Microsoft CEO Satya Nadella's genius plan: To swap one monopoly for another

Microsoft Channel 9

Once, not so long ago, "computing" was synonymous with Microsoft Windows. But thanks to the rise of the smartphone and tablet, those days are behind us. 

That's not to say that the new Windows 10 operating system is bad — far from it. It's even gotten me to switch from my MacBook to a Windows laptop, full time. 

In terms of pushing the industry forward, though, Windows 10 isn't doing much. The PC market is still shrinking, Microsoft still has a tiny sliver of the mobile market, and Windows 10 doesn't seem to be doing anything to stop those slides.

The good news for Microsoft is that doesn't matter. Microsoft, under the leadership of CEO Satya Nadella, has a master plan: 

Make Office into the new Windows.

Microsoft's big "mistake"

Everything you need to know is contained within a single quote from Microsoft CEO Satya Nadella, from an interview back in July:

"[One] big mistake we made in our past was to think of the PC as the hub for everything for all time to come," he said. 

Microsoft basically let the mobile revolution pass it by. While the Apple iPhone and Google's Android went on to create entire new application ecosystems and economies, Steve Ballmer's Microsoft just couldn't let go of the notion that Windows was forever.

Faced with the threat of the iPhone, Ballmer's Microsoft dug his heels in on Windows. The existing Windows Mobile operating system was, for a long time, an afterthought to the all-important desktop. Efforts to address the growing demand for touch-based computers, like Windows 8 and Windows RT, were disasters. 

By the time the (actually pretty great) Windows Phone 8.1 came out for smartphones, it was too late: Microsoft had lost badly in the exploding mobile market.

These days, Microsoft has a paltry 3 percent market share on mobile, while the iPhone and Android are both unqualified successes — the iPhone has a smaller overall market share, but it's crazy profitable, while Android is the most popular operating system in the world. Last year, 1.1 billion Android devices shipped, compared with about 300 million Windows PCs, according to Gartner.

Nadella ain't making the same mistake twice.

Taking over the phone, one app at a time

The logic is pretty obvious. If Microsoft can't come up with a smartphone platform that can topple the iPhone or Android, why not just take over the iPhone and Android?

While Windows has become less relevant, Microsoft Office is still the industry standard for getting stuff done.

Office workers and students both rely on Microsoft Word, Excel, PowerPoint, and the rest of the suite. Google Apps (recently rebranded Google for Work) is providing some solid competition, particularly in smaller businesses and tech startups, but almost every big business in the world still has thousands of Office licenses.

Rather than force Windows on users to make them use Office, Microsoft's new gameplan is to make Office irresistible to anybody, no matter what device they're using. 

Microsoft has been delivering a seemingly non-stop wave of mobile productivity apps for the iPhone and Android. To start, it was the usual suspects, including mobile versions of the Microsoft Office suite.

Then, Microsoft started gobbling up hot startups like Acompli and Wunderlist, rebranding their iPhone and Android apps as its own. Plus, we've seen a slew of nifty, if experimental, off-the-wall apps like the forthcoming GigJam, which tries to break apart work into discrete bits. 

Even Cortana, Microsoft's virtual digital assistant, is coming to iPhone and Android. 

It all comes back to the concept of "productivity," which became Microsoft's official corporate mission a few months back. Nadella officially stated that Microsoft's goal is to enable people "to achieve more."

If it sounds like vague corporate-speak, that's because it is. But for Microsoft, that vagueness may actually be a strength.

With the Windows PC no longer at the center of the company, it's free to push Office onto everything. If the iPhone bubble ever bursts and we move to getting chips implanted in our heads, you'd better believe Nadella will task a team to getting Microsoft Word running on our corpus callosum. 

A whole new family of products

So far, so good. But the real trick isn't just putting Office everywhere. It's making sure that Office 365 is the center of a whole new family of Microsoft online services that work together, using the cloud as their glue.

One piece of this is a boring-sounding product called the Enterprise Management Suite, a subscription-based bundle of technologies for enterprise IT administrators to help them manage their PCs and mobile devices. Microsoft COO Kevin Turner has said it's expected to become Microsoft's next billion-dollar business for the company.

This suite includes three products that serve big business needs:

Microsoft Intune, which manages and protects mobile devices — not just Windows PCs, as past Microsoft products have done, but also smartphones and tablets, including iOS and Android devices.

Azure Active Directory Premium, which manages passwords for employees for Windows and for thousands of other cloud apps. It's positioned as the replacement for Active Directory, a Microsoft product that companies have used for years. Only instead of running on a Windows server in a company's own data center, this version runs in Azure — Microsoft's cloud.

Azure Rights Management, which can password protect the data in Office documents and other compatible files so unauthorized people can't see the files, copy and paste text from them, and so on. Like Active Directory, a previous version of this product ran on Windows hardware inside a company's data center. This runs in Microsoft's cloud. 

No part of this product relies on Windows. This is a dramatic change from how Microsoft used to work. 

Plus, once you're using the Office apps, it's a lot more attractive to spring for extra Microsoft OneDrive cloud storage. Or to subscribe to additional Microsoft services like its much-hyped Power BI analytics tool. Or to get a subscription to Skype for Business. 

At the old Microsoft, it didn't care what apps you ran, as long as you ran them on Windows. The new Microsoft doesn't care what operating system you run, as long as you're running Microsoft services.

Making the financial transition

Microsoft is in a weird place financially. As it shifts away from sales of software licenses, and towards selling Microsoft Office 365 with a monthly subscription, its earnings are flattening out and will likely remain that way until the shift towards deferred revenue is fully realized.

But Nadella has done a good job thus far convincing Wall Street to be patient, explaining that this shift is in the name of future revenue growth. Office 365 subscribers are projected to bring in up to 80% more revenue per customer than the boxed copy customers over their lifetime.

Customers, for their part, are very much responding to Microsoft's all-apps-everywhere approach, with Office 365 sign-ups skyrocketing. Even General Electric just signed a big Office 365 deal with Microsoft.

Meanwhile, Windows 10 is largely intended to be a subscription sales funnel for Microsoft. On the enterprise side, a bunch of the Windows 10 identity management features don't work unless the company is a subscriber to the Enterprise Management Suite.

By focusing on productivity, it places Office at the center, where Windows once stood. And without the shackles of the PC, it has the potential to conquer every device we own — and a bunch we haven't even thought of yet.

Ultimately, Microsoft Office is going to end up as the glue that binds Microsoft together. When the operating system doesn't matter, the only thing that people care about is what you can do with it. 

NOW WATCH: The 7 best new features coming to Windows 10

See Also:

SEE ALSO: The 11 must-have free Windows apps if you're switching from an Apple Mac

Source: Microsoft CEO Satya Nadella's genius plan: To swap one monopoly for another