Short Microsoft FY 4Q16 Earnings and Hololens

I got a chance to talk about Microsoft following their FY 4Q16 earnings call on the CCTV America Global Business program.  I picked up on some highlights, one really positive and one negative. The short term positive story is that their cloud business is doing very well, specifically Azure. 

Azure has the most momentum of their reporting segments with the following points: 

•  Eight straight quarters of triple digit revenue growth
• A modified run rate of $12B in FY 2017. It was $10B in FY 2016, catching up to Amazon AWS (the industry leader). 
• Projected $20B run rate by FY 2018. (No pressure on the Microsoft Azure sales force, right?) 

The other highlight, albeit negative (and may be inconsequential to the overall revenue picture) was that their handset business revenue dropped>70%. This wasn't a surprise as they've been on the march to unload their handset hardware business and 'rationalize' the associated workforce.  It's interesting as Microsoft's stated strategy is "Mobile First, Cloud First" in that order.  Traditionalists wonder if you have no handset to further the Windows 10 smartphone OS, how can the company really say Mobile First?  Of course they've moved office into smartphones on iOS and Android, embracing competitors but conceding to the reality that marketshare rules and they need to stay relevant there. I guess that small mobility component counts, right?  There are rumors that new smartphone hardware will come in 2017 but any longer will be a nail in the mobile Windows 10 OS's coffin.

Hololens

Though CCTA Business America focused on the Hololens story in relation to the wildly popular Pokemon Go, the takeaway for me is that the Augmented Reality category has been embraced by the consumer. While the host, Rachelle Akuffo pointed out the similarities to the discontinued Google Glass, in restrospect similar but different animals.  Glass was kind of enabling computing and having that experience on the lens. It may be the stretch would be Oculus Rift, DayDream or any other AR/VR product they're working on.

To be fair, VR and AR are still in its infancy. If one looks at how Microsoft is positioning Hololens, the company is presenting more business and scientific (e.g., NASA) applicability rather than what we immediately think of as gaming.  It's an exciting area to watch.

    

Apple at UI Innovation Crossroads

The news of the high profile departures of two Apple executives show that even though Apple seems to be impervious to competition, it shouldn't sit on its laurels.  The WSJ reports key to the purging were the missteps from Scott Forstall's much maligned new map implementation and John Browett's faux pas and demoralizing retail work staffing formula.  The commonality was that it gave Apple a public relations black eye.  For the Apple faithful and mainstream Apple consumers, it may not really mean a whole lot.  Yet Apple watchers may have some takeaways. 

The map implementation embedded in the iPhone 5 launch, while a strategic effort to distance the company on reliance on Google, was not what was expected from Apple's (Steve Job's) perfectionist culture. Though previous iOS releases and other software had its own share of bugginess while Jobs was at the helm, the PR headaches spearheaded by Apple faithful early adopters should be alarming.  While there was incremental changes to iOS, one view is that Apple has gone conservative. When I attended Nokia World in 2011, a Nokia executive argued that Apple hasn't changed their software (UI) since it launched in 2007.  There were many analysts who countered with a logical message that basically stated the U.S. adage, "If it ain't broke, don't fix it."  There is some truth to this as it's mucking around with the Apple secret sauce that is uniform in its desktop, phone and tablet experience. It's this UI that has been the magnet and foundation for its halo products.  The UI is simple, intuitive and works. Enough said, right? Yet the UI is also the foundation for the Android OS and the OEM variants. Sure there are differences but it's pretty much alike.  Here we are in 2012 and iOS 6 is really no different than in 2007. There are incremental additions for sure. Windows Phone 8 just launched and while Microsoft is challenged with getting user traction, Windows Phone (back to 7) is radically different and some can argue innovative.  At the 1:00 minute mark, Joe Belfiore visually presents the above argument.

    

As an analyst, I don't really have a dog in this fight on defending any company.  However, Microsoft has really thought differently.  Will Apple need to jump ahead to show software innovation?  It should but it likely won't for at least a year or more.  They're in the driver's seat with record adoption in tablets and smartphones.  Microsoft to some extend had to think out of the box because it was losing share in mobile and desktop. Some can argue that it was defensive but again to their credit, rather than do incremental UI upgrades to Windows 7 (which were in my view incremental upgrades to Vista and XP), they had to take the offensive and take a risk and do a wholesale change.  Like Apple, the experience is uniform across its desktop, mobile and tablet hardware but the UI is so radically different.  How will the public accept this?

Back to Apple and why is it in a software innovation crossroad?  For one, it needs to stay safe and protect its growing base of users. Their UI is so well known and simple that it needs to protect any wild swings of experience.   But heartening for Apple is that Jony Ive, the SVP of industrial design (the hardware design magician) now has the 'Human Interface' responsibility. 

It will be telling in the next year or two to see where the signature Apple UI heads. To be sure, it cannot sit still for another five years.