Last week, All Things D’s Kara Swisher reported that her sources had told her that Microsoft CEO Steve Ballmer was likely to unveil restructuring plans for the company at the beginning of July. Today, Swisher had a far bigger scoop: Don Mattrick, president of Microsoft’s Interactive Entertainment division, the unit responsible for the Xbox, was leaving to become CEO of troubled online game maker Zynga.
Mattrick’s abrupt departure–since confirmed by Zynga and Microsoft–amounts to a one-man reorganization in itself, and will presumably require Ballmer to further reshuffle the plans he had for his big reshuffling. The Xbox 360 is tremendously important to Microsoft right now; the upcoming Xbox One will be important for years to come. And the vertical integration of the Xbox business–Microsoft makes the hardware, publishes games and provides the Xbox Live service–may be a template for the company’s future direction across all its product lines. It’s a template Mattrick has tended to with enormous success since 2007. Until today, I assumed he’d play a major role in applying it to the rest of the organization.
Back in October, Ballmer’s annual letter to Microsoft shareholders explained that the company, moving forward, saw itself as being in the “devices and services” business. He wrote that this move was a “significant shift,” and if anything, that’s understating matters. For several decades, Microsoft has been synonymous with PC software–the sort you install on your hard disk, not the type that lives in the cloud. Even as it’s retooled itself for the web era, it’s often described its vision as involving “software + services,” indicating that it still saw itself as a software company.
There’s a funny thing about the phrase “devices and services,” though: It doesn’t even include the word “software.” Microsoft isn’t planning to quit the software biz, of course. But this new self-description–which is even mentioned in your browser’s title bar when you visit Microsoft.com–positions the company to take on Apple (the leading consumer device company) and Google (the leading consumer web service company) in ways it wouldn’t if it defined itself as a software company.
That’s assuming that Microsoft follows through on those words with deeds. Xbox is a devices-and-services success story, but the company is still struggling to replicate it: Its Surface tablets haven’t made a dent in the PC universe, and Windows Phone, though moving slowly in the right direction, remains an also-ran compared to Apple’s iOS and Google’s Android. A reorganization might help Microsoft become more device-centric, but it might require even bigger thinking than that–which is why the recent rumors that it had been investigating the possibility of acquiring Nokia’s handset business rang true.
The “services” part of “devices and services” is relatively uncontroversial. Nobody will be confused by Microsoft’s desire to be perceived as a leader in services, and thanks to offerings such as its subscription-based suite, Office 365, it can even turn venerable software into a service of sorts. It’s also doing solid work with stuff such as Outlook.com, the Office Web Apps and SkyDrive.
But what does it mean for Microsoft to be in the device business? It’s still a jarring notion, one that sounds more like a long-term goal than a statement of current fact. Parsing Ballmer’s shareholder letter, I interpret its stance as being something like this:
- Microsoft believes that services work best when they run on powerful, sophisticated devices designed with those services in mind;
- In some cases, it’s going to design and sell those devices itself, especially when it’s dissatisfied with the work its partners are doing;
- When it doesn’t, it’s going to take a more active hand in defining hardware platforms (as it does with Windows Phone handsets and Windows 8 PCs);
- The software still matters, but it’s an enabling technology for devices, rather than the other way around.
That, anyhow, is what I think Ballmer is saying; with any luck, it’ll become clearer after any upcoming reorganization–and better still, once future “devices and services” products are announced.
Here’s a postscript: Just for fun, I went back and looked at how Microsoft has described itself over the past 17 years, in the form of the text it tacks on to the end of press releases. As you would expect, that boilerplate copy has evolved in an increasingly less PC-centric direction:
Founded in 1975, Microsoft (NASDAQ “MSFT” ) is the worldwide leader in software for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day.
Founded in 1975, Microsoft (Nasdaq “MSFT” ) is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software – any time, any place and on any device.
Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.
Microsoft has apparently been comfortable with that last definition, which it’s still using nine years later. I imagine, however, that it would like very much to start describing itself as the worldwide leader in devices and services. Today, that aspiration still feels like a longshot. But if the day comes when it can reasonably call itself that, it’ll be because it managed to reinvent itself in a way that few large companies ever have.