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Ballmer: Microsoft to Borrow Apple's Playbook

This article is more than 10 years old.

Microsoft CEO Steve Ballmer (AFP/Getty Images via @daylife)

Yesterday, Microsoft (MSFT) CEO Steve Ballmer issued his 2012 Letter to Shareholders. As tends to be the case, and not just with Microsoft's annual letter, there was a fair amount of backslapping on what

Microsoft achieved over the last year while promising the best is yet to come. Naturally, Ballmer gave a shout out to the soon to be released Windows 8. This year’s letter, however, signaled a shift in the company’s strategy from one that has been largely software centric (Windows, Office) to one that many will see as copying Apple’s (AAPL) playbook.

That’s right, Steve Ballmer now sees Microsoft becoming a device and services company. Now to be fair to Microsoft, it has delivered a few successful hardware products over the years including X-Box and more recently the Kinect.

In some ways, Ballmer did a better Steve Jobs than Apple CEO Tim Cook has done of late. Much like Jobs did in his wildly famous keynote speeches, Ballmer talked about how several aspects of Microsofts products and soon to be released ones will come together to improve the user experience. One such example was the combination of Windows 8 and the soon to be released Surface tablet with both One Note and SkyDrive. The letter goes on to describe something similar for the businesses community as well.

Sound good, but two questions quickly jump out. First, how far is Microsoft willing to go in terms of becoming a device centric company? Second, can Microsoft make the transition given prior false starts that have included its Zune MP3 player that aimed at Apple’s iPod line?

With regard to the second question, remember that Nokia (NOK) several years back restructured itself to focus on devices and services. That’s not to say it can’t be done, but rather it is extremely challenging to transform a company while its core business is under attack. A recent example can be found in comments from Hewlett-Packard (HPQ) CEO Meg Whitman just last week that it will take HP even longer to transform its business. As the saying goes, companies are like tankers - both take a long time to turn.

In terms of the first question, Ballmer gave a nebulous answer when he wrote “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.”

This is bound to fuel on again, off again speculation that Microsoft will either build its own line of smartphones and or acquire either Nokia or Research in Motion (RIMM). As I have written previously, acquiring Nokia is not as simple as simply buying the mobile phone and smartphone business, largely because of Nokia’s struggling mobile infrastructure joint-venture Nokia-Siemens. Research in Motion on the other hand has invested heavily developing its soon to be released Blackberry 10 OS. Early reviews are favorable, and its likely Research in Motion wants to bring this to market for a hail Mary pass rather than throw in the towel now.

If Microsoft were to bring its own branded smartphones to market, it would make sense to do what Apple, Motorola (GOOG) and several other vendors have done - design the device and outsource the manufacturing to a third party. Apple uses Foxconn and other such companies have included Pantech and Ningbo Bird among others. How will Microsoft manage its smartphone ecosystem relationships with Nokia, HTC and others if it is competing with them? This same question is being asked of Google-Motorola given the near dozen other smartphone vendors that have adopted Android, including Samsung.

While it could get ugly before it gets better, Microsoft needs to do something. PC forecasts have been slashed as users shift increasingly toward smartphones, tablets and in some cases Apple products. At the same time, the battleground is beginning to move into the home with TV, video on demand, streaming services, gaming and home automation. A great example of that last one is revolutionary thermostat offered by Nest.

Microsoft has a number of great assets that would make it a formidable player, but we’ll have to see if the company can get out of its own way and pull those resources together to offer a easy to use, revolutionary product offering. On that, the jury is likely to be our at least for a little while longer.