Surface RT tanks Microsoft's earnings

Microsoft fell way short of analyst estimates for its fourth fiscal quarter, with revenues nearly a billion dollars short of what analysts had expected.

The culprit? Microsoft’s Surface RT tablets. A lack of sales forced Microsoft to take a $900 million charge, in addition to a previously deferred $782 million charge related to Microsoft Office.

Sources close to Microsoft said that the charge reflects the recent pricing changes for Surface RT.

Surface RT Microsoft reported net income of $4.97 billion (59 cents) on revenue of $19.90 billion, nevertheless, which showed strong improvements from a year ago. The company reported a 10.1 percent increase in revenue from a year ago, when Microsoft reported a loss of $492 million. For the fiscal year, Microsoft reported net income of $26.86 billion on revenue of $77.85 billion.

Analysts polled by Yahoo Finance expected Microsoft to report an EPS of 75 cents per share, on revenue of $20.73 billion.

Microsoft has struggled to convince consumers to support its newly released Windows 8 operating system, but the company recently released a preview of Windows 8.1 as a “do-over” to win back customers. Win 8.1 has customer-friendly features that include the ability to boot directly to the desktop, as well as a “start button” that takes them back to a reorganized Windows Start Page.

Steve Ballmer, Microsoft’s chief executive, took a forward-looking approach Thursday, pointing to the company’s recent reorganization as a recipe for success.

“We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs,” Ballmer said in a statement. “Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating 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 the most.”

Steve Ballmer

In a study conducted by online advertising network Chitika, the share of North American web traffic from Windows 8 operating systems has grown to 4.8 percent, the company said Wednesday.

"Windows’ hold on the continental desktop OS marketplace remains as strong as ever,” Chitika said in a statement. “While this is certainly good news for Microsoft, it is tempered by the continued growth of mobile web browsing, where the company is not as strong, along with the more gradual slope of Windows 8 growth rate within North America."

"However, Microsoft’s decision to make some changes to the recent Windows 8.1 update may spur more users to adopt the new OS, as the company has attempted to address some of the user concerns surrounding the initial version of the software.”

Microsoft’s Windows Division revenue grew 6 percent for the fourth quarter and 5 percent for the full year. Excluding the $540 million impact of its Windows Upgrade Offer revenue deferral, however, the Windows Division revenue would have decreased 6 percent for the fourth quarter and 1 percent for the full year.
Microsoft was also affected by the continued slide in the PC market, which has seen consumer buy tablets and phones rather than PCs. Amy Hood, Microsoft’s chief financial officer, said that Microsoft is instead investing in cloud services.

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE,” Hood said. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

Microsoft’s traditional pillars of strength continued to buoy the company.

Microsoft’s Business Division reported the highest profits and revenue, at $4.87 billion ($4.1 billion a year ago) and $7.2 billion respectively ($6.3 billion a year ago).Server and Tools reported $2.3 billion in profits (versus $2.04 billion a year ago) on $5.5 billion in revenue ($5.1 billion a year ago).Microsoft’s Entertainment and Devices Division also saw its losses shrink from $252 million to $110 million, as revenues grew from $1.78 billion to $1.92 billion.Microsoft’s online business continued its money-losing ways, with a loss of $372 million on increased revenue of $804 million.Bing organic U.S. search market share was 17.9 percent for the month of June 2013, up 230 basis points from the prior year period, Microsoft said.

  “We continue to see strong demand for our enterprise products and services, with more and more customers making long-term commitments to the Microsoft platform,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud.”
Microsoft did not release a revenue outlook. 

Four things CIOs need to know about Microsoft's reorg

Last week’s big Microsoft reorganization should have caught exactly zero people by surprise. A couple of high-ranking executives departed, and departments were shifted so the senior leadership team can purportedly focus on engineering excellence and becoming more relevant across a spectrum of devices.

Read PCWorld’s analysis of what Microsoft’s new product groups mean for you

But what does this mean for the CIO? What do Microsoft’s internal machinations imply for its corporate customers? From my perspective, it means four different things for you. Let’s take a look at each of them.
When CEO Steve Ballmer wrote in his memo to the troops that this was a reorganization “that will enable us to innovate with greater speed, efficiency and capability in a fast changing world,” he wasn’t kidding about the greater speed part.

Windows 8 is getting a quick facelift with the August arrival of the 8.1 update.
You’ve probably noticed by now that the ill-received Windows 8 is receiving a quick facelift in Windows 8.1. This will be released to original equipment manufacturers for inclusion in their devices by the end of August, according to the company’s Tami Reller at the recent Worldwide Partner Conference in Houston.The head of Windows Azure, the company’s cloud computing platform, said at the TechEd conference that his team targets updates to cloud services inthree-week intervals.The Microsoft Exchange team has switched to a servicing model that releases quarterly updates. These are deployed like an entirely new version of Exchange, as opposed to just a service pack. This is a reflection of the company as a whole, which seems to be eschewing the concept of service packs and instead focusing on delivering changes via more frequent updates.
This is a huge change for IT departments everywhere, but especially in larger enterprises, who typically wait months, if not even a year or more, before deploying new releases of critical software en masse to users.
It’s entirely unclear whether this faster release cadence is solving a problem that anyone outside of Microsoft has, but for the time being, the message is clear: Get used to being only 12 months away from a shiny new version of whatever you’re using, regardless of whether this accelerated timetable actually aligns with your organization’s strategic plans.
The fire hose is turning on. Hope you’re thirsty.
Microsoft’s current line is that it gives you the best of both worlds-best-in-class operating systems for your own server rooms and data centers, and the same operating system that works the same way in private cloud services and up on Windows Azure.
This is absolutely correct. No competitor even comes close to creating the so-called “virtuous cycle,” where improvements in on-premises software make their way up to the company’s cloud services, while the best practices, feature improvements and bug fixes found by running hundreds of thousands of servers in the cloud make their way into the engineering for the next release of the on-premises operating system. This is a real win.

Microsoft’s Steve Ballmer
However, this virtuous cycle can still be virtuous for Microsoft without being so valuable to non-cloud customers. In fact, the days of on-premises Microsoft line of business software for your own datacenters may well be numbered, even if the company currently promises otherwise.
It’s not difficult to see an era where, as Microsoft steers its ship into the harbor of devices in services, it decides to develop more in the cloud and, perhaps, save some of the effort and expense of engineering new operating system releases. (That doesn’t appear to be in the immediate future, given the quick follow-up Windows Server 2012 R2 release only about a year after the original Windows Server 2012 release to manufacturing.)
If Redmond is creating devices that exist to consume its services, those services will naturally be a key area of investment for the company. They’ll also drive recurring revenue, whereas perpetual software licenses generally do not, and are less “sticky” to boot.
The slow but steady decline of the personal computer has not been kind to the outlook for the software giant, while the emergence of Microsoft Surface as a sort of tablet window into the era of personal devices has not gone as well as the software giant had hoped, surely.
The Windows franchise lives and breathes at this point with PC shipments, and with Barron’s reporting that PC shipments fell by 11 percent this quarter as compared with the same period last year, the problem is clear: Microsoft needed to shift, even on the server and enterprise side, one of the billion-dollar, consistently profitable segments of the company.
Ballmer was nervous and needed to light a fire. The reorganization, according to Ballmer, is intended to help transform the company into an era where PCs are just one piece of a much larger pie.
“The form of delivery shifts to a broader set of devices and services versus packaged software,” Ballmer writes in his memo, indicating that he wants Microsoft relevant in more than just PC and Xbox.
Microsoft is playing for more than enterprises and knows that PCs aren’t where the money is anymore. For the CIO, this means a Microsoft that’s not as laser-focused on business tools as it has been throughout its existence, with some exceptions, but is attempting to reach consumers, gamers, executives, artists and so on.

News flash: Microsoft desperately wants you to subscribe to the cloud. It really wants your mail and collaboration in Office 365, it wants your Web services hosted on Windows Azure, it wants your sales force using hosted Microsoft Dynamics, and it wants your spam filtering done by Exchange Online Protection. It wants to hook you in, send you an invoice every month, and seal you into the Microsoft ecosystem-and for the trouble, you’ll receive upgrades, support and (hopefully) always-on service.
You know what? For some businesses, this is exactly where to be. This message is compelling for resource-challenged small to medium-sized businesses to play at a scale that Microsoft can offer for pennies per hour. The majority of small businesses have no reason to run an in-house email server. The majority of medium-sized businesses can’t roll out a Web application on a scale and in the timeframe by themselves that they could by spinning up some Windows Azure instances.

This Microsoft, for these businesses, is a good thing. More power and capability has never been available at a lower price than now. This focus of Microsoft means good things in these capacities for these audiences. 

IE10 captures second place among Microsoft's browsers

Internet Explorer 10 (IE10) jumped into second place among Microsoft's browsers last month, pushing past IE9 through an enforced upgrade.

IE10's user share climbed from 16.5 percent to a record 24 percent of all copies of Internet Explorer in June, according to Web measurement firm Net Applications.

Among Microsoft's five supported browsers, IE10 was the second-most-used, leapfrogging the two-year-old IE9, which shed user share to end June with 20.9 percent of all copies of Internet Explorer. The 12-year-old IE6 was fourth with 10.9 percent, while 2009's IE8 remained in first with 40.4 percent.

IE10's climb has accelerated: June's user share increase was the largest since the browser's introduction on Windows 7 in February. As in previous months, June's jump was fueled by the automatic update from IE9 to IE10 on Windows 7 that kicked in last winter.

Windows 8's gradual if not dramatic rise in user share also contributed to IE10's increase, since that and Windows RT come with IE10: Windows 8's share grew in June by the largest amount since its October 2012 launch.

IE10's climb was mirrored by a large fall in IE9's user share; the browser that once threatened IE8's dominance plunged from 27.5 percent of all copies of IE to 20.9 percent. IE9 peaked in February 2013 at 38.8 percent, but unless Microsoft soon runs out of Windows 7 PCs to upgrade, the browser could be eclipsed by the still-surviving IE6 within a couple of months.

Overall, IE remained flat with approximately 56 percent of the user share of all browsers, implying that few if any of IE10's gains came from people switching browser brands. About 39 percent of all Windows users ran a non-Microsoft browser in June, slightly less than in May.

IE8 lost about seven-tenths of a percentage point in June—the largest decrease since December 2012—to end with a 40.4 percent share of all copies of Internet Explorer. IE8 will remain the most popular of Microsoft's browsers for some time, experts have said, because as the most modern version available for Windows XP it's been made the standard in enterprises supporting heterogeneous environments with both Windows XP and Windows 7 systems.

The rapid rise in IE10's user share has been unprecedented in Microsoft's experience. It has been much more akin to the quick turnover by rivals like Chrome and Firefox, which also automatically upgrade users, than any previous edition of Internet Explorer, showing that the Redmond, Washington developer can, if it wants, migrate large numbers of users to a newer browser.

But IE10's time as a climber will probably be short lived: Microsoft has promised to deliver IE11 for Windows 7, which will trigger a downturn in IE10's user share and corresponding rise in IE11.

Other browsers stayed in their long-inhabited positions grew and shrank in Net Applications' measurements, with Chrome exiting June with 17.2 percent, an increase of 1.4 percentage points, and Firefox dropping by 1.5 points to 19.2 percent. Apple's Safari and Opera Software's Opera remained flat at 5.6 percent and 1.6 percent, respectively.

Microsoft's 'enterprise feature pack' for Windows Phone adds auto VPN

Microsoft said Wednesday that it planned to release an “enterprise feature pack” for corporations who wish to adopt Windows Phone, while extending the support lifecycle for Windows Phone 8 to 36 months, through 2016.

The new feature pack includes VPN functionality that will automatically trigger when protected resources are accessed, Microsoft said, plus S/MIME to sign and encrypt email and EAP-TLS enterprise Wi-Fi support. The pack will be released in the first half of 2014, Microsoft said in a blog post on Wednesday.

Microsoft
The real question, however, is whether Microsoft’s carrier partners will allow the feature pack to be pushed to their customer’s phones—or, at least, that was what virtually every commenter on Microsoft’s post had in mind. Carriers typically review, test, and deploy new OS upgrades over a matter of months, with no guarantee that updates will actually be pushed to consumers.



And while Microsoft also extended the support lifecycle of Windows Phone 8, it did not extend that same courtesy to those who own Windows Phone 7 devices, making Microsoft’s older platform less attractive. Microsoft will make updates, including security updates, available on WP7 phones for a total of 18 months, or until Sept. 9, 2014. At that point, they’ll be forced to shift over to WP8 phones, which will be supported, including security updates, through Jan. 12, 2016. (TechHive has rounded up eight other reasons for upgrading to Windows Phone and WP8, and written a Windows Phone SuperGuide, to boot.)

In all, however, Microsoft hopes that businesses sign on to the Windows Phone platform with the same enthusiasm they've shown for Windows 8. (Kevin Turner, Microsoft’s chief operating officer, told attendees at Microsoft’s Worldwide Partner Conference that 73 percent of enterprises are “current” on Windows.)

MicrosoftYou could be seeing this screen in a corporate environment if Microsoft has its way.
”By lengthening the Windows Phone support lifecycle policy and announcing the enterprise feature pack, we show Microsoft’s commitment to the Windows Phone platform,” Tony Mestres, vice president of Windows Phone partner and channel marketing, wrote. “This gives business customers the confidence to invest in Windows Phone today, with the knowledge that their investments are secure, and the platform is evolving to be an even better choice for business.”

The full list of the enterprise feature pack includes:
S/MIME to sign and encrypt emailAccess to corporate resources behind the firewall with app aware, auto-triggered VPNEnterprise Wi-Fi support with EAP-TLSEnhanced MDM policies to lock down functionality on the phone for more enterprise control, in addition to richer application management such as allowing or denying installation of certain appsCertificate management to enroll, update, and revoke certificates for user authentication
Nevertheless, some users were doubtful that they’d ever see what Microsoft promised. “This is all excellent news, and I can’t wait for this to be available... but how will this feature pack be released?” a commenter named “GoodThings2Life” wrote. “Will we continue to be at the mercy of carriers and OEMs to publish this in a timely manner, or will it be available as a store app or customer-installable or enterprise-pushable update?

”I vividly remember Joe Belfiore saying at 2012 Build and again at the WP8 launch event how we would be able to participate in an Early Adopter style program, and that has yet to materialize for customers,” the commenter added. “I would hate to see another situation where we’re stuck waiting on OEMs and carriers.”

Microsoft's Visual Studio update addresses the connected app

Microsoft kicked off its Build conference in San Francisco this week by releasing a preview of the next version of its Visual Studio IDE (integrated development environment), as well as updates to other development tools.

 

“If you are interested in building a modern, connected application, and are interested in using modern development lifestyles such as ‘agile,’ we have a fantastic set of tools that allows you to take advantage of the latest platforms,” said S. “Soma” Somasegar, corporate vice president in Microsoft’s developer division, in an interview with IDG News Service.

 

Somasegar noted, for instance, how the new Visual Studio provides more tools to help developers build applications for Windows 8.1, a beta of which is also being released this week.

 

Microsoft is releasing a preview of Visual Studio 2013, the final version of which is due to be released by the end of the year. The company is also releasing Visual Studio 2012 update 3, and a preview of the .NET 4.5.1 runtime framework.

 

Many of the new features in Visual Studio 2013 address the kinds of mobile, connected applications that developers need to build these days, Somasegar said. For instance, it provides new tools to profile energy and memory usage, both of which must be considered when building applications for mobile devices. It also includes a new tool for providing metrics on how responsive an app is for users.

 

Visual Studio 2013 is also tackling the challenge of writing an application that relies on cloud services in some fashion. Microsoft is providing interface from Visual Studio to its Azure Mobile Services, which synchronizes data and settings for a program used across multiple Windows devices.

 

Visual Studio 2013 itself will also be easier to use across multiple devices. It will allow developers to define environmental preferences, or the settings and customizations for their own versions of Visual Studio, that then can be applied to other copies of the IDE. Microsoft can store these environmental settings in the cloud, so they can be downloaded to any computer connected to the Internet.

 

“People go through a lot of trouble to set up their environment. Once they go to a different machine, they must go through the same hoopla again to get to recreate the environment they are comfortable with,” Somasegar said. “Once you set up your environment, we store those settings in the cloud, and as you go to another machine, you won’t have to recreate your environment.”

 

Another new feature, called Code Lens, provides “a class of information that, as a programmer, has been historically hard to get.” It can show, for example, which part of a program is calling a particular method and what other methods that method calls. Visual Studio 2013 also expands its support for C++ 2011, the latest version of the C++ language. Visual Studio’s feature for debugging the user’s own code (as opposed to running a debugger against the entire set of code) now works with C++ 2011.

 

Beyond Visual Studio, Microsoft is building more developer hooks into the next release of its browser, Internet Explorer 11, which is expected to be released with Windows 8.1.

 

Microsoft has completed “a major revamp” of the tools the browser provides to developers. The browser will come with a source-code editing tool, as well as a number of built-in diagnostic tools, Somasegar said. The idea is that the developer won’t have to toggle back and forth between the browser and the IDE. A Web application or page can be run, and mistakes can then be fixed, directly from within the browser.

 

With .Net, Microsoft worked on improving performance of the runtime environment. It can also provide more diagnostic information on how much memory a .Net program is using, and provide more information in a dump report should a program crash. Also, once a developer chooses a particular platform for a .Net project, such as an ASP.Net project, .Net will only display the components that can be used on that platform.

 

Microsoft is also releasing a white paper that offers a road map of where .Net is headed. The paper will be “one cohesive document that talks about .Net as it relates to Windows, Windows Phone, Windows Azure,” Somasegar said. “It is a comprehensive document that shows people how to think about the future as it relates to their current .Net investments.”

 

When Windows 8 and Windows RT were introduced, many Windows developers voiced concerns about the future of .Net, due in no small part to how little the platform was mentioned in Microsoft’s initial instructions on building Windows 8 modern applications.

 

Somasegar said Microsoft has always encouraged, and will continue to encourage, the use of .Net as a way for developers to write “managed code” for Windows 8 and Windows RT modern applications, as well as for Windows desktop applications.

 

In addition to issuing previews of Windows 8.1 and Visual Studio 2013 this week, Microsoft is also releasing a preview of the latest edition of the company’s application lifecycle management software, Team Foundation Server 2013.

 

 

Microsoft's 'Bing Boards' allows users to curate search results

Microsoft’s push to make its Bing search engine more social will take it in a new direction—actually letting a select group of users curate results.

Microsoft’s “experiment,” known as Bing Boards, will allow a small group of food and lifestyle bloggers, experts, and social influencers to cultivate their own selection of search results on a given topic. The Board will be a visual collection of images, videos and links that tell the story from the blogger’s point of view, Microsoft said.

These results won’t replace the search result that Bing normally returns, but will sit alongside them within the middle column of Bing’s search results, Chen Fang, program manager of Bing Experiences, said in a blog post.

When one searches Bing, the results show up in the middle of the page on a 4:3 screen, or on the left hand of a widescreen monitor. The Bing Board appears as a larger image to the right of the main search results. When clicked on, the Board opens up to a larger image, with additional links and images inside.

Microsoft

“Most people spend at least some time every day on sites dedicated to a particular area in which they have a special interest,” Fang wrote. “It could be a hobby, a political or social issue, an area of pop culture: the topics are as varied as the people who are interested in them. Now, in the same way that we’ve brought knowledge from friends and recognized experts into search, we’re providing a new way for passionate people to create highly specialized content, specifically for search.”

Microsoft said that it will use a team of editors to bring on new contributors with content that  “shares an interesting point of view and is visually unique,” a spokesman said an email, factoring in metrics such as traffic and online influence as well. In an example search, searching for “photo booth backdrop” generated a Bing Board by Chelsea Costa of Lovely Indeed, a DIY blog. All of the links within the Bing Board went to the Lovely Indeed site.

“Bing Boards are another way for creative online influencers to express their words, images and point of view on their passions and reach readers who are interested in the content they are producing,” Microsoft representatives said in response to a question about whether bloggers would be responsible for curating third-party content.

Microsoft said that the Bing Boards are but one of hundreds of minor tweaks Microsoft engineers apply to the site on a regular basis. “Most are nearly invisible, ranging from small tweaks to the search algorithm, to changes in our ad selection, to optimizations in the color, size, and placement of features,” Fang wrote.

The Bing Board appears to the right of search results.

About 17.4 percent of all U.S. search results are returned via Bing, according to May data collected by comScore. That puts Microsoft a distant second to Google, which controls 66.7 percent of the U.S. search market.

In 2010, Microsoft and Facebook joined forces to create an instant personalization feature for search results, with some results tagged as “Liked by your Facebook Friends.” The partnership grew closer over time: Microsoft added a “social” column to allow users to ask questions of Twitter and Facebook friends, and then integrated results if those friends had commented, liked, or referred content from a variety of social networks, including LinkedIn and even Google+. Bing even allowed users to search Facebook Photos, if logged in, via a feature that predated Facebook’s own Graph Search.

In March of this year, Bing added Facebook and Twitter data to people searches. And in May, Bing allowed users to comment and Like search results, directly on the Bing site.