Microsoft doesn’t need Windows anymore

Windows now accounts for a mere 10% of the company’s revenue. You might not have seen this coming, but Microsoft did.

When you think of Microsoft, what product first comes to mind? Windows, you say? How quaint.

Yes, you’re probably reading this on a Windows-based PC, but Windows itself matters less and less to Microsoft. Ed Bott recently broke down Microsoft’s latest 10-Q, its quarterly report to the Securities and Exchange Commission. What he found out about how Microsoft is making money these days is very interesting.

Do you think that Windows is number one in bringing in the cash? It’s a reasonable assumption. Windows for years was the undisputed cash cow for Microsoft, and the company just rolled out a new version, Windows 10, that has been deemed a great improvement over its immediate predecessor, Windows 8. But the assumption is wrong. The biggest cash generator for Microsoft in the fourth quarter of 2015 was its server and cloud divisions.

So Windows must have been number two, right? No, that was gaming. There are a lot more Xboxes out there than you might think, and don’t forget that Microsoft recently bought Mojang, makers of Minecraft.

Surely Windows would be at least number three, though. Sorry; the answer is still no. That spot goes to Microsoft Office.

Down in fourth place, with just over 10% of Microsoft’s revenue, you’ll finally find Windows.

What happened?

Well, it’s not as if Windows, despite the failures of first Vista and then Windows 8.x, has fallen to the likes of the Mac or Linux. Windows remains the most popular desktop operating system.

What has happened, however, is that the desktop has become less important. The tablet may not have killed off the PC, but it certainly has given it a fever, and smartphones have it throwing up.

True, the PC will never really die. Some people, such as me, will always need a real keyboard to get work done. But for other people, it’s another story.

Microsoft knows this. For the longest time, Microsoft kept trying — and failing — to get anyone to use Windows Phone. It was desperate to get a foothold in the mobile market, because it knows that the desktop has a limited future. But Microsoft is finally facing the hard truth: Windows Phone is a failure.

So the boys from Redmond are embracing Android and iOS. Recently, Microsoft bought Xamarin — a mistake, in my book — so its developers could easily port .Net Framework and C# programs to Android smartphones and iPhones.

Microsoft hasn’t been waiting around for this plan to work. Internally, it has been exporting its business-oriented software, including the entire Office suite, to Android.

What does this have to with the decline of Windows? Everything.

Office is becoming a cloud program, not a desktop program. Those server and cloud numbers leading Microsoft’s profit train? They’re increasingly built on Azure cloud services, not stand-alone Server 2012 sales.

You see, Microsoft is well on its way to becoming a cloud and services company and not a desktop company. To quote my longtime writing buddy Preston Gralla, “Microsoft’s future is all about the cloud, so much so that one day Windows may become an afterthought.

I only disagree on one point: His use of the word “may.”

Microsoft has done the numbers — Windows revenue down 5% in the last quarter, despite Windows 10, while Microsoft’s cloud division saw its revenue grow by 5%. Azure sales were up 140% year over year. As CEO Satya Nadella said after the quarterly report: “The enterprise cloud opportunity is massive. It’s larger than any market we’ve ever participated in.”

Yes, he meant it, and yes, he meant bigger than Windows.

This marks a transformation, not just for Microsoft and Windows, but for all of personal computing as well. We’re used to thinking even now of the PC as being computing’s core. It’s not anymore.

In 1976, Gary Kildall’s CP/M operating system and the first floppy-drive-based computers shifted computing power from IT departments and mainframes to individual users and PCs. In 2016, we’re not just seeing Windows decline, we’re seeing computing power move from individuals to the mainframe’s successor, the cloud.

We’re in for interesting times.

Copyright © 2016 IDG Communications, Inc.

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