With the technology pendulum now firmly in software rather than hardware, Microsoft affirms that its future lies in its software roots.
Microsoft, after a foray into consumer devices, is back at home as a software company.
The company still makes Surface tablets and a high-end laptop, Xbox game consoles and devices built by its faltering smartphone business.
But its soul, and its future, lies in software.
The Redmond company affirmed as much last week in the form of a 6,500-word treatise by the company’s communications staff. In the posting, Microsoft argued that the technology that matters most to people probably isn’t a device, but the software or other infrastructure that powers it.
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“Notwithstanding the fact that it may appear self-serving for Microsoft to say that, I have to think that in the broad sweep of history, they’re on the right side,” said Merv Adrian, a vice president with researcher Gartner.
Of the 146 startups worldwide that investors have valued at $1 billion or more, 102 of them make software, Internet products or e-commerce businesses, according to data from The Wall Street Journal. Just six make hardware.
Software in the Internet era isn’t a packaged product, an easily defined category of goods like bath mats, copper tubing or almonds, technology analysts say. It is increasingly a component of how people and businesses manage their own affairs, whether through calendar applications or online photo and file storage, and interact with the outside world, through messaging apps and social networks.
The notion that software is important is something of a cliché, with venture capitalist Marc Andreessen’s mantra that software was “eating the world” now a groan-inducing piece of conventional wisdom at technology industry events.
Microsoft’s own business shows the tug between the old and new, with quarterly earnings this week revealing Web-delivered software sales that continued to grow even as the company’s traditional businesses shrank.
That trend is also shaking up the real world.
Automakers, meanwhile, are seeding Silicon Valley with offices to better integrate technology into their vehicles, lest a software maker come up with the technology that renders their decades-old manufacturing businesses obsolete.
Even in the mobile market, Google’s wildly successful services business has pulled everyone from wireless network builders to smartphone makers to try to get a slice of the business by refashioning themselves as providers of software services.
For Microsoft, a company founded 41 years ago as a designer of programs that made the first minicomputers usable, the notion that software is important is an old refrain.
It was Microsoft, through a famous deal to license, and not sell, its operating system to IBM, that set the course for hardware-agnostic software companies to reap bigger profits than the hardware makers their programs lived on.
“In some ways, nothing has changed,” said Michael Cusumano, a professor at the Massachusetts Institute of Technology Sloan School of Management who has closely tracked Microsoft for decades.
But the technology industry goes in cycles, bouncing from hot topic to hot topic, and Microsoft chased some of those trends.
Unseated from its perch as the world’s largest technology company after Apple struck gold with the iPod, iPhone and iPad, Microsoft responded by wiring hardware into the company’s mission statement.
In July 2013, Steve Ballmer circulated a memo announcing Microsoft’s ambition to “create a family of devices.”
The company by then had pushed hard to sell the world on Zune, the iPod killer that couldn’t, and was ramping up its Surface tablet computer line, a challenge to the iPad.
That same month, Microsoft’s board of directors authorized Ballmer to begin negotiations to acquire Nokia’s mobile-phone business, a bid to tie the design of smartphone hardware with software along the lines of the Apple model.
Under Satya Nadella, who succeeded Ballmer in 2014, Microsoft has narrowed its focus. In an interview last year, he recounted his thought process when he took the job.
“Look, what’s the soul of our company, what is the core of our company, what’s our mission?” Nadella asked. Microsoft, he determined, should pursue things that are novel, “something that we can do uniquely … something that customers will value.”
Nadella has since dumped most of the failing phone business, killed an iPad-competitor in the Surface family, and doubled down on Microsoft’s productivity tools and business software. Microsoft executives are more likely to bring up the company’s artificial-intelligence efforts, or its bid to link PC and console video gaming, than the hardware people use to access those programs.
The company still builds plenty of real-world things. But, as with the data centers that power Microsoft’s growing Web-delivered software business, consumers might not see them.
“For many years, we’ve been moving into a world where you don’t just sell packaged things,” said Cusumano, of MIT. “You access software-driven services, or digital content via the Web, through multiple devices.”
After its detour into hardware, Microsoft has an “increased recognition” of this new world, he added.