Posted by Mark Bartrick on April 29, 2014
It’s been an interesting few weeks for Microsoft. XP has gone off Support and left many clients exposed to security risks. At the same time, the US Government has just warned all users to avoid using Internet Explorer (IE) versions 6 to 11 as they say that there is a serious flaw that hackers are already apparently exploiting.
Against this backdrop, Satya Nadella, Microsoft’s newly minted CEO, joined Microsoft’s recent earnings call to talk about the ‘courage’ they will exhibit as they move forward. Let’s hope that courage includes supporting clients who find themselves in difficulty from product flaws.
Microsoft reported earnings were $6.97 billion on revenue of $20.4 billion; this is roughly flat with a year ago. But this third quarter fiscal 2014 earnings call might be more memorable for the fact that the company's CEO was on the call than for anything about the earnings report itself. Nadella spent an hour on the analyst call on April 24 talking Microsoft strategy and answering Wall Street analyst questions. That's something former CEO Steve Ballmer rarely did.
While Nadella didn't make any major announcements, he did drop a few hints that might tell us more about his plans and where Microsoft may be going.
"What you can expect of Microsoft is courage in the face of reality, we will approach our future with a challenger mind set," Nadella told analysts. Here are a few challenges that spring to my mind; cumbersome and sometimes conflicting contractual paperwork, product divisions working in isolation from each other, Google and IBM competing hard in the email/collaboration/cloud space, having to cut Azure prices to more closely align to Apple and Amazon, and a frustratingly slow start in the tablet space.
One item that particularly caught my ear was Nadella saying "We're well on our way to making the transition in terms of moving from pure licenses to long-term contracts and as well as subscription business model,". This validates what I’ve been saying for quite a while; I believe Microsoft is on a mission to move everyone on to some form of subscription licensing. Whether it’s on-premise or in the cloud, Microsoft doesn’t mind – so long as it’s a subscription. That removes the option of clients buying perpetual licenses and then running them (without upgrading or buying Software Assurance) for five or even ten years. While such activity drives great ROI for the client, this model means minimal or zero revenue for Microsoft beyond the original license purchase. Microsoft wants more revenue coming in more regularly. Once a customer moves to a subscription model, they have to keep up their regular payments or the lights go out.
One footnote: You’ve probably read my various articles on the pros/cons of Software Assurance (SA). Well, Microsoft has just added another tweak to ensure you keep buying SA. As it made SQL Server 2014 GA on 1st April 2014, it also announced that the additional passive failover license that until recently was a nice free benefit to all SQL users will now only be provided to those clients who have SA on their SQL 2014 licenses. It’s another lesson from the masters of marketing; if Microsoft giveth, it often taketh away too. So be careful when you plan your SQL Server 2014 purchases.
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