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Microsoft (NASDAQ: MSFT ) has long been criticized for its investment in online services. Hedge fund manager David Einhorn, a former Microsoft shareholder, complained in 2011 that the company was wasting billions on Bing in a quixotic attempt to catch up to Google (NASDAQ: GOOGL ) .
Einhorn's complaint was certainly not without merit: Since the first quarter of 2005, Microsoft's Online Services division -- primarily Bing -- has lost almost $11 billion. Despite spending all that money, Microsoft remains far behind Google in search.
But that investment could finally pay off. As Apple (NASDAQ: AAPL ) has done successfully for years, Microsoft is now blending its online services with its operating system -- Windows 8.1, released Thursday, merges Microsoft's Internet services with its Windows operating system.
Microsoft takes a different approach with operating systems
All three major tech companies -- Apple, Google, and Microsoft -- offer two different operating systems. Google's Android and Apple's iOS are designed for tablets and smartphones; Google's Chrome OS and Apple's OS X are aimed at traditional PCs.
But Microsoft has chosen a different strategy. Instead, offering one operating system for phones (Windows Phone) and another for both tablets and PCs (Windows 8). On Thursday, Microsoft released the first major update to Windows 8, and though it remains a Metro interface-dependent, hybrid operating system, it brings many improvements. Most notable is its integration with Microsoft's major web services, both SkyDrive and Bing.
SkyDrive vs. Google Drive vs. iCloud
While Microsoft's SkyDrive, Google Drive, and Apple's iCloud all function as services to store data online, they work quite differently. Google Drive and Apple's iCloud stand at opposite sides of the spectrum; Microsoft's SkyDrive is somewhere in between.
Apple's iCloud works in the background: If you own both an iPhone and an iPad, iCloud ensures that your photos, documents, and music will be shared across both devices. It's an elegant, easy solution, but it's rather inflexible.
In contrast, Google Drive basically functions like an external hard drive. It's easy to upload, download, and share files with other Google users, but it isn't intend to serve as a hassle-free backup system like Apple's iCloud.
Microsoft's SkyDrive used to act more like Google Drive, but with Windows 8.1, it takes on much of the functionality of Apple's iCloud. Like iCloud, it will automatically sync settings, pictures, and files across all your Windows devices, but like Google Drive, it still gives basic file-exploring functionality.
Bing is now at the heart of Windows 8
SkyDrive is also integrated with Microsoft's search engine Bing, which is itself heavily intertwined with Windows 8.1. With the loss of the Start menu, the easiest way to get to a file, app, or setting in Windows 8 is to do a search.
In the original version of Windows 8, that search was limited to user's local PC -- but in Windows 8.1, Microsoft uses Bing to bring in the results from the web along with SkyDrive. You can even search for text within pictures (take a picture of a document, then search the text it contains) synced to your camera roll on SkyDrive -- a unique feature that neither Apple nor Google offers.
Microsoft's reorganization is starting to take shape
Bing, which had long been (rightly) seen as a lame, money-losing attempt to catch up to Google, finally serves a larger purpose within the broader Microsoft ecosystem, serving as the backbone of Windows 8 and acting as the glue that keeps Microsoft's various products united.
SkyDrive, too, is becoming more integral. By merging SkyDrive with Windows, Microsoft is creating a shared experience across all Windows devices -- a strategy championed heavily by Apple in recent years.
If nothing else, Microsoft's updates to Windows 8 -- in particular, the heavy integration of its online services -- demonstrate Microsoft's new strategy: One Microsoft, integrated devices and services.
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