Igniting the Future of Productivity

Microsoft held their customer conference last week. There were a number of big announcements related to the future of Office and Windows that provided clues to the new direction this behemoth of enterprise computing is taking. Firstly, Windows is no longer Microsoft's core product. It's never been officially announced, but it's been clear for a while that their core focus is on the Azure and Office 365 cloud platforms rather than PCs. Microsoft disbanded their Windows division earlier this year in a re-org, splitting it between the Office and Azure businesses.

Emblematic of this change, was the announcements last week that OneDrive Files on Demand would be released for Mac. This was the headline feature of a recent Windows feature update. It quickly became a key benefit to using Windows. Releasing it to Mac benefits Office and OneDrive at the expense of removing that differentiator.

Windows is now just a component of a broader bundle of end user productivity applications that together comprise Microsoft 365. The Office desktop apps that everyone uses on both Windows and Mac are another part of this suite. Taken as a whole, Microsoft 365 is a set of applications that extends across the entire range of office productivity, security and communication scenarios. Some of the software included is best in class, whereas others are the type of clunky me too efforts that drive people to Macs.

The core of Microsoft 365 is not the apps installed on your PC, despite its inclusion of their two most famous products. It's the web services that sit behind them which matter. Exchange, SharePoint and Active Directory provide the foundation of Microsoft's productivity services, everything else is built-in top of them. Office is now just a set of tools to access and edit data stored on the Exchange email server or SharePoint document management system. Like these services, Office is available everywhere and is constantly being updated.

The proof can be seen in the release of Office 2019, which happened during the conference. Historically, Microsoft Office releases have been a big deal for IT and the technology press, but this one got little coverage because it didn't contain any new features. Everything in it had already been released as feature updates to Office 365 subscribers years ago. Furthermore, the two biggest new features of Office - autosave and shared editing - were both conspicuous by their absense despite being in the Office 365 versions of the same apps. The reason given was that these features required SharePoint to function. Microsoft are also planning a major UI change to Office, but saw no need to time it coincide with the launch of the new version as in the past.

New Features

The biggest indicator of the reduced importance of Windows was the announcement of Azure Virtual Desktops. This is a technology that Microsoft has had for at least five years, but has chosen to hold back to avoid canabalising their desktop and server businesses. Previously, VDI had been restricted to the server and enterprise versions of Windows. Last week, it was made available to everyone provided they're willing to pay for the desktop to be hosted on Azure. A key motivator for releasing this is the impending retirement of Windows 7 in early 2020. Azure Virtual Desktops will be allowed to run this OS for several years after the official end of life date, providing a mechanism for companies to run Windows 7 in a supported environment without paying extortionate amounts for extended support contracts. This is big news to security and compliance teams who have to deal with legacy apps.

Also last week, came the release of password-free authentication technology for Office 365 and Azure. This uses the Microsoft authenticator mobile app and biometrics to replace passwords on Windows devices.

Then there is Microsoft Search, an integration of the search technologies within Windows, Bing and Office into one platform. Searching through one of those tools will bring you results from all of them. At first glance the value of this may seem limited. That's because it only benefits those Microsoft customers who use Office 365 for email, documents and instant messages. This gives the ability to search all that data directly from Windows. It might even give them a reason to use Bing.

Cloud First

Microsoft now seem to be actively trying to migrate their on-premises server customers to the cloud. In the space of a year, Microsoft 365 has gone from being a disparate collection of gimped cloud services, to being more fully featured than their on-premises alternatives. This is particularly true for the SMB version, which now supports a hybrid model. Support for working alongside on-premises infrastructure was added earlier this year.

The Subscription Model

Microsoft want their smaller customers to move to a cloud only infrastructure model, but in a way which allows the new and the old to be run side by side. There are financial reasons for this - the desire to move Windows to a subscription model is an open secret. Enterprises have been paying for Windows on a subscription basis for decades. This gives them additional features and more flexibility around upgrades and downgrades. Their ability to charge consumers for Windows was killed by the smartphone. The focus instead is the legions of small businesses running Windows Pro, who until now have had no reason to pay for the OS independently of the device it came on. By bundling Windows with the cloud services needed to secure and manage it they've found a formula which works for both Microsoft and customers.

This strategy is a legacy of their current CEO, Satya Nadella. Prior to taking the top job a few years ago, he was the man responsible for bringing Azure to market and building it into the number two cloud platform behind Amazon. This transformed a dull but growing server business into a market leading cloud services provider. Now the rest of the company is going through the same transition, with Office having a head start due to Office 365 having all the foundations in place already. In doing this, they have made a virtue of their on-premises legacy. Their ability to deeply integrate with existing windows based servers and infrastructure is a unique selling point.

A Microsoft without Windows?

The Windows business has been affected most profoundly by the shift to a cloud first business model. After losing in the mobile market, some analysts questioned whether Microsoft had a future. The company was built on the success of Windows, and looked like it would decline into irrelevance with it. Now, Azure runs Linux, Dynamics on Mac and Office on mobile. All three would still be market leaders in a world without Windows. The success or otherwise of Windows is now irrelevant to Microsoft's ultimate fate. This is a dramatic transformation for a company who historically has done everything possible to protect their Windows monopoly on PCs.

Indeed, the story of Dynamics is most instructive. A few years ago after a previous re-org, it had an awkward position sitting outside the rest of the corporate structure. Most analysts expected it to be sold. After a brief flirtation with buying Salesforce, Dynamics has become deeply embedded with Office 365 and integral to their future. Perhaps, Windows will experience a similar turnaround in future. Don't bet on it.