Under new CEO Satya Nadella Microsoft (NASDAQ:MSFT) has shown a willingness to walk away from failures and make changes when a strategy proves unsuccessful.
The new boss quickly acted to bring Office to Apple's (NASDAQ:AAPL) iPad and iPhone and he put a virtual exclamation point on the decision to move on from the long-hyped, much-disliked Windows 8 by announcing the new version of the operating system and calling it Windows 10. Nadella also made large staffing cuts to the company's money-losing online division, which includes Bing and MSN, while also getting the company out of the content creation business.
In general, the newly minted CEO has been ruthless, slashing the workforce and showing little nostalgia for how things used to be. Nadella wants an efficient, responsive company that acknowledges, corrects, or eliminates mistakes quickly. That means that under-performing parts of Microsoft have essentially been put on notice. This holiday season is a critical period for two Microsoft-owned products -- Xbox One and Surface -- as well as one Microsoft-subsidized product family, the sub-$200 Windows laptop.
Xbox One is in no danger of being eliminated, but if the product continues to lag behind Sony's (NYSE:SNE) PlayStation 4 then heads could roll and changes will likely be made. Though Sony's console has dominated in the year since the two products were released, Xbox One has shown signs of a revival. That's largely due to the company's dropping the Kinect Motion sensor in June, allowing it to match Sony's $399 price. That has helped narrow the gap between the two consoles. After maintaining a 2-1 sales lead for much of the year both units have been on sale, Sony saw its lead drop as the impact of the Microsoft price cut took hold.
The PS4 has shipped 13.5 million consoles so far, while the Xbox One is nearing 10 million, Bloomberg BusinessWeek reported, and Microsoft is attempting to capitalize on its growing momentum by not only cutting prices by $50 through January but also by offering bundles with a free game at the lower price.
It appears that of the three Microsoft products facing a holiday test Xbox One may be the one most likely to pass and emerge from the season in a stronger position than it entered it.
Since its launch in conjunction with Windows 8 in October 2012 the Surface tablet has been a struggling product. The original Surface, which runs a limited version of the OS dubbed Windows RT, is essentially dead. Microsoft had hoped that the OS, which was meant to be an answer to Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android and Apple's iPad iOS, would catch on with other manufacturers, but that never happened. If the Surface brand is to survive, it's the high-end version of the tablet, the Surface Pro 3, which runs the regular Windows OS, that needs to show some sales momentum.
Microsoft has put a huge marketing campaign behind the hybrid with ads that squarely position it as a single product which can replace a MacBook Air and an iPad. The biggest threat to Surface may not be consumer apathy or even Apple, it's likely to be the fact that Microsoft's own partners are making products that match or exceed Surface. Lenovo (NASDAQOTH:LNVGF) even borrows the format of the Surface Pro 3 commercial where the hybrid gets compared to a MacBook Air.
Surface may fail to sell, not because it's a bad product, but because when Microsoft introduced it there was a need, but that need has now been filled by its Windows OEM partners.
Sub-$200 Windows laptops
In May Microsoft announced Windows 8.1 with Bing, a free version of its popular OS to allow is manufacturing partners to produce cheaper Windows devices to better compete with Android and Chromebooks. (This followed the company's making Windows free for all phones and tablets smaller than 9 inches.) It took a while for the laptops to appear but the holiday season is full of them, including one from Hewlett-Packard (NYSE:HPQ) that costs $199 and comes with a free year of Office 365 Personal.
The jury is still out as to whether consumers want cheap Windows laptops and whether it's worth Microsoft continuing to subsidize them. Chromebooks have succeeded, partly due to price but also partly due to simplicity. Even though some of the Windows 8 laptops are marketed based on simplicity, it's impossible to make the much-reviled OS as easy to use as Google's Chrome. If customers are buying Chromebooks reluctantly because they are such a good deal, than Microsoft may be able to win back customers. If that proves to not be the case, cheaper Windows laptops may not matter.
Daniel Kline owns shares of Apple and Microsoft. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.