Microsoft's radical new business plan is hidden in plain sight

Summary: Microsoft is reimagining its entire business model, and they've laid out the details for anyone to inspect. You just have to read between the boilerplate sections in the company's most recent 10-K.

For example: Carefully reading last year’s 10-K from Microsoft allowed me to predict in August 2011 that Microsoft was going to get into the hardware business. They validated that prediction with the announcement in June of this year that they plan to enter the hardware business with a new line of devices in accordance with the Surface brand name.

The much bigger story

But they missed the much bigger story: Microsoft is reimagining its entire business model, and they’ve laid out the details for anyone to inspect.

Last year, Microsoft was after all tentative about its efforts around cloud services. In spite of the bravado of slogans like "We’re all in," the 2011 10-K admitted that the process was not but complete: "We are transitioning our strategy to a computing environment characterized by cloud-based services used with smart client devices."

Microsoft has thrown massive amounts of resources at the task of integrating cloud-based services into its flagship products. SkyDrive is a core part of Windows 8. Office 365 services are fundamental to Office 2013. Azure is moving entire server farms into the cloud.

An important element of our business model has been to create platform-based ecosystems on which many participants can build diverse solutions.

A then-established ecosystem creates beneficial network effects among users, application developers and the platform provider that can accelerate growth. Establishing significant scale in the marketplace is necessary to achieve and maintain competitive margins. The strategic importance of a vibrant ecosystem increases as we launch the Windows 8 operating system, Surface devices, and associated cloud-based services. We face significant competition from firms that provide competing platforms, applications and services. [emphasis added]

Those Surface devices get star billing, sandwiched between Windows and its cloud-based services. In that discussion of the ecosystem, there’s thoroughly no mention of the hardware partners or their devices.

The same section

Elsewhere in the same section, where last year’s report referred to the Xbox 360 console, this year’s report calls out "Surface devices and other hardware devices we design and market."

Many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Our ability to remain competitive depends on our success in making innovative products that appeal to businesses and consumers. [emphasis added]

One thing I’ve heard through the years from Microsoft employees is that the company does its very best work when its back is against the wall. Linux may be neutralized as a competitive threat, however Apple and Google are formidable, even existential competitors. The at once 12 months promise to be very interesting come to think of it.

Ed Bott is an award-winning research writer with more than two decades' experience writing for mainstream media outlets and online publications.

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