Opinion by Preston Gralla

2015 is make or break for Microsoft

It could have a really good year with Windows, Office and the cloud and still find itself much less relevant because of its lackluster mobile performance

Opinion by Preston Gralla

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This year we are finally going to get an answer to one of the big questions in the technology world. For years, people have been debating whether Microsoft will retain its position as one of the world’s dominant tech companies or steadily become less relevant.

Please note that no one is talking about the death of Microsoft. No matter what happens, it’s going to remain a big company that reliably brings in big revenue. What’s up in the air is its ability to sustain growth and define the future of computing.

But 2015 should tell us what kind of company Microsoft is going to be for the rest of this decade and beyond.

Microsoft’s future is tied to Windows, Office, the cloud and mobile. Unfortunately for the company, it could do very well in three of those areas and still wind up a much less influential force if it fails in a big way in the fourth area. And that could well be how it plays out.

This year, Microsoft is due to release major upgrades to Windows and Office. By all accounts, Windows 8 has been an unmitigated disaster for Microsoft. It was designed for tablets and mobile devices, not traditional PCs, but it nonetheless was the only operating system available for desktop machines. The company seemed to have been hoping that people would get used to the touch-friendly interface on their desktops and laptops and would then be eager to switch to Windows Phone. That didn’t happen. Instead, consumers were so confused by Windows 8 that they stayed away from it in droves.

This year (the expected release date is late 2015) Microsoft will seek to make up for that huge misstep by releasing Windows 10. (For some reason the company seems to be mathematically challenged and is skipping Windows 9.) The reception of Windows 10 will determine whether Windows can remain a big profit driver.

Jan Dawson, an analyst at Jackdaw Research, wrote on his Tech.pinions site (fee or registration required), “The single greatest test [in 2015] may be whether Microsoft can successfully charge large amounts of money for a new operating system to consumers and still see significant uptake.”

Microsoft will also release a new version of Office in 2015. The measure of its success won’t be the number of people who buy Office the traditional way, but instead how many jump for an annual subscription. Office continues to be a runaway success, and if Microsoft can move people from a pay-for-it-once to a subscription model, it will lock in a sizable, steady stream of revenue.

If Windows 10 and the new Office do well, Microsoft will do well. But desktop operating systems and productivity suites no longer have the sizzle that can make Microsoft a really relevant and influential company. For that reason, mobile and the cloud are much more important for it.

As for the cloud. Microsoft CEO Satya Nadella estimates that Microsoft reaped more than $4 billion in cloud-based revenue in 2014, and that’s expected to grow in 2015. Microsoft’s latest earnings report, in late October, showed a 128% year-over-year growth in its commercial cloud offerings, including Azure and Office 365 for Business. (The home version of the subscription-based Office 365 was up 25% over the previous quarter.)

The problem child for Microsoft is mobile. Windows Phone was released in late November 2010, and more than four years later, after billions of dollars spent, including the purchase of Nokia’s phone and tablet business for more than $7 billion, Windows Phone will have only a 2.7% worldwide market share by the end of 2014, according to IDC. And that share is heading in the wrong direction, being down from a 3.3% worldwide market share in 2013. Windows tablets have fared only slightly better, with an expected 4.6% market share by year’s end.

If Microsoft can’t succeed in mobile this year, its heyday of industry influence will be over. Selling Windows and Office will eventually be more akin to a utility business than a technology business, something tried and true that everyone needs but no one pays much attention to. Success in the cloud would keep Microsoft somewhat more relevant. But if Microsoft can’t break through in mobile this year, it’s not likely to ever happen: If it can’t make it after five years, it never will.

What I expect is that Microsoft will have a very good year in 2015, but it won’t be good enough. It will succeed with its new versions of Windows and Office, and it will see a lot of growth in the cloud. But Windows Phone will go nowhere (though Windows tablets might get a little bit of a bump because of dual-use devices such as the Surface). But to a great extent, Microsoft will likely be locked out of the mobile future, and the company’s influence will continue to wane.

Copyright © 2015 IDG Communications, Inc.

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