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The Microsoft campus in Redmond, Wash. (Microsoft)
The Microsoft campus in Redmond, Wash. (Microsoft)

Embracing the cloud: How Microsoft is radically changing its vision Add to ...

“It would have been absurd if your [Super Nintendo] cartridges only worked in your [Super Nintendo console],” Luke Plunkett said in the influential gaming blog Kotaku. “Or if Street Fighter II couldn’t be played at an arcade if Capcom’s phone lines weren’t working.”

Ultimately, Microsoft was forced to take back almost all the major changes it had proposed.

Microsoft’s history also hinders its attempts to innovate in other, less tangible ways. Despite building a string of consumer-focused gadgets over the past few years – many of which received critical acclaim for their design – Microsoft has seen many of those gadgets either discontinued (the Zune music player) or struggle to gain traction (the Surface tablet, on which the company took a massive $900-million writedown in July). Repeatedly, Microsoft has tried to build products that the average consumer finds alluring, all the while fighting the perception that it’s not the sort of company that builds alluring products.

“For those of you who think there’s a barge on the ocean with $900-million worth of Surfaces on it, you are incorrect,” said Ben Reed, senior manager of the Surface line. “People are buying them.”

However, there are some signs of success. According to the company, one in four Microsoft Office enterprise customers have already switched to the newest version of the software – an impressive percentage, given that the new Microsoft Office exists almost solely as a cloud-based, subscription service. While Office 365 may keep many of the user interface norms of its predecessors, the way it stores data is a significant departure.

“It’s challenging to make a pizza for 1.5 billion people, but we don’t view a [user base of 1.5 billion] as a hindrance,” said Chris Flores of the Windows team. “That’s an opportunity.”

But not everyone shares that optimism.

“It’s a huge hindrance,” says BGC Financial’s Mr. Gillis. “It’s about what people are trained to use. Re-training people is a huge problem.”

In a way, Microsoft’s challenges may well be indicative of the issues that other tech giants will face in the coming years – if Google, one day, tries to transition its billion-plus Android operating system users to something new, or if Apple ever builds a new mobile platform that differs radically from the current iOS. In that respect, Microsoft’s woes represent the eventual flip side of the technology industry’s current corporate ethos – that nothing is more important than building a massive user base.

A transformation to a utility

Not far from the courtyard where Microsoft’s software achievements are commemorated in stone, there’s an outdoor water feature, roughly the size of a basketball court, called Lake Bill.

Named after co-founder Bill Gates, Lake Bill has in previous years been the subject of a Microsoft ritual. Whenever the company hit a major milestone, such as shipping a new product, a senior executive would jump in the lake and swim from one end to another – the launch being a moment for celebration, for catharsis.

Not too many people can remember the last time an executive took the plunge. That may be because big launches are becoming more rare at Microsoft, as it transitions to the always-on world of cloud services.

Instead of a software company, it is aiming to become a utility – the technology industry’s equivalent of a gas company or electricity provider.

In a way, that vision of the end of the traditional desktop, with its local hard drive and software, appears inevitable. As BGC analyst Mr. Gillis notes, traditional PC sales have been in decline for the last 10 quarters in a row.

What remains to be seen for Microsoft is whether the company can truly capitalize on this transition – breaking free from four decades of tradition – without losing its customers in the process.

“They are moving in the right direction; the question is whether the change will be fast enough or deep enough to make a difference,” says technology analyst Mr. Levy.

“The Titanic is in the process of turning, and the ocean is filled with icebergs.”

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