Satya Nadella wants Microsoft to touch just about anything you touch.
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It's one heck of an ambitious plan, tapping into our impatience when the device we're holding doesn't give us what we want, when we want it.
Yet Microsoft's CEO has assembled a strategy and a string of new products, from smartphones and tablets to games, that could actually pull it off. Everything hinges on Windows 10, which runs across computers, tablets, smartphones and the Xbox game console.
With Windows 10, developers can write universal apps that work on any device. That could help the world's largest software company build a compelling app repository, like Google's Play or Apple's App Store. The new Surface Pro 4 taps into businesses' and consumers' growing appetite for high-end hybrids that can serve as a laptop and a tablet. That could help Microsoft gain traction in corporations, where Apple's Mac computers do well. And premium phones could finally give Microsoft the cred it needs to hold its own against Apple's iPhones and Samsung's Galaxy S devices.
'Nadella knows you never have a second chance to make a good impression,' said Daniel Ives, an analyst with investment firm FBR & Co. 'He has to make developers, consumers and companies want to buy and use Windows products, and he's doing that through a unified platform. There are no delusions of grandeur. They have to start small and dream big.'
Think of it as a kind of virtuous cycle: The more devices that rely on the new operating system, the more developers will write apps for it, which in turn will attract more customers. For his goal to work, though, Microsoft needs to quickly get the latest software into as many devices as it can, even if it means taking a short-term hit on revenue. Which is why the company offered Windows 10 free to most current users. Earlier this month, Microsoft said more than 110 million people had installed the software in the first 10 weeks after its release at the end of July.
It looks as if Nadella's strategy could work.
The company on Thursday reported a profit, excluding severance and acquisition costs, of 67 cents a share on $21.7 billion in revenue in its first fiscal quarter of 2016, which ended September 30. That sales figure includes deferred revenue from subscription fees for cloud-based products like Office 365 and Azure. Cloud-related revenue across all product segments lifted the results to beat Wall Street's expectations. On average, analysts polled by Reuters estimated a profit of 59 cents a share on $21.03 billion in revenue.
'We are making strong progress..by delivering innovation people love,' Nadella said in a statement.
This is also the first time Microsoft has divided financial results into three buckets. 'Productivity and Business Processes' includes its business suites such as Office and Office 365. The 'Intelligent Cloud' segment focuses on corporate software, such as its Windows Server. All eyes may be on its 'More Personal Computing' group, which contains Windows 10 licensing, mobile devices, the Xbox gaming console and advertising revenue from search.
Revenue in that group fell 17 percent, brought down primarily by a change in Microsoft's phone strategy. The company in the previous quarter wrote-down $8.4 billion in acquisition and restructuring costs related to its failed acquisition of Nokia's phone business.
On the plus side, revenue from search advertising excluding traffic acquisition costs grew 29 percent, while the number of monthly users actively using the Xbox increased 28 percent, to 39 million.
Investors apparently liked what they heard, sending shares up more than 8 percent in after-hours trading.
Separately, Microsoft laid off about 1,000 employees, or less than 1 percent of its global workforce.
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Bill Gates has given up his Windows phone. HP is pulling production of its flagship Windows handset. Now Microsoft has finally seen the writing on the wall -- there aren't enough people using Windows 10 Mobile or enough apps to make it viable.
Corporate vice president of Windows 10 and head of Microsoft's 'PC-Tablet-Phone' division, Joe Belfiore, said on Twitter Sunday that Microsoft will continue to support Windows 10 Mobile with bug fixes and security updates, but new features and hardware are no longer front and centre.
Microsoft is no upstart in the mobile space. It produced versions of its software for mobile devices for more than 20 years -- starting with Windows CE for personal digital assistants in 1996, and later with Windows Mobile in 2000.
But the ecosystem has struggled since the launch of Apple's iOS in 2007 and Google's Android operating system in 2008. According to the most recent sales figures from Kantar Worldpanel, Windows phones account for just 1.3 percent of the market in the US, bested only by BlackBerry at 0.3 percent. Compare that with Android's 64 percent share of new phone sales and 34 percent for iOS (figures that are closely matched in the UK and Australia).
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Microsoft has attempted to leverage its legacy in the PC space to push further into mobile -- Windows 10 Mobile was billed as the 'everywhere OS' that would let users shift seamlessly between desktop, tablet and mobile.
But users have long complained the lack of apps on Windows Mobile devices is a deal breaker.
While Belfiore said Microsoft has tried 'very hard' to provide incentives for app developers to get apps onto Windows Mobile, the 'volume of users is too low for most companies to invest' in the ecosystem.
But don't discount a comeback. On the same day Belfiore poured 140 characters out for Windows Mobile, BlackBerry -- the company with less than 1 percent market share in the US -- unveiled a brand new all-touch smartphone, the BlackBerry Motion.
In the world of mobile phones, it seems big brands are never truly gone for long. And if nothing else, we'll always have SwiftKey.
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