Microsoft Build: Enterprise Remains The Focus – Seeking Alpha

At Microsoft’s (NASDAQ:MSFT) developer conference, it continued to emphasize its move away from being a platform for the consumption of content to one that is primarily for the creation of content. At the same time it cemented its move away from mobile with the migration of its strategy from cloud first, mobile first to intelligent cloud, intelligent edge.

Effectively, Microsoft is signaling two main changes:

First, device agnostic: Microsoft no longer cares what device the user has, but instead is aiming to ensure that its services work seamlessly across everything that is available. This was embedded in every presentation during the first two days of Build where cross device was emphasized time and again. Cortana, Office 365, team collaboration and communication will be increasingly integrated across all the devices that the user has. This was made very clear with the announcement of the cloud-powered clipboard where text and pictures copied to the clipboard on the PC can be pasted into non-Microsoft apps on iOS or Android devices. Microsoft employees no longer have to hide their iPhones and Galaxies or take off their Apple Watches when entering hallowed ground in Redmond. We have long argued that cross device is a good way to differentiate an ecosystem that is vying for engagement with the two giants Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). Microsoft has led in this space for a long time and, as long as this works as billed, it will take Microsoft further into the lead.

Second, processing at the edge: Microsoft discussed a future where all the processing does not happen in the cloud but part of it is redistributed to the edge for faster response times and greater efficiency. Microsoft demonstrated how running diagnostics locally could cut an emergency shutdown time for a piece of industrial equipment from 2000 millisecond to just 100. However, this is a problem that is supposed to be solved by 5G, which was not mentioned once, further cementing Microsoft’s move away from mobile as a standalone technology. This goes directly against what Intel (NASDAQ:INTC) (and others) is aiming for as its most profitable and highest market share products are the processors that power the cloud meaning that it wants as much as possible to run there. We see a number of schools of thought with regard to how intelligence and processing should be distributed throughout the network with each proponent obviously going for the option that benefits their business the most. We think that the reality will be that different use cases require different scenarios. For example simple monitoring that requires rapid response makes sense in the edge but object recognition and tracking and relating that to policies is a very intensive task that is best carried out on big servers in the cloud.

Microsoft also announced the fall creators update for Windows 10 to support all the cross-device capability as well as badly needed improvements to the Windows Store that is needed to give Windows 10 S a chance. Hololens also was upgraded with the addition of a controller to bring it into line with the other offerings but this remains very much a tool for the enterprise. This was clear in the demos and examples which were focused around productivity with the idea of a virtual shoot out in the living room, thankfully not being repeated.

With every presentation that passes, Microsoft distances itself further and further away from content consumption and the consumer. Consequently, while there is a strong rationale to keep Bing (data generation), we cannot say the same for Xbox, Minecraft and a number of other assets. Hence, we would not be surprised to see them sold off should a good opportunity present itself. The net result is that Microsoft is doing exactly what it should in playing to its strengths and differentiating where it has a chance rather than wasting money trying make a difference where it has no chance.

This sets it up for steady growth with its dominant position in the enterprise, still giving support to the valuation even though the shares have been strong. We still like Microsoft alongside Baidu (NASDAQ:BIDU) and Tencent (OTCPK:TCEHY).

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