Microsoft has effectively repositioned itself for a brighter future with a business strategy that can actually work. Mark Kaelin explains.

On July 18, 2015, Microsoft announced that it was restructuring its business and that 7,800 employees will be laid off as part of the plan. The layoffs will be concentrated in the phone part of the business. Many Microsoft haters are gloating over this news, but they miss the point. Serious industry analysts know, from a strategy viewpoint, this is overall good news for Microsoft and its future.

Old strategy

For many years, fans of Microsoft and Apple have been feuding over which company makes the best computer, or best operating system, or best MP3 player, or best smartphone. These feuds, highlighted in the media and by industry "experts," made it seem that Microsoft's only competition was Apple and vice versa. It made for great internet forum fodder and drove clicks on the web, but it was really all just a fantasy.

Unfortunately for Microsoft and its stakeholders, former CEO Steve Ballmer took this fan-made, media-driven fantasy to heart and concocted business strategies designed to mimic and counter whatever Apple was doing at any particular time.

Buying a company like Nokia as a quick way to compete with Apple's iPhone is a prime example of this business strategy. Yes, mobile was, and still is, an important market for Microsoft... and they needed, and still need, a comprehensive strategy addressing that market. But, as it turns out, buying a cell phone hardware company with expertise in making flip phones was not the right move.

Apple is a hardware company that makes basic software for its devices as a basis for third-party developers. Microsoft is a software company that makes devices as a basis for third-party hardware manufacturers. Microsoft does not really compete with Apple, and this is why Microsoft has adopted a new strategy.

New strategy

Satya Nadella, Microsoft's current CEO, is refocusing the company's employees and retrenching the company's strategy. Ballmer's scattershot strategy is being replaced by Nadella's laser-focused strategy of mobile first, cloud first.

In addition to the layoffs and an asset impairment charge of close to $850 associated with the assets acquired from Nokia, Microsoft also announced changes to its mapping services and advertising platform.

Microsoft sold part of its Bing mapping technology, and the development engineers that go with it, to Uber. The terms were not disclosed. Uber is looking for a way to wean itself off of Google Maps, and Microsoft is looking to refocus its strategy, so it's a good deal for both parties.

In the other major business strategy announcement this month, Microsoft is getting out of the advertisement serving business and will concentrate solely on search in the form of Bing. Service of ads will be left to partners like AOL and AppNexus.

Bottom line

This flurry of strategic changes is all part of Nadella's attempt to sharpen the corporate focus on core businesses. Microsoft is a software company first and foremost, and that is what the company and all of its employees should be improving, innovating, and selling.

Under this strategy, Office 365 is the flagship product and productivity is the essential service of Microsoft. It's an ecosystem that businesses can understand and embrace. Just this week, on July 20, 2015, General Electric announced that it had formed a partnership with Microsoft to provide the company's over 300,000 employees with Office 365 and the cloud services that go with it.

Productivity, collaboration, cloud services, and a universal mobile-ready operating system are where Microsoft can compete and where it can win. It's a space where Apple has no stake. In fact, under this strategy, Apple iOS and Android are just more platforms for Office 365.

With these latest strategic moves, Microsoft has effectively repositioned itself for a brighter future. It's the right strategy, and it should have always been the strategy. Now, it comes down to the execution of that strategy.

Your thoughts

Microsoft has reworked its business strategy into something viable, but do you think it can execute that strategy? What obstacles block Microsoft's success now? Share your thoughts in the discussion thread below.

Also see