Microsoft Full Circle – Stratechery by Ben Thompson

In last week’s interview with Stratechery, Microsoft CEO Satya Nadella explained why the company was open to partnering with Meta for VR:

The way I come at it, Ben, is that I like to separate out, “What is the system, what are the apps”? Of course, we want to bring the two things together where we can create magic, but at the same time, I also want our application experiences in particular to be available on all platforms, that’s very central to how our strategy is.

For example, when I think about the Metaverse, the first thing I think about is it’s not going to be born in isolation from everything else that’s in our lives, which is you’re going to have a Mac or a Windows PC, you’re going to have an iOS or an Android phone, and maybe you’ll have a headset. So if that is your life, how do we bring, especially Microsoft 365, all of the relationships that are set up, the work artifacts I’ve set up all to life in that ecosystem of devices? That’s at least how I come to it and that’s where when Mark started talking to us about his next generation stuff around Quest was pretty exciting, so it made a lot of sense for us to bring — whether it’s Teams with its immersive meetings experience to Quest or whether it’s even Windows 365 streaming, and then, of course, all our management and security and even Xbox — [to Quest]; that’s what is the motivation behind it.

This seems obvious today in 2022, but it was a fairly radical point of view when Nadella took over Microsoft in 2014. Nadella’s first event in April 2014 centered on the announcement of Microsoft’s iconic Office Suite on Apple’s iPad; the apps had been developed under former CEO Steve Ballmer, but had been withheld from launch until the company had touch-centric versions ready for Windows-based touch devices. From the beginning of Stratechery I was adamant that this was a major mistake driven by Microsoft’s inability to imagine a future without Windows at the center; from 2013’s Services, Not Devices:

The truth is that Microsoft is wrapping itself around an axle of its own creation. The solution to the secular collapse of the PC market is not to seek to prop up Windows and force an integrated solution that no one is asking for; rather, the goal should be the exact opposite. Maximum effort should be focused on making Office, Server, and all the other products less subservient to Windows and more in line with consumer needs and the reality of computing in 2013.

A drawing of The Horizontal Layer of Services

The trouble for Microsoft in the devices layer is that they only know horizontal domination. When there was nothing but PC’s, the insistence on one experience no matter the hardware worked perfectly. However, a Dell and an HP are much more similar than a tablet and a web page, for example, each of which has its own input method, user expectations, and constraints. A multi-device world demands bespoke experiences, not one size fits all. Microsoft simply doesn’t seem to understand that, and the longer they seek to “horizontalize” devices the greater the write-offs will become.

However, look again at that picture: there remains a horizontal layer — services — and it’s there that Microsoft should focus its energy. For Office and Server specifically:

  • Documents remain essential and ubiquitous to all of the world outside of Silicon Valley; an independent Office division should be delivering bespoke experiences on every meaningful platform. Office 365 is a great start that would be even better with a version for iPad.
  • A great many apps are simply front-ends for web-based services; an independent Server division should be delivering best-in-class interfaces and tools for app developers on every meaningful platform.

[…]“Devices and services” is only half right; unfortunately Ballmer picked the wrong half.

This is why it was so important that Office for iPad was Nadella’s first major announcement; I wrote after the event in When CEOs Matter:

This is the power CEOs have. They cannot do all the work, and they cannot impact industry trends beyond their control. But they can choose whether or not to accept reality, and in so doing, impact the worldview of all those they lead.

Four years later Nadella’s reworking of the culture was all but complete, as I wrote in The End of Windows:

The story of Windows’ decline is relatively straightforward and a classic case of disruption…What is more interesting, though, is the story of Windows’ decline in Redmond, culminating with last week’s reorganization that, for the first time since 1980, left the company without a division devoted to personal computer operating systems (Windows was split, with the core engineering group placed under Azure, and the rest of the organization effectively under Office 365; there will still be Windows releases, but it is no longer a standalone business).

This new reality couldn’t have been clearer at last week’s Microsoft Inspire worldwide partner conference: Nadella’s keynote was all about the cloud, from Azure to Teams; Windows was demoted to one section of the company’s Surface announcements held as a precursor to the main event.

Do More With Less

This is how Nadella opened his keynote:

We’re going through a period of historic economic, societal, and technological change. But for all the uncertainty we continue to see in the world, one thing is clear: organizations in every industry are turning to you and your digital capability to help them do more with less, so that they can navigate this change and emerge stronger. You are the change agents who make doing more with less possible. Less time, less cost, less complexity, with more innovation, more agility, and more resilience. Doing more with less doesn’t mean working harder or longer — it’s not going to scale — it means applying technology to amplify what you can do and ultimately what an organization can achieve amidst today’s constraints.

Over the past few years, we have talked extensively about digital transformation. But today we need to deliver on the digital imperative for every organization. It all comes down to how we can help you do this with the Microsoft cloud. No other cloud offers the best of category products, and the best of suite solutions, and that’s what we’ll focus on at Ignite this week as we walk through the five key imperatives.

This “do more with less” message recurred throughout Nadella’s presentation. Three separate times Nadella emphasized how much customers would save by going with a Microsoft bundle, but that was only the “with less” part of the message; each pitch also explained why the Microsoft approach was also better (i.e. “do more”). Start with security:

Protecting is complex and get expensive. Every organization experiences this with so many different devices, connections to partners, and an ever shifting cloud resource deployment. The more agile you become, the more your security team struggles to manage the risk; the more connected we become, the faster a successful attacker can move laterally through the enterprise to their target. For far too long customer have been forced to adopt multiple disconnected solutions from disparate sources that don’t integrate well and leave gaps. We offer a better option: a natively integrated security solution that is supported by a vibrant partner ecosystem…you get a comprehensive solution that closes gaps and works for you at machine speed. On average, customers save more than 60% when they turn to use compared to a multi-vendor solution.

Nadella’s argument: not only can you save money, but because all of the products come from one vendor you can rest assured that they are comprehensive and are designed to work together.

Now let’s turn to data: with our Microsoft Intelligent Data Platform we provide a complete data fabric, from the operational stores to the analytics engines to data governance so that you can spend more time creating value and less time integrating and managing your data estate. Our goal is to provide you with the most comprehensive end-to-end data platforms so you don’t have to wrestle with the complexities of building and operating cloud scale data infrastructure yourself. Analytics alone on our data intelligence platform cost up to 59% less than any other cloud analytics out there.

That bit about “spend more time creating value and less time integrating and managing” is the part of Microsoft’s value proposition that Silicon Valley startups so frequently miss. Slack, perhaps most famously, was so certain its superior chat experience would beat out Teams (and it is superior), that company CEO Stewart Butterfield took out an ad in the New York Times welcoming Microsoft to the space; four years later, after Teams had over six times the daily active users (and before Slack was acquired by Salesforce), I explained in Teams OS and the Slack Social Network what Butterfield got wrong:

This is what Slack — and Silicon Valley, generally — failed to understand about Microsoft’s competitive advantage: the company doesn’t win just because it bundles, or because it has a superior ground game. By virtue of doing everything, even if mediocrely, the company is providing a whole that is greater than the sum of its parts, particularly for the non-tech workers that are in fact most of the market. Slack may have infused its chat client with love, but chatting is a means to an end, and Microsoft often seems like the only enterprise company that understands that.

That end is, to use Nadella’s words, “creating value”; “integrating and managing” is exactly what companies want to avoid.

With Microsoft 365 we provide a complete cloud-first experience that makes work better for today’s digitally connected and distributed workforce. Customers can save more than 60% compared to a patchwork of solutions. Microsoft 365 includes Teams plus the apps you always relied on — Word, Excel, Powerpoint, and Outlook — as well as new applications for creation and expression like Loop, Clipchamp, Stream, and Designer, and it’s all built on the Microsoft graph, which makes available to you the information about people, their relationships, all their work artifacts, meetings, events, documents, in one interconnected system. Thanks to the graph you can understand how work is changing and how your digitally distributed workforce is working. This is so critical, and it all comes alive in the new Microsoft 365 application.

Ah, there are the Office applications I referenced at the beginning. But notice the word that is missing: Office.

From Office to Microsoft

From The Verge:

Microsoft is making a major change to its Microsoft Office branding. After more than 30 years, Microsoft Office is being renamed “Microsoft 365” to mark the software giant’s collection of growing productivity apps. While Office apps like Excel, Outlook, Word, and PowerPoint aren’t going away, Microsoft will now mostly refer to these apps as part of Microsoft 365 instead of Microsoft Office.

Microsoft has been pushing this new branding for years, after renaming Office 365 subscriptions to Microsoft 365 two years ago, but the changes go far deeper now. “In the coming months,, the Office mobile app, and the Office app for Windows will become the Microsoft 365 app, with a new icon, a new look, and even more features,” explains a FAQ from Microsoft. That means if you use any of the dedicated Office apps, they’ll all be branded with Microsoft 365 soon, and with a new logo. The first logo and design changes will appear at in November, followed by the Office app on Windows, iOS, and Android all getting rebranded in January.

I’ll be honest: as an increasingly old man in technology the end of the “Office” name kind of bums me out. My nostalgia is satisfied, though, by a Microsoft that has truly come full circle.

The truth about Microsoft is that while Windows’ relationship with hardware has traditionally been modular (the Surface line notwithstanding), the company’s strategy has always been about integration and bundling. This is why Ballmer was so hesitant to give up on Windows as the center of the company’s go-to-market: sure, people wanted the Office applications on different devices, but it was Windows that tied Office to Outlook to Exchange to Active Directory to Windows Server and on down the line. This, by extension, is why Nadella’s willingness to embrace reality was a risk: Office on its own was a nice business, but it wasn’t the center of enterprise like Windows had been.

It turned out, though, that facing reality brought another benefit: the ability to see and grasp an opportunity when it appeared. Teams, which started development in 2015, a year after Nadella’s announcement, wouldn’t simply be a chat app: it would be the new hub around which Office orbited. Teams (and Outlook) development leader Brian MacDonald said at a press event in 2019:

One of the really key things and drivers of what we wanted to do with Teams was have that be a hub for Office 365. Before what we had done was just taken all those personal productivity workloads and then moved them to the cloud, but we wanted something that was purpose-built for the cloud that could be a hub across all of Office and frankly across the rest of what we’re doing at Microsoft. A lot of the Power BI, Power Apps, and Dynamics tools that James was building, but also third party. So we built a platform for that and the third-party platform and the first-party platform are actually the same.

If that sounds a lot like Windows — a hub that hosted not just Office, but other Microsoft applications and services, and a platform for 3rd-party developers — Nadella agrees with you. From the same event:

Sometimes I think the new OS is not going to start from the hardware, because the classic OS definition, that Tanenbaum, one of the guys who wrote the book on Operating Systems that I read when I went to school was: “It does two things, it abstracts hardware, and it creates an app model”. Right now the abstraction of hardware has to start by abstracting all of the hardware in your life, so the notion that this is one device is interesting and important, it doesn’t mean the kernel that boots your device just goes away, it still exists, but the point of real relevance I think in our lives is “hey, what’s that abstraction of all the hardware in my life that I use?” – some of it is shared, some of it is personal. And then, what’s the app model for it? How do I write an experience that transcends all of that hardware? And that’s really what our pursuit of Microsoft 365 is all about.

Office being on its own gave Teams an easy go-to-market: Microsoft just bundled it in. Today, though, it is Teams and everything built on that scaffolding that is Microsoft’s new Windows. It is the company and its operating system, not its apps, that are back at the center. In this sense, renaming Office 365 to Microsoft 365 is the most natural thing in the world: Office was a ship that set sail from the declining civilization that was Windows, with an uncertain destination. Today, though, that ship is but a footnote in Microsoft’s new empire in the cloud.

Moreover, it seems likely this empire will be more durable than the old Microsoft republic: the entire reason why Windows faltered as a strategic linchpin is that it was tied to a device — the PC — that was disrupted by a paradigm shift in hardware. Microsoft 365, on the other hand, is attached to the customer. Nadella again:

What we are trying to do [with Microsoft 365] is bring home that notion that it’s about the user, the user is going to have relationships with other users and other people, they’re going to have a bunch of artifacts, their schedules, their projects, their documents, many other things, their to-do’s, and they are going to use a variety of different devices.

This is why Microsoft, instead of being late to the iPad, is remarkably early to VR. Why not? Devices are but mere conduits to the cloud, which means that Microsoft is well-placed to navigate this new paradigm if it becomes a major platform — and to not miss a beat if it is not.1 In other words, to say that Microsoft has come full circle may be selling Nadella’s transformation short: the all-encompassing dominant Microsoft of old may be back, but in a version that is even stronger and more resilient than before.

Post Author: BackSpin Chief Editor

We are the editorial staff at BackSpin Records. We love music, technology, and other interesting things!