Microsoft excites customers again

  • By Drew Harwell The Washington Post
  • Friday, May 8, 2015 3:00pm
  • Business

Something very weird is happening in the tech world: Microsoft looks cool again.

The guileless, style-less suburban dad of digital America — maker of Clippy, Vista and the Zune — is suddenly intriguing developers, exciting customers and building things people actually want to use.

Now piloted by Satya Nadella, Microsoft’s 47-year-old dealmaker, the $390 billion tech giant is making friends with an army of developers, administrators and former antagonists who are helping strengthen its software and spread the word.

Just a year into the job, Nadella, Microsoft’s third chief executive in 40 years, has pushed the tech titan into surprising territory, unveiling a free version of Windows 10 that pledges to fix the sins of its predecessors while also playing nice with start-ups and studios that once left it behind.

But the Redmond-based giant is also using its gargantuan budget, including $11 billion spent last year on research and development, in hopes of forging the next generation of tech. One of its biggest, riskiest bets in years: the HoloLens, its sci-fi-style “augmented reality” goggles that project virtual objects in plain sight.

“What things like HoloLens show is this is a company that is still fighting very hard to produce innovative ideas,” said Brad Reback, a managing director and analyst at Stifel Nicolaus. “Some will work. Some won’t … but everyone’s paying attention.”

Within the last year, Microsoft cleaned house in its highest ranks, invested heavily in its Xbox One gaming console and spent $2.5 billion to buy Minecraft, one of the world’s best-selling video games. It also unveiled some long-awaited software, such as Office for the iPad, which helped send its stock to a 14-year high.

Within the past week, the company went viral with a photo analyzer that guessed (with varying success) how old someone looked and with news that Windows 10 will be the first version with its own middle-finger emoji, shareable in six skin tones.

Even Wall Street is finding something to love. Microsoft’s shares have climbed about 15 percent since its earnings call last month and more than 40 percent since 2013. Investors who once sought to cozy up to smaller tech start-ups are suddenly praising the new leadership of one of the world’s biggest computing juggernauts.

Microsoft has never had a heavily hyped, style-oozing release like Apple’s iPod or iPhone. But in the Bill Gates era, the company showed a certain verve and excitement that proved, in the early tech industry, hard to match. Twenty years ago, thousands waited in line to pay $90 for their fresh copy of Windows 95.

In the years after Gates stepped down as chief executive, in 2000, the company began to bungle releases and lose out on basically every big market-mover in tech, ceding ground to Google, Apple, Amazon and many others on smartphones, search and social networks, as well as online music, books and ads.

Under the watch of Nadella, analysts say Microsoft has radically changed even its most bread-and-butter tech.

It has revamped one of its dustiest offerings, Internet Explorer, and plans to unveil a new, streamlined browser, Edge, to compete with Google Chrome. And Windows 10, set for a summer release, is designed to run on nearly every device on the market, including laptops, tablets and smartphones.

Most notably, Windows 10 will be offered for free to the millions now working on Windows 7 and 8, transitioning what was once one of the company’s fastest-growing moneymakers into a new way to win customer loyalty.

Nadella has pivoted the company away from selling discs loaded with software to users every few years to selling subscriptions to cloud-based services, such as Office 365, that let users run Outlook, Word and Excel from the Web.

Microsoft is optimistic about the results these changes will bring. Nadella expects Microsoft’s yearly corporate-cloud earnings will more than triple within three years, to $20 billion, and the company wants 1 billion users to be using Windows 10 by 2018.

Microsoft is still one of the world’s most colossal tech firms: 1.5 billion devices worldwide run Windows, and 300 million Windows-loaded personal computers are sold every year. The company had profits of $22 billion last year, nearly enough to buy Twitter, and still has $95 billion in cash on hand.

But with its 118,000 employees and worldwide tech empire, Microsoft will never be as new or nimble as Silicon Valley’s glitziest start-ups. The company also lacks the moonshot projects of Google or the fashionable mojo of Apple. Campaigns like the Windows Phone have been costly disappointments, while innovative computers like the Surface still sit deep below (literally) the hype and sales of Apple’s iPad.

The HoloLens, analysts said, will mark the biggest test for whether the new Microsoft can restore some former glory. Though some reviewers have praised it as “one of the most amazing pieces of tech I’ve seen,” others have said it falls flat on the basics — for instance, having a field of view that is too constrained.

The risks are huge. The HoloLens is a new and untested gadget in a new and untested industry. Even if it beats out rivals such as Facebook’s Oculus Rift, there’s no guarantee people will want to strap bulky computers to their heads.

The HoloLens could easily go the way of the product on which its motion-sensing cameras were designed: the Kinect, a heavily marketed Xbox add-on that Microsoft increasingly avoids mentioning.

Yet the company once dinged as a modern tech monopoly, analysts said, is doing well to not show any sweat. In other words, it’s playing it cool. As Microsoft executive Dave O’Hara said at a Goldman Sachs technology conference in February, “For us it is more about … what the customers wanted and less about the competition.”

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