Marketers are facing a similar circumstance whether selling service based offerings or the latest product. The storyline goes something like this; long standing market leader sees dominance in market challenged by new technology and competitors that under-cuts the existing marketers position, future profitability, viability and industry relevance.
Microsoft Corporation, not all that long ago, was the target of anti-trust legislation to curb what legislative proponents argued was unfair business tactics that limited competitor’s access to the huge business and personal software market that much of the computing world used to access the world of digital technology. Today the giant’s software sales market position is beginning to shrink as corporations and large organizations move their in-house computing functions out to the cloud. The migration has Microsoft initiating a shift from the old model of selling software to companies to install on their own computers to a cloud-based model where customers pay a regular subscription to share use of centralized computing servers. The course correction is generally viewed as a positive move for Microsoft but the transition to cloud based services is proving to be a bumpy ride for the behemoth.
Shares of the world’s largest software company fell more than 4 per cent after the company management forecast a drop in commercial licensing sales for the most recent past quarter. Microsoft’s cloud-based services revenue failed to make up for the loss over the same period. “The rotation from license to subscription is going to have pain points and they are starting to show,” said Colin Gillis, an analyst at BGC Partners.
Microsoft’s Chief Financial Officer, Amy Hood, expects sales from commercial licensing, which covers Windows, Office and server products for businesses, to be around $9.7 billion to $9.9 billion in the current quarter, a sequential dip from the $10.7 billion it reported for the last quarter, meanwhile Microsoft is forecasting only a modest growth in its emerging cloud-based businesses. “We view this softer guide as another indication of the near-term pain for long-term gain that CEO Satya Nadella and Microsoft must undergo as they make this cloud transition,” said Daniel Ives, an analyst at FBR Capital Markets.
Today the cloud market has many players but the market leader, Amazon, is writing the manual on how to take a lead and pull away from everyone else. If Amazon’s entire public cloud were a single computer, it would have five times more capacity than those of its next biggest 14 competitors, including second place Google, combined. Every day, one-third of those who use the internet will visit a site or use a cloud service that is running on Amazon’s cloud. It is doubtful, even just a few years ago, that the executive suite at Microsoft would have anticipated that their industry position would be diluted by the likes of Amazon and Google but the persistent and methodical advance of technology has a way of making once mega market players ill relevant. Can you say Kodak?
The market for cloud services is expected to grow considerably as concerns about security, integration challenges and information governance issues are adequately addressed. Small and mid-sized organizations are just now beginning to identify how cloud computing can benefit their operations and 56% of all enterprises are still identifying IT operations that may be candidates for future cloud hosting. The size of the cloud space will continue to grow for all competitors but in a computing service segment that sees market front runners navigating the space with the agility of jet skis a battleship like Microsoft will likely continue to struggle as it maneuvers deliberately among the competition. As it continues to implement the change in course Microsoft may find itself running aground more often as it charts its new direction.
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