Microsoft. A name that is familiar to one and all, a brand that is known well beyond the reaches of most Silicon Valley companies. However despite the immense brand recognition that Microsoft Corporation (NASDAQ:MSFT) commands in the realms of technology, and beyond; they have never been able to become synchronous with a product or action.While Windows has been dominant in the PC market, and Office has become an essential cog of the enterprise software suite, Microsoft has failed to become a verb as Google and Xerox have managed! So is it that far to imagine that a re-brand might be in order especially as Microsoft is heading away from its roots under its new CEO Satya Nadella?
Dennis Lee Yohn, a contributor at Forbes, has recently floated the idea that Microsoft as a company should seek to rebrand itself especially in the wake of its move towards more service and software oriented nature. While at first glance it seems utterly foolish to rebrand itself and squander away the years of customer recognition and name-trust that the Giants at Redmond have worked so hard to achieve; yet there is some merit to this idea. We analyze that if a rebrand could be in order, if not now, then in the approaching future.
Microsoft: A Name, A Brand Or An Old Company?
The Forbes list of the top 5 most valuable brands in the world tells an interesting story. With an estimated brand value of around $75.2 billion, Microsoft sits pretty at the third spot just behind rival tech companies Google and Apple. So that seems like a cut and dried decision then doesn’t it? It might be considered lunacy to even consider changing the brand that is the 3rd most popular brand in the entire world. And it isn’t like this was a fluke standing either, for the last half a decade, Google, Apple and Microsoft have consistently dominated the leaderboards as the top tech companies of this decade.
However, as most things in life, there are certain nuances that we might have glanced over in our initial judgment of this maverick idea and as such, we should take a closer look at what the original idea by Dennis Yohn was.
“Instead of serving as the corporate moniker and the lead brand for the company, Microsoft could be used as a product or category brand and a business unit name.”
Thinking of the rebranding under this new light we start to see an opportunity for Microsoft as well as their CEO, Satya Nadella. Late last year, when Google decided to rebrand itself and come under the umbrella of the parent company Alphabet Inc. (NASDAQ:GOOGL), the company, and their founders were subject to much skepticism including some from us as well. However, we see that the rebranding has not affected the Google brand value at all as we see them at the second spot in the 2016 list of most valued companies. Even if we look at the financial results of Q1 2016, we find that Alphabet has done admirably well, and Google and their core endeavors seem to be on the right track as well!
While we have done a detailed breakdown of Microsoft’s present state of financial affairs in an earlier article, today we will keep it short and suffice to say that the makers of Windows are struggling to find new avenues of selling more licenses for the Operating Systems as the sales numbers for PCs crumble across the world. As a result, we have seen that the company has changed the person at the helm, with Steve Balmer giving way to Satya Nadella.
Nadella, from the get go, has had a very clear plan laid out for the direction he wishes to take Microsoft in. And while Windows does still make up a large portion of Microsoft’s revenue, the focus has clearly shifted towards cloud solutions and enterprise services. One of the clearest indications of this change of business plan has been the way that Microsoft has bowed out of the mobile market and has instead focussed their attention on the enterprise social scene with their latest $26 billion acquisition of LinkedIn.
As we step away from the old and towards the vision of a new company, does clinging onto the relics of the past- the moniker of ‘Microsoft’ hold them back? We take a look at the new segments at Microsoft and how much of a brand value they have managed to etch out in their own niche stepping away from the legacy of their parent company.
Office and Azure: A ‘Window’ Into the Future
The graph above shows the revenue over the past 5 quarters from Microsoft’s Productivity and Business Division which includes their Microsoft Office and Office 365 products both for commercial and non-commercial users. Office commercial and cloud revenue went up nearly 7% and Office 365 revenue jumped up a mammoth 63%. The Office also added to the number of subscribers in this quarter adding 1.6 million subscribers and bringing the total up to a healthy 22.2 million.
While the numbers do look quite rosy on their own, to ascertain an estimation of the true position of Microsoft among its competitors, especially in the SaaS space for Cloud Computing Business, we turn to this recent report by Okta where Microsoft Office 365 tops the list with ease.
In recent years, Microsoft has made great strides on their cloud computing platform and recently, they have overtaken Amazon in the rate of revenue growth. This is in no small part due to the rapid success that Azure has enjoyed in the past few years. In the last quarter itself, Microsoft’s Intelligent Cloud division clocked in revenues to the tune of $6.34 billion.
Although Intelligent Cloud is comprised of a bundle of services, it can be safe to assume that the lion share of the revenue came from Azure. However, the question still remains if Azure has attained profitability for Microsoft as the coy nature of Microsft hiding the sales numbers of Azure doesn’t bode well for the cloud platform.
Looking at the numbers for public cloud services we see that Amazon has managed to widen the gap quite a bit from its competitors although Microsoft is fast catching up and is showing impressive growth numbers. While the report from Synergy points towards a growth percentage of 124 for Microsoft, nearly twice that of AWS at 63%, the market share of Amazon which stands at 31%, more than 3 times that of Microsoft, means that they have little cause to worry.
So, with all of these products doing fairly well in their respective fields, where does the Microsoft moniker go to? Satya Nadella has a grand vision in mind for the future and while we see bits and pieces of the puzzle right now, we are yet to witness how well, if at all, these separate entities and acquisitions at Microsoft fit into each other. However, it is certain that the old Microsoft which used to depend largely on the sales of Windows licenses is long gone.
As the graph above clearly indicates, the road ahead seems fairly smooth for the cloud-based IT services industry. With public Cloud hardware and infrastructure spending heading to $38 billion in 2016 and to a massive $173 billion in the next decade; Microsoft has ensured that their new field of research and expansion will continue to reap great rewards well into the future. Despite the immensely positive outlook of the Industry, one thing that will continuously be bothering Microsoft is that despite their years in software development, they have never been successful at making decent Internet-based products.
The mediocre nature of Skype, the failure of attempted social networks and the abomination that is Bing and Internet Explorer -all paint a similar picture. Despite having an immense lead at first, Microsoft has always managed to squander it away when it comes to the Internet. And now with their ventures in hardware, both the Surface lineup and the Lumia branded Windows phones having performed below par, Microsoft has their backs to the wall and has to fight for survival in the new field of cloud computing.
“Cloud services will remain the essential foundation of the IT industry’s 3rd Platform of innovation and growth. As the cloud market enters an ‘innovation stage’, there will be an explosion of new solutions and value creation on top of the cloud,” said Eileen Smith, Program Director, Customer Insights and Analysis.
Satya Nadella has repeatedly said that he envisions “To empower every person and every organization on the planet to achieve more.” And the old Microsoft despite its many iconic characteristics did not signify that. It is thus understandable that one might seek to start afresh and cast off all the stigma and staunchism that has been associated with Microsoft in the past and embrace the future as a company that seeks to evolve and create innovative technology.
But on the flip side, while Microsoft has had a bad reputation in the past in the tech community, the people from the very same community are the ones who will be the first to embrace Microsoft’s new products. And, as Microsoft moves further and further away from the public eye, the brand name remains the only thing that the general populous is going to recognize and associate with. Keeping that in mind, letting go of Microsoft and replacing it with another name might cause Nadella and Co to completely disappear from the fickle public mind.
While we have talked much about business and numbers, in the end, it comes down to simple human psychology. Our belief is that for the general public, Microsoft is associated with more positivity than some of the product it sells and as such remains the perfect moniker to bind all of its services together. After all, “What’s in a name?“