Oct 2, 2017 8:38 AM PT

Microsoft's plan to sell more Windows S devices

Microsoft is looking to regain momentum in the expanding mobile workforce that often has not been on a Microsoft platform.

Mike Blake/Reuters

Last April, Microsoft announced it was working with vendor partners on a new class of PC, now known as the Windows S machine. Its intent was to offer a low-cost, limited-capability device that could compete with web-centric, lower-cost machines like Chromebooks and even some tablets and/or smartphones that have replaced PCs for many workers’ tasks.

Google has been quite successful with Chromebooks and its cloud offerings, particularly in the education market, selling millions of devices (through their vendor partners, including Samsung, Lenovo, Dell and HP). Microsoft’s fear was that the growth of the Chromebook could well seep into markets traditionally covered by Windows PCs.

Indeed, Chromebooks and particularly mobile devices like current smartphones, have been impacting several enterprise verticals, such as retail and the services industries, resulting in a subsequent stagnation of PC uptake in those markets and consequent impact on Microsoft sales.

Chromebooks still have not been nearly as successful in any vertical as in they have in education, where low cost in a budget-restricted market is driving adoption of $200 devices. But this is starting to change in some verticals as Chromebooks and smartphones make their way into price-sensitive application areas.

And while the concept of an under $300, or even under $200 device, running a derivative of Windows was appealing, Microsoft really had no concise message on how companies could use these devices to their advantage other than a relatively vague “use all of our cloud-based tools like Office 365 and app store to deliver apps to the locked down devices.” So, low-cost Windows S devices have been in a sort of limbo.

Microsoft eyes new vertical markets, announces Windows 365 F1 and Office 365 F1 

Recently, Microsoft dramatically altered its position with an announcement that may significantly impact it capabilities to sell Windows S devices and push back on the rise of Chromebooks and mobile devices in industry. It announced two products that were aimed squarely at the frontline worker, which Bryan Goode, general manager for Office 365 at Microsoft, defined as “2 billion people worldwide, they are the people behind the counter, on the phone, in the clinics, on the shop floor, and in the field.” These workers often are not enabled with a potentially costly and awkward PC platform.

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Although not geared towards the education market where I expect Chromebooks to maintain a clear dominance and continued preference, Microsoft's push into other verticals should bear fruit, especially as traditional enterprise PC vendors will be supplying compatible products geared towards the needs of this class of worker.

To this end, Microsoft announced Windows 365 F1 (Office 365, Windows 10, Enterprise Mobility + Security, Skype, SharePoint, Yammer, Groups, Streams and StaffHub) and the less-functional and lower-cost Office 365 F1 (Office online, Skype, Yammer, SharePoint, Teams and StaffHub) at its Ignite conference in Orlando, Florida.

Although some of the details of the two products are still confusing, Microsoft basically created two platforms — one for larger enterprise customers who already license the Enterprise Windows solutions (Windows 365 F1) and one for smaller businesses that have fewer needs and essentially want some minimal amount of management capability and modest amounts of app capability (Office 365 F1).

Why this is critical to Microsoft

Of late, Microsoft has been feeling the heat of Google and other online apps running in price-sensitive businesses and on lower-cost devices, including smartphones. While Microsoft has great brand loyalty in the large enterprise segment, that’s not the case with smaller businesses where the cost of change from one cloud-based SaaS solution to another is low.

By creating a business-first approach to the needs of SME, and even some groups within larger enterprises, Microsoft is providing a reason not to abandon its products in an increasingly price-sensitive world. And empowering workers with the tools on low-cost mobile devices such as the Windows “S-books” to compete with Chromebooks creates a key defense against the takeover by Google of this space.

Of course, the margins for the S-book vendors on such low-cost devices are less than on their established PC lines. Nevertheless, they hope to ride the same Chromebook wave by making very large volumes and hence make it attractive to be in the marketplace.

Bottom line: My take on this is that Microsoft is making the right move by providing a viable alternative to heavy infrastructure-supported apps for businesses that need less and are searching for a solution. Ultimately, with the smartphone and Chromebook generation of products, its imperative that Microsoft be seen and actually offer a lower-cost and “lightweight” alternative to the traditional enterprise tools it’s known for in a market it had dominated but now finds itself under increasing pressure from new SaaS entrants, particularly Google.

This is still a work in progress for Microsoft, and it will take some time to play out to see how successful it will be. But without this effort, Microsoft would surely have lost more ground to new-generation competitors and mobile platforms.