Steve Ballmer: Microsoft's future is in making hardware, not just software

Microsoft CEO Steve Ballmer says that Microsoft will become a hardware company as well as a software company, telling the Seattle Times that within five to ten years Microsoft will be a "devices-and-services" enterprise.  So expect lots of more Microsoft-branded hardware such as Windows 8 Surface tablets -- and possibly Windows 8 smartphones after buying Nokia.

Ballmer made his statement during a wide-ranging interview. The interview was a typical mix of Ballmer bluster and insight. On the bluster front, Ballmer called 2012 the "most epic year" in Microsoft history because of the launch of Windows 8, explaining:

"You know, Windows 95 was certainly the biggest thing in the last 20 years until now. I think Windows 8 certainly surpasses it. It's a little hard to compare things like the founding (of the company) and the introduction of the first popular PC and the system that popularized it, but it's at that scale.

The most interesting part of the interview came at the end. He was asked what Microsoft will be like in five and ten years, and he responded:

"First of all, I'd say: pre-eminent technology company. I think that in a back-looking view, people would say we were a software company. That's kind of how we were born.

"I think when you look forward, our core capability will be software, (but) you'll probably think of us more as a devices-and-services company. Which is a little different. Software powers devices and software powers these cloud services, but it's a different form of delivery....

"Doesn't mean we have to make every device. I don't want you to leap to that conclusion. We'll have partners who make devices with our software in it and our services built in. ... We're going to be a leader at that."

Microsoft becoming more of a hardware company should not be a surprise. It's long dabbled in peripherals like keyboards and mice, and its Xbox 360 and Kinect have been big successes, and big money-makers as well. Also, there's no doubt that Ballmer has been eying Apple's spectacular success in selling hardware, and hoping that Microsoft can replicate some of that. In that light, Microsoft's Windows 8 Surface tablets can be seen as a test case for Microsoft, learning how to sell its own branded hardware while competing with its hardware partners.

I  think that Ballmer's statement makes it more likely that Microsoft might eventually buy the struggling Nokia. Nokia's credit rating has been downgraded to "junk" status, it's losing market share at an alarming rate, and its stock has been bumping along in the $2 to $3 range after having been up to more than $7 last November.

If the newest line of Windows 8 Lumias don't take off, it may well be the death knell for Nokia. Microsoft can't afford to have its biggest partner die off, and so I think that Microsoft would buy the company. That's an even more likely scenario now that Ballmer has said that a big part of Microsoft's future is as a hardware maker.

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