apps for iOS really understand Apple's platform and what Bing can bring to it," says Wes Miller, tech industry analyst at independent research firm Directions on Microsoft.
Meanwhile, Xbox, Kinect and Xbox Live continue to emerge as a rich hub for games, sports, movies and TV shows that can be accessed via touch and voice controls. And these controls are being increasingly integrated into all manner of screens: HDTVs, smartphones and tablets.
"Two years ago, very few services connected," says Frank X. Shaw, Microsoft's vice president for corporate communications. "Now if you have an Xbox, you can see Bing, access SkyDrive (cloud storage) and use your Windows Phone to have a better experience, because the services are shared."
Even more crucial, Office 365, the latest iteration of Microsoft Office, has undergone a profound shift in how it is being sold. This is a momentous, if complicated, move that hasn't received much media notoriety, in no small part because Microsoft executives and product managers have a difficult time explaining company strategy in simple terms.
"There's been some confusion about what Office 365 is," observes David Smith, vice president and fellow at Gartner Research. "It is meant primarily to compete with Google Apps and Google Docs. But what most people don't realize is they get actual licensed copies of the full Office desktop suite. That's a pretty compelling thing."
As part of this shift, Microsoft on Feb. 27 made Office 365 available for MacBooks and Mac OS desktop PCs. Office for Macs has been available for years. But Office 365 for Mac is a horse of another color: It's a hybrid offering that's delivered through the Internet cloud, but also can be downloaded like traditional software.
Here's what it boils down to: Microsoft has sold hundreds of millions of copies of old-school Office in one shrink-wrapped box -- and one license per business customer machine -- at a time.
Office has helped Microsoft reap billions in pure profit in the past two decades. It is one of Microsoft's three pillars of strength -- along with Windows PCs and Windows servers and tools. Together, those cash cows drove revenue in Microsoft's latest fiscal year, ended June 30, to a record $73.7 billion and pushed net income to $17.0 billion. Reaping 70% or better profit margins for software, Microsoft has salted away $62.3 billion in cash and short-term investments.
Office 365 home users' version includes Word, Excel, PowerPoint, Outlook, OneNote, Publisher and Access. The fully loaded business version adds in Exchange Online for e-mail and calendars, SharePoint Online for document sharing and websites, Lync Online for Web conferencing and instant messaging and a few IT tools.
Microsoft's problem: Consumers and corporate customers are increasingly balking at anteing up for yet another Office upgrade, when the suite they bought a few years ago works just fine. And some longtime corporate customers have begun dumping Office for cloud-delivered Google Apps and Google Docs, which are optimized for mobile devices and sold on a per-seat, subscription basis.
In response, Microsoft began selling Office 365 as a cloud subscription service in mid-2011. On Feb. 27, it rolled out a new premium subscription for businesses. Customers pay Microsoft an annual subscription ranging from $4 to $20 for each user, depending on the bells and whistles.
Each subscriber gets to use Office Web Apps. This is a scaled-down, cloud-delivered version of Word, PowerPoint and Excel accessible via any model of PC, smartphone or touch tablet -- or even an HDTV or gaming console -- as long as the device has Internet access and a browser. The big bonus: Each subscriber is also allowed to download five copies of the full Office suite onto the hard drives of any combination of desktop PCs or laptops running Windows 7 or Windows 8, or Mac OS X 10.6 or later.
"The transition of Office to the cloud is a pivotal moment in the history of the product," says Al Hilwa, applications development software analyst at market researcher IDC. "Microsoft has significant assets to bring into its subscriptions for consumers; they need to experiment more aggressively at bringing these together."
At the moment, happy Office 365 business users include City of Chicago, Toyota, JetBlue and Campbell Soup. Small businesses apparently like it, too: More than 90% of Office 365 business users have fewer than 50 employees. "Office 365 is already on track to be one of the fastest-growing products in Microsoft's history and has seen broad global adoption," says Microsoft's Shaw.
Until Microsoft unveiled Office 365, Andrew Lemert, information technology director at the Towbes Group, a Santa Barbara, Calif.-based real estate development group with 100 employees, says he was concerned the company had lost touch with its business customers. "The old pay-per-software license model just was not working anymore," he says. "The installation and maintenance of the previous Office suite was costly and time consuming."
With consulting help from Microsoft reseller En Pointe Technologies, Lemert was able to navigate Microsoft's complex subscription and licensing schemes and come up with an Office 365 services contract that made sense. "I definitely recommend using a partner like En Pointe, because it can get a little confusing, and you need help guiding you to the right product and services," he says.
The real estate company now pays for full Office 365 subscriptions for 60 office staffers, enabling each to install the full Office suite on any combination of five Windows or Mac OS laptops or desktop PCs. Those employees can also access the scaled-down, browser-enabled version of Office on any make and model of smartphone or touch tablet.
For 40 employees who work mostly in the field, Lemert purchased cheaper subscriptions of the scaled-down versions of Office optimized for browser use. "The addition of Office 365 compatibility with Mac came as welcome news," Lemert says.
There likely will be more such news to come from Redmond. Remember the $8.5 billion Microsoft plunked down to acquire Skype?
The software giant is in the process of integrating the pervasively used Internet phone service into Lync, its instant-messaging and videoconferencing tool for big business customers. Someday soon it could become routine for small-business owners to use Skype to tie into video meetings conducted by a larger partner using the more expensive Lync tool, says En Pointe's Shah.
"The company is becoming more platform agnostic," says tech analyst Miller. "The reality is, it's a mix-and-match world, and they're recognizing the fact that people are coming in with different types of devices."
Microsoft's top brass is even optimistic that rising uptake of Office 365 subscriptions could help breathe life into global sales of the Surface touch tablet -- Microsoft's late-to-market answer to the iPad-aawhich has not exactly set the world on fire since its launch last fall.
At the moment, iPads can run only the scaled-down, browser-enabled version of Word, Excel and PowerPoint, while the full-fledged Office suite can be downloaded to Surface.
"The combination of a great Office with a new form factor, coupled with a great operating system in Windows 8, will drive demand for those devices," predicts Kurt DelBene, president of Microsoft's Office division.
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