Microsoft CEO Steve Ballmer’s shareholder letters aren’t exactly gripping reading—he doesn’t use them to announce new products or sudden deviations in strategy. However, they do offer a snapshot of how Ballmer views Microsoft and its ultimate direction.
And according to his latest letter, Microsoft sees itself as a “devices and services company.” The subsequent 1,200-odd words hammer that point, mentioning software such as Office and Windows 8 largely in the context of tablets and other hardware—and while Ballmer acknowledges the “vast ecosystem of partners” building a “broad spectrum of Windows PCs, tablets and phones,” he leaves the door wide open to Microsoft building its own toys in-house.
“There will be times when we build specific devices for specific purposes, as we have chosen to do with Xbox and the recently announced Microsoft Surface,” he wrote. “In all our work with partners and on our own devices, we will focus relentlessly on delivering delightful, seamless experiences across hardware, software and services.”
In a section titled “Our Future: Big Opportunity,” he added that one of Microsoft’s prime focus areas will be “developing new form factors that have increasingly natural ways to use them including touch, gestures and speech.” That’s the first bullet-point; subsequent ones include “making technology more intuitive,” building and running cloud services, promoting the heck out of Windows as a cross-device platform for PC and mobile devices, and “delivering new scenarios with life-changing improvements in how people learn, work, play and interact with one another.”
(The number of times the word “software” is mentioned in those bullet-points? Zero. Which may seem a little odd to some people, considering how Microsoft built its fortune on selling software to consumers, businesses and hardware vendors.)
If one takes Ballmer’s words at face value, it seems that Surface, the tablet Microsoft’s building in-house and promoting as a “flagship” Windows 8 device, isn’t so much a lark but the harbinger of the company’s future direction. The Surface tablet will come in two flavors: one running Windows 8 Pro powered by a third-generation Intel Core processor, and another the ARM-based Windows RT. Both Surface tablets will include 10.6-inch screens with a kickstand and flexible cover that doubles as a keyboard.
It’s a big question whether that will sit well with Microsoft’s hardware partners. In its annual Form 10-K filing with the Securities and Exchange Commission (SEC) over the summer, Microsoft stated: “Surface devices will compete with products made by our OEM partners, which may affect their commitment to the platform.” That statement seemed downright prophetic a couple weeks later, when an Acer spokesperson told Bloomberg: “We think that Microsoft’s launch of its own-brand products is a negative for the whole PC industry.”
Whether Microsoft’s decision to build its own devices affects its long-term relationship with Dell, Hewlett-Packard and other manufacturing titans remains to be seen. Perhaps Ballmer can take some comfort from Apple, which profited enormously by pursuing the “we build everything in-house” route. But it’s indisputable that a devices-centric approach is new ground for Microsoft.