Microsoft is the company to watch in 2016

It isn’t often that Microsoft is the company to watch for the new year. But it will be in 2016.

CEO Satya Nadella and his team have shaken things up, surprising customers with better products, a continuing move to the cloud, an embrace of open source, and a willingness to stand up for user privacy in the face of government pressure.

We even have to acknowledge a success that was born in the bad old days of Steve Ballmer: Microsoft’s largely successful do-over on Windows 10. Being rooted in the PC era is problematic, to say the least, but the Surface Book is (surprise) an exciting product that shows that the company is taking an old-school product as far as it can go. It’s even matched — or maybe outdone — Apple with the newest Surface Pro tablet.

There are still major challenges, and if any one area is liable to trip up the Redmonders it’s mobile. The ill-conceived purchase of Nokia cost billions, and even worse is the failure to develop a coherent mobile strategy years after it became a necessity.

But the balance sheet is now definitely tilted in Microsoft’s favor, which couldn’t be said a few years ago. Wall Street makes a lot of bad calls when it comes to technology companies, but it’s revealing that Microsoft’s price-to-earnings ratio, a measure of future expectations, is higher than Apple’s.

Beating the PC makers at their own game

Flawless execution is something few companies achieve, and Microsoft is no exception. Both Windows 10 and the Surface Book have problems that can’t be ignored. But unlike Windows Vista or Windows 8, Windows 10’s problems are fixable, and so are the issues plaguing the Surface Book.

Microsoft entered the hardware space a few years ago when it became clear that none of the PC makers were likely to produce a decent Windows tablet. The original Surface, particularly the weird and nearly useless Surface RT version, wasn’t successful — in fact, it cost the company a $900 million writedown.

Contrast that kludge with the new Surface Pro 4. It’s expensive, but it’s powered by Intel’s new Skylake processor, and Microsoft has reworked the heat distribution system to allow those chips to run at full speed so that they can tear through demanding applications.

Similarly, Microsoft entered the PC space because the PC makers were boring the buying public to death with unimaginative hardware larded with annoying, and sometimes contaminated, bloatware. You can read the reviews yourself, but suffice it to say that the Surface Book is, to quote my colleague Woody Leonhard, “one sexy piece of hardware.” When was the last time you heard someone who is often critical of Microsoft say something like that?

Microsoft won’t bank tons of money selling such an expensive machine, but clearly the company aims to push the PC makers into making better products, an essential step in keeping the Windows franchise afloat. It also wants to push the PC makers into dialing way back on bloatware, which is why the Microsoft Store sells bloatware-free Signature Editions of PCs made by other companies.

From open source to augmented reality

You don’t have to go back many years to find evidence of Microsoft’s arrogant rejection of the open source community. That’s been changing for some time, and as the company struggles to keep developers on its side, open source has become even more important.

There was a key development on that front last month when Microsoft announced plans to open-source its Chakra JavaScript engine. It shows, as my colleague Serdar Yegulalp wrote, “that Microsoft wants to become a player in the JavaScript ecosystem that has ambitions to be a near-universal runtime for every kind of software.”

There isn’t a huge amount of money here, but the Chakra strategy is indicative of a new openness and willingness to work in environments where Microsoft is not in a position to dominate the playing field.

Then there’s HoloLens. Sure, it’s been delayed a few times, but I’m excited to see Microsoft garner buzz — it practically eclipsed Windows at Microsoft’s January 2015 public preview. More important, it shows a willingness to go beyond the corporate comfort zone.

Writing at Ars Technica, Peter Bright put it this way: “With HoloLens I saw virtual objects — Minecraft castles, Skype windows, even the surface of Mars — presented over, and spatially integrated with, the real world.”

Augmented reality has the potential to be more than a cool toy. Companies like Epson have already developed and sold units that help field technicians fix complex devices and warehouse workers pick products from shelves. This field is crowded, and it will take some doing for Microsoft to succeed, but its willingness to risk it speaks volumes.

I don’t mean to minimize Microsoft’s weakness or defend boorish behavior like its annoying campaign to push users to download Windows 10. But having watched Microsoft decline as a relevant tech power over the years, I see a lot of reasons to expect a continued resurgence. Watch it carefully in 2016.

Source: InfoWorld

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