For years, some top Windows executives at Microsoft (MSFT) wouldn’t even say the word “Apple” in interviews, although one used the phrase “the fruit company.” Times have changed: In a June interview, Julie Larson-Green, then chief of Windows engineering, said the company should respond to the growing dominance of Apple’s (AAPL) iOS and Google’s (GOOG) Android on mobile devices by developing apps for those platforms. “We can provide unique, differentiated experiences on our devices and on other people’s devices,” said Larson-Green, who on July 11 was named to run Microsoft’s new hardware and studios group in the company’s latest reorganization.
Larson-Green’s way of thinking is prevailing at Microsoft as the company faces plummeting demand for Windows PCs. Its operating systems now control 20 percent of the total consumer-computing market, which includes smartphones and tablets, compared with 42 percent for Android and 24 percent for Apple’s systems, Goldman Sachs (GS) data show. Microsoft has struggled to move into mobile devices; its Surface tablets accounted for just 3.7 percent of tablet sales, and phones running its Windows Phone operating system made up 3.2 percent of smartphone sales in the first quarter, according to market researcher IDC. On July 18, Microsoft announced its biggest quarterly profit shortfall in more than a decade, taking a $900 million writedown on unsold Surface tablets.
“As the market changes, we have to change with it,” spokesman Frank Shaw says of the shift in thinking. “As a high-value services company, you have to think about how you reach people where they are. Sometimes it’s going to be on a tiny device that belongs to us and sometimes it’s going to be on a big screen that doesn’t belong to us.”
Microsoft makes about 15 apps for iPad and 20 for iPhone, and it offers about 10 apps for Android. While its note-taking program, OneNote, and Bing search app have been available at the iTunes Store for years, the company released limited mobile versions of Word, PowerPoint, and Excel for the iPhone only in June. The apps don’t let users access certain features and require a paid subscription to Microsoft’s cloud-based Office suite, but they’re a big step toward having the full product on Apple mobile devices. In July, Microsoft released a version of Outlook for iPhone and iPad. When iOS 7 ships this fall, Apple mobile users’ voice questions to Siri will typically be answered by Microsoft’s Bing search, not by Google.
In June, Microsoft put aside a longtime rivalry with database maker Oracle (ORCL), striking a deal that will put Oracle’s software on the Windows Azure cloud service. Xbox chief product officer Marc Whitten says the Windows team supported the decision to make the game console’s mobile link compatible with iOS and Android. The attitude was “let’s go build on the things that can be great, instead of just deciding arbitrarily to limit how customers can come into the ecosystem,” Whitten says, “which tends to hurt us all in the end.”
Aaron Levie, chief executive officer of Box, a maker of collaboration and online-storage software, says he expects Microsoft will give more power to executives who excel in working with the broader tech community as a result of the reorganization. “Microsoft is going through a little bit of a DNA change,” Levie says. “The world of blocking out or crippling your platform to prevent your competitors from gaining traction or being successful is just going to mean people move to another platform.” Levie’s own software competes with Microsoft’s SharePoint, yet he appeared onstage at his rival’s annual developer conference in June, clad in an “I’m a PC” T-shirt, to promote Box’s compatibility with Windows Azure.
There are still some hints of the old Microsoft. Mark Penn, the former Clinton-family political operative who developed Microsoft’s Google-baiting “Don’t Get Scroogled” campaign, got a hefty promotion in the latest reorganization. Larson-Green and Whitten maintain that the company’s apps and services work best running on Windows and a Windows-based phone. Gartner (IT) analyst Carolina Milanesi describes the strategy as, “We can’t beat them, so we join them, but we don’t join them in a way that hurts us.”