Microsoft’s Q2 FY 15 webcast adds some form to the target market for Hololens and word of a formal end to the Windows XP refresh cycle

2-Color-Design-Hi-Res-100px-widthDuring Microsoft’s Q2 FY 15 webcast, Satya Nadella alluded to Windows 10 Universal Apps, and their usefulness for average consumers of Microsoft’s recently debuted Hololens “alternative reality/AR” headset computer.

So Microsoft clearly intends to promote the Hololens to the consumer market. But as to whether or not the consumer market will jump at the opportunity, or not, is another question, which was not addressed during the webcast. It is more likely the early adopters for the device will be organization like the Jet Propulsion Laboratory (JPL). JPL was mentioned during the January 20th event. As well, a post on the Hololens was published on the official JPL blog.

Another business with an entry in the headset computer business, Oculus also made news the same day Microsoft held its webcast. In an article titled Oculus CEO on its new VR filmmaking venture Story Studio and Microsoft’s HoloLens, Tim Bradshaw summarizes a comment made by Brendan Iribe, the CEO of Oculus about Microsoft’s Hololens, likely target markets and the pace of introducing the technology: “AR [alternative reality] may be further away than Microsoft made it seem last week[. He] suggested the software giant should be “careful” about setting unrealistic expectations.” This opinion seems sensible to me, and, perhaps, one at least the Marketing Communications team at Microsoft might want to adopt.

The rationale behind my recommendation is an article by David Carr, of the New York Times, which appeared on the same day. Carr’s article brings up the whole personal information notion, complete with some thoughts on the level of behavioral re-engineering average consumers will have to go through to adjust to regular use of the Hololens. Of course this type of conjecture hovered around Google Glass for most of its product life. But, nevertheless, stimulating writers like David Carr to voice these opinions so early in the cycle of introducing a product like the Hololens may have been a mistake.

On the question of why the quarter failed to hit all of the analyst estimate targets, it may help readers to note the emphasis Amy Hood, CFO placed on the end of the Windows XP refresh cycle as a reason for these misses. A lot of the commentary already published on the quarterly results have posited notions of serious declines in sales of Windows, Microsoft’s enterprise products, etc. But little mention has been made of the end of the refresh cycle, which may actually make more sense.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Office 365 Subscription Plans Evolve Into a Promising Revenue Opportunity for Microsoft

During Microsoft’s most recent quarterly earnings conference call numerous references were made by Amy Hood, CFO, and, I believe, Satya Nadella, CEO to Microsoft’s Cloud business proceeding at an annual run rate of $4.4 Billion USDs. This is a substantial number. Facebook’s annual run rate, per their latest 10Q as filed with the US SEC is approximately $12 Billion USDs. Google’s entire “Other” product revenue segment produced $1.6 Billion USDs for the latest quarter, only 9% more than the run rate Microsoft is claiming for its cloud offers (mostly Azure and Office 365).

The rate at which Office 365, specifically, is developing into a promising revenue opportunity for Microsoft should not be underestimated. We have first hand experience with the cost realities. We maintain an Office 365 E3 plan and a Dynamics CRM Professional plan. These combined plans are costing us $90 USDs per month. Assuming we are simply one of literally hundreds of thousands of SMB customers, one can quickly get a grasp as to how large the potential market is for Microsoft for this offering.

But it gets better. One of the most highly promoted features of Office 365, and the basis for a lot of the editorial content enfusing Satya Nadella’s recent presentations, has to do with Business Intelligence (BI) and Analytics. We purchased an Office 365 E3 plan in order to leverage some of these features, for example, SQL Server Reporting Services for SharePoint, and Excel Services for SharePoint. But Power BI, which includes Power Map, Power Q&A, etc, is now an extra cost add on service, which we will need to pay for. At a listed cost of $40 per user per month, we are looking at an almost 50% increase in our monthly subscription cost to add the service.

Are the benefits worth the expense? The answer will, of course, vary from customer to customer. But, for any SMB in a regulated industry, or any SMB doing business with larger companies with an appetite for BI reports, the answer will likely be yes.

Microsoft’s principal competitor for this type of service is IBM. To the best of our knowledge, Google has nothing close.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


Will Microsoft Become a Leader in the Online Advertising Market?

Microsoft® reported results for its Bing search engine and its online advertising business during its Q3 2014 earnings conference call. Mr. Satya Nadella, CEO, noted “We saw continued improvement in search, with our U.S. search share growing to 18.6%, and search revenue increasing by 38%.” Ms. Amy Hood, CFO, added “Display [ad] revenue from portal and email declined, while we saw ad revenue growth in products like Skype and XBOX.” (Quoted from a transcript of Microsoft’s F3Q 2014 Results webcast. The transcript can be found on the Seeking Alpha web site).

Readers should closely consider Ms. Hood’s comment, especially in light of a similar shift to a focus on App advertising opportunities, which Google reported in its latest quarterly earnings report, and an outright drop in Amazon’s Media sales, as reported in their latest earnings report.

Is it fair to say Microsoft is in a leadership position as the shift to App advertising spreads across the online advertising market? Perhaps the sales revenues, when compared to Google, or Amazon, are comparatively insignificant. But, in my opinion, Microsoft has an important advantage: MSN never went away. Any owner of a Surface 2, or Windows Phone device joins an MSN-like audience whenever they’re using the device. Bing News, and, indeed, 3rd party Apps from prominent content providers (including The New York Times, WSJ, and other publications). Ad placement within these features of the Surface 2, or Windows Phone “experience” may be more appealing. At least it’s safe to say, per Ms. Hood’s comments, revenue is growing for this type of online advertising.

The significance of Microsoft becoming a force in this market is, perhaps, more important for its competitors than Microsoft, itself. The online advertising market is a hotly contested space, unlike the market for cloud, IaaS offers. It is worth noting Mr. Nadella’s remark about the latter (he called it something of a “boom town” with “plenty of room”) for its consistency with similar remarks made about the same market made by Mr. Nikesh Arora during Google’s most recent earnings report.

But, as I’ve published recently to this blog, the combined market cap of the major contenders for the online advertising market (Microsoft is not included in this group, at least not yet), grossly exceeds PwC’s published forecast of the total global online advertising market for 2017. Competition is fierce for this business.

Disclaimer: I’m long Microsoft and have no current position in Google or Amazon

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved