Microsoft (NASDAQ: MSFT) has long relied on its strong position in the enterprise market to drive growth, with revenue from this segment currently making up 58% of the company's global earnings. Its Windows operating systems and Office software suite are staples of the business world and generate excellent margins, but the decline of the PC market and emergence of strong competition have foregrounded the need for Microsoft to tailor its offerings in accordance with modern tech trends.
CEO Satya Nadella has suggested that improved cloud infrastructure and a focus on mobile are the strategies that the company will employ to protect and grow its place in the business world. That plan would appear to be a sound one, however its outlook has recently been complicated by the announcement of a partnership between Apple (NASDAQ: AAPL) and International Business Machines (NYSE: IBM). What does Apple's increasing presence in the enterprise market mean for Microsoft? What can the software giant do to preserve the relevance of its products in this hugely important segment?
The Apple-IBM partnership looks to be massive
News of Apple's partnership with IBM has sent waves through the tech world. The move will see IBM sell iOS devices containing versions of the company's data analytics software to its enterprise clients, a development that could prove seriously damaging to Microsoft's goal of expanding its own mobile enterprise presence. IBM will also provide cloud functionality and services for business use on iOS-based mobile platforms, helping to bring AppleCare customer service to the business segment. Given Microsoft's new emphasis on a cloud first, mobile first structure, the teaming of the two tech giants should be very worrying for the company.
Microsoft aims to unify Windows
Microsoft followed the announcement of Apple and IBM's partnership with a big announcement of its own: the company will be unifying versions of its Windows operating system. The move could help it compete, as rival companies aim to carve out a bigger segment of the enterprise market. Apple currently separates its development ecosystem across two operating systems, iOS for mobile devices and MacOS for home computers.
Universalizing the Windows app system should make development on Microsoft's platforms a simpler affair, as software will not need to be retailored for different devices and versions of Windows. The company will still continue to sell differing versions of its operating system, however the user experience should become much more streamlined, and software development will require less specificity.
The next Windows needs to be a hit
With Apple raising a mounting challenge in the enterprise segment, the release of Microsoft's next operating system becomes increasingly important. The company's Windows 8 has had a troubled lifecycle, and businesses have been very reluctant to switch over to the platform. Windows 9, or whatever the company's next operating system is officially called, needs to be a knockout product that both remedies current issues with the Windows platform and delivers meaningful innovation.
Does the Apple-IBM partnership cast the Nokia acquisition in a new light?
In light of Nokia's approximately $692 million losses last quarter, estimates that corporate restructuring related to the acquisition of the phone maker will cost Microsoft as much as $1.6 billion in the current fiscal year, and the threats posed by the Apple-IBM partnership, the move is bound to be the subject of ongoing scrutiny and investor concern. To be sure, the recently announced partnership represents a significant challenge to Microsoft's goal of driving Windows Phone in the enterprise market.
Final Foolish thoughts
Apple and IBM's transformative partnership arrives at a time when Microsoft is caught in its own awkward transition phase. The movement away from the devices and services model that the company championed less than a year ago comes in conjunction with the addition of a substantial new hardware branch that generates substantial losses. That's not to say that Microsoft is unwise to view strength in the smartphone market as an avenue to growing its cloud and software businesses, but the IBM-Apple partnership threatens to minimize the potential benefits of the Nokia acquisition and efficacy of the company's broader strategy.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.