In his final letter to shareholders as Microsoft CEO, Steve Ballmer makes a rousing call for the company's recent strategy change and internal reorganization and says that although fiscal 2013 was a "pivotal" year for the erstwhile software giant, the best is yet to come.
The letter is available as part of Microsoft's fiscal year 2013 annual report. Suffice to say, it focuses on the positive.
"Last year in my letter to you I declared a fundamental shift in our business to a devices and services company," he writes. "This transformation impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses. This past year we took the first big bold steps forward in our transformation and we did it while growing revenue to $77.8 billion (up 6 percent)."
In the letter, Ballmer touts the following changes.
Financials. Microsoft grew revenue to record levels, but the firm's "earnings results reflect investments as well as some of the challenges of undertaking a transformation of this magnitude."
From strategy to reality: In the first year of its "devices and services" transformation, Microsoft released Windows 8; delivered a consistent user experience across Windows PCs and tablets, Windows Phone, and Xbox; and "made important advancements to Windows Server, Windows Azure, Microsoft Dynamics, and Office 365."
One Microsoft. In July, Microsoft announced a "One Microsoft" initiative in which the various parts of the company will strive toward succeeding at the firm's central strategy and not cross-compete. This central strategy is spelled out in a terrible new mission statement: "Create a family of devices and services for individuals and businesses that empower people around the globe at home, at work, and on the go, for the activities they value most." That's quite a mouthful, and a far cry from "a computer on every desk and in every home."
A focus on "high-value activities." Although many have criticized Microsoft's neverending pursuit of its next billion-dollar business, Ballmer says that the firm's "focus on high-value activities will generate amazing innovation and new areas of growth." These activities are "the experiences people have every day that are most important to them": communicating with others, conducting meetings with colleagues, mining data, and interacting with customers. It's all very vague.
Leadership = revenues. Microsoft will monetize those high-value activities by being a leader in devices and services. "Our consumer services such as Bing and Skype will differentiate our devices and serve as an onramp to our enterprise services while generating some revenue from subscriptions and advertising," Ballmer explains. "Enterprise services continue to be an area of great strength, growth, and opportunity as businesses of all sizes look to Microsoft to help them move to the cloud, manage a growing number of devices, tap into big data, and embrace new social capabilities."
Execution. Microsoft has been dinged for moving too slowly during the Ballmer years, but the firm has switched largely to a "rapid release cycle" for most of its major products (although sources tell me much of Microsoft is currently at a standstill while it awaits the outcome of its CEO search). Ballmer says that the newly restructured Microsoft is already "working together in new and exciting ways," with teams organized by function instead of by product. "We have one strategy and work as one team with one set of shared goals," he claims.
Nokia purchase. Ballmer says that Microsoft is purchasing Nokia's devices and services business—basically all of its smartphone assets and related manufacturing and support infrastructure—to "accelerate growth with Windows Phone while strengthening [Microsoft's] overall device ecosystem and opportunity." He calls this acquisition a "signature event in [Microsoft's] transformation."
Reporting insights. A new segment-reporting framework announced in September will provide shareholders, analysts, and others with insight into the progress Microsoft makes going forward. We'll need to see how that works in practice, as Microsoft's new reporting framework appears to me to be designed to hide losses by poorly performing businesses by lumping them in with successful ones.
Looking ahead. In the near term, Microsoft will deliver new innovations like Windows 8.1, Surface 2, Xbox One, new phones, and new enterprise offerings from Windows Server, Windows Azure, Microsoft Dynamics, and Office 365, Ballmer says.
"We have seen incredible results in the past decade, delivering more than $200 billion in operating profit," he concludes. "I'm optimistic not only as the CEO but as an investor who treasures his Microsoft stock. Working at Microsoft has been a thrilling experience—we've changed the world and delivered record-setting success—and I know our best days are still ahead."
It will be interesting to compare the goals stated in this letter with those that Microsoft's new CEO will pen a year from now. Will the One Microsoft vision and devices and services strategy survive the CEO transformation that's about to happen? Or is this corporate remaking just a temporary blip, one that we'll look back on like Microsoft's earlier and temporary effort to rebrand all of its products with the .NET moniker? Either way, Ballmer is right about one thing: This year will indeed be pivotal for Microsoft.