Microsoft's Nadella: There's room for us with Apple and Google in the consumer market

Microsoft (NASDAQ: MSFT) CEO Satya Nadella laid out a manifesto for the company to move beyond the "devices and services" mantra supported by his predecessor Steve Ballmer and into an era where the software giant focuses on "productivity and platforms."

CEO Satya Nadella

Nadella

Further, he wrote in a lengthy memo to company employees, Microsoft will think of every potential customer as a "dual user" who uses Microsoft services at work or school and in their "personal digital life." On that front, Nadella said in a separate interview with The Verge, it is not correct to assume that Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) have conquered the consumer market and that there is no room for Microsoft.

In the memo to employees, Nadella wrote that "in order to accelerate our innovation, we must rediscover our soul--our unique core. We must all understand and embrace what only Microsoft can contribute to the world and how we can once again change the world. I consider the job before us to be bolder and more ambitious than anything we have ever done."

As part of that transformation, Nadella wrote extensively on what he thinks Microsoft's "core" is at this point. "At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world," he wrote. "We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more."

Notably, he said Microsoft "will build first-party hardware to stimulate more demand for the entire Windows ecosystem. That means at times we'll develop new categories like we did with Surface. It also means we will responsibly make the market for Windows Phone, which is our goal with the Nokia devices and services acquisition."

Microsoft's Windows Phone platform is still lagging badly in terms of global smartphone market share; research firm IDC reported it captured just 2.7 percent of the global smartphone market in the first quarter of 2014. However, lower-cost devices, enabled perhaps by Microsoft's decision to drop licensing fees for devices with screens of less than nine inches, could change that.

In an interview with The Verge, Nadella said that "any current market share is not a marker for our future ambition. So the way I look at it is, you're pointing to the right challenge. And the solution to that challenge is to say, 'First, why would you want to pick one of our devices?'"

He added: "I don't want us to be shy about where we are differentiated, while competing in these other categories. So that's what I think we need to do with our devices."

Nadella said he "fundamentally" believes "that it's most important to us to convince consumers" to make Microsoft a part of their lives, as opposed to focusing on Microsoft products in the enterprise. He said Microsoft is not conceding that Apple and Google own the digital consumer market.

"You're defining the market as, 'It's already done, Apple and Google have won, because they won the consumer side.' And I'm going to question that. I'm going to say, 'No, any thinking consumer should consider Microsoft because guess what, you're not just a consumer. You're also going to go to work, you're also going to be productive and we can do a better job for you in there.' And that's what I want to appeal to."

The Microsoft chief added that the only way to change the consumer mindset about Microsoft is through products. "We've got to make progress with our tablet share, with Surface Pro 3, we'll talk about that when we talk [in our earnings call on the 22nd]," he said. "We're going to change it by producing phones--where we grow in countries where we've grown from 3 to 10 percent, celebrate that. And then have higher ambition. There are many countries, even in Western Europe, where we have over 10 percent share, and I completely recognize that if you are not growing in the U.S., for you we are nothing, and I'm grounded in that reality. But at the same time, [we will] keep coming at it and keep coming at it, but have a core which you really are using to differentiate what your value proposition for the user is."

Nadella made clear in the memo he wants to shake Microsoft out of its traditional way of doing business, and thinking of productivity as going beyond documents, spreadsheets and PowerPoint slides. "We will reinvent productivity for people who are swimming in a growing sea of devices, apps, data and social networks," he wrote. "We will build the solutions that address the productivity needs of groups and entire organizations as well as individuals by putting them at the center of their computing experiences. We will shift the meaning of productivity beyond solely producing something to include empowering people with new insights."

How does Nadella plan on getting there? There are several tools Microsoft wants to push that he wrote will let people "meet and collaborate more easily and effectively. They will express ideas in new ways. They will experience the magic of ambient intelligence with Delve and Cortana." Cortana is the digital personal assistant Microsoft introduced with Windows Phone 8.1, which will be rolled out as a software update in the coming months and will be included on all new Windows Phones.

Delve is a tool Microsoft has been working on for years but has not talked about much until recently. Delve uses what Microsoft calls the "Office Graph, which "uses sophisticated machine learning techniques to connect you to the relevant documents, conversations, and people around you." Delve basically searches a person's emails, social networks, and corporate documents stored in Office 365.

Nadella also spoke about the importance of Azure, Microsoft's cloud-based operating system. Notably, he also wrote that devices and hardwire will remain a key part of Microsoft's strategy for enhancing productivity. "Azure and Windows Server makes us the only company with a public, private and hybrid cloud platform that can power modern business," he wrote. "We will transform the return on IT investment by enabling enterprises to combine their existing datacenters and our public cloud into one cohesive infrastructure backplane."

While Nadella did not specifically indicate that job cuts would be a part of the transformation in Microsoft, he wrote that "every team across Microsoft must find ways to simplify and move faster, more efficiently. We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes."

For more:
- see this Microsoft memo
- see this Re/code article 
- see this The Verge article
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Business Insider article

Related Articles:
Nokia X2 shows Microsoft's continued support of Google's Android
Report: Microsoft to enable Kinect-like 3D gestures for its own Windows Phones
Microsoft exec indicates Windows Phones costing $200 and below are coming
Microsoft exec hints at new HTC Windows Phone work
Microsoft's Nadella: Despite Nokia hardware purchase, we're a software company

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