Microsoft Corporation (MSFT) Stock Becomes Glue in the Tech World

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Despite its success under CEO Satya Nadella, Microsoft Corporation (NASDAQ:MSFT) is still losing the “great game” of technology.

MSFT Stock: Microsoft Corporation (MSFT) Stock Becomes Glue in the Tech World

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A market cap of nearly $530 billion sounds great, but the company’s sales peaked in 2015, and it will be hard-pressed to match that performance in 2017.

Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are now both bigger by market cap, while Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) are coming up fast on the outside.

MSFT stock is up over 80% since Nadella’s ascendance in 2014, but Facebook is up 133% and Amazon a whopping 162%. Windows and Office no longer dominate as they once did. Microsoft’s Azure cloud still trails Amazon’s, by a lot. Facebook and Google are both bigger in media.

Microsoft’s annual developer conference last week, called Build, offered another chance to turn things around.

The new strategy is to become glue.

The Glue Strategy for Microsoft

By that I mean Microsoft will now try to connect the islands of technology built by its rivals, with developer tools that make it essential. Nadella detailed this in his conference keynote.

Microsoft OneDrive, for instance, will now offer Offline Folders that can be saved to Apple iOS or Google Android devices. OneDrive for iMessage will let iPhone owners share files, folders and messages, and its Project Rome will allow iOS to work with Microsoft Graph.

MSFT stock wants its Fluent Design to be a new “language” for user interfaces, based on concepts from art rather than engineering. This will let it link the worlds of artificial intelligence, virtual reality and holographic interfaces, a form of software glue linking video gaming, business computing, voice interfaces and virtual worlds.

The Microsoft Cognitive Services suite, and its Bot Framework, are designed to let developers bring vision, speech and search services into new applications. An app might visually identify a plant leaf, and software built into Azure would then learn what is in a user’s garden or field, providing a crop-management service.

The glue strategy not only seeks to get Microsoft back onto the bleeding edge of technology, but unite products as disparate as Windows, Office, the Xbox video game platform, the HoloLens VR goggles and the Cortana voice interface. Of these only the Xbox is now dominant, and that only in the U.S.

Turning Pow into Sales

The new strategy is a far cry from the last decade’s “embrace and extend” strategy, in which Microsoft sought to use Windows as a wedge to dominate search, media, commerce and business computing. While Microsoft was fighting the U.S. government in its antitrust case with embrace and extend, Google passed it in search, Apple passed it in mobile, Facebook passed it in media and Amazon passed it in cloud.

Google is even threatening Microsoft’s PC dominance with its Chromebooks, which grew 38% last year while overall PC sales were down. Google’s G Suite is now replacing Microsoft’s Office in some large corporations.

Amazon not only has a dominant share of the cloud market, but its Alexa is the dominant artificial intelligence platform. Microsoft Cortana must now play catch-up and consumer devices supporting it will only come out later this year.

The Bottom Line for MSFT Stock

Technology is an industry where you’re either first place or no place. The 90-9-1 rule applies, where a leader gets 90% of the profit, the second-place company 9%, and everyone else fights for scraps.

The way around that is to define a new space in technology. Even while Nadella has been CEO, new spaces like virtual reality and artificial intelligence have been defined, and leadership created, by others. While Microsoft has plays in these areas, it lacks the dominance of years past.

Still, Nadella has an impressive record. Azure gives MSFT stock a play at the high end of the cloud stack, where platforms and applications live. His embrace of open-source concepts has again made Microsoft welcome in the development mainstream.

Now, by making Microsoft tools an essential glue between others’ product worlds, he hopes to redefine the company in a way that will put it, if not back on top, at least in the leading pack.

Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, FB, MSFT, AAPL and GOOGL.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/microsoft-corporation-msft-stock-glue-game/.

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