7 things on Microsoft’s 2014 to-do list

2013 was a busy year for Microsoft, which announced that CEO Steve Ballmer will leave the company after 33 years, upgraded its controversial Windows 8 platform, doubled down on its Surface tablets, reveled in the success of Office 365, and successfully tweaked Windows Server. But there’s more to do in 2014.

Here’s a look at seven things Microsoft should put on its to-do list for 2014.

No. 1: Make Nokia work

Microsoft could have just strengthened its partnership with Nokia, perhaps investing heavily in the company to become a major shareholder with sway over what Nokia does. Instead it ponied up $7.2 billion to own it. In buying the company Microsoft gains total control over its hardware products – phones primarily but also tablets.

The Nokia deal falls in line with Microsoft’s aim to be a products and services company. It did a pretty good job with its Surface hardware, even when it had virtually no tablet-manufacturing experience. Nokia is already credited with making good phones, but they’re saddled with the Windows Phone operating system, which has yet to capture the imagination of buyers like Android phones and the iPhone have.

However, measuring the success of the Nokia deal isn’t about whether its hardware can unseat these more popular devices. Worldwide there are vast markets for low-end phones in markets where cell service is still taking hold and where Windows Phone can make headway, says IDC analyst Ramon Llamas.

Nokia makes the Asha family of low-end feature and smartphones — three of which the company claims are the top three selling phones of their kind in India, the Middle East and Africa, which are considered undeveloped markets that hold vast potential for new sales. Nokia announced three new Asha smartphones this fall to sell in Africa, Asia-Pacific, Europe, and the Middle East (two of them in Latin America as well) for between $69 and $99.

Windows Phone is doing well enough that it might finish the year as the No.3 phone operating system – albeit at a great distance behind Android and iOS – and beat out Blackberry, says Llamas. In the last quarter Apple sold about 34 million iPhones versus about 7 million Windows Phones, he says. “They’re not falling by the wayside, I have to give them credit,” he says.

Owning Nokia will enable faster decision making and turnaround times on innovations, he says, potentially making the phones more competitive. If Microsoft can differentiate Windows Phone from high-end competitors, it could make advances in the developed markets of North America, Japan and Europe. “Android and Apple are entrenched but not 100% locked down forevermore among users,” Llamas says.

Nokia tablets could also be a boon. Microsoft’s Surface RT tablets sold well at drastically reduced prices as the company tried to unload inventory in preparation for selling its successor, Surface 2. That’s a device without cellular connectivity. Nokia already sells a tablet based on the Windows RT operating system plus 4G wireless for $399 through a service-plus-hardware deal with AT&T. It’s also announced Lumia 2520, a Windows RT tablet with LTE for $499.

Nokia’s Lumia 1520 and lower priced 1320 phablets – smartphones with screens between five and seven inches – give Microsoft an immediate entry into the relatively new phablet market that last quarter accounted for 22% of all smartphone sales, according to IDC.

No. 2: De-Ballmer the company

With Steve Ballmer on his way out as CEO, Microsoft needs to leave him behind. The new boss must quickly state the company’s goals and set up an internal structure that can convincingly support those goals.

That’s important not only for achieving the goals, but also for convincing investors of the company’s ability to execute. Microsoft’s stock price has jumped up and down over the past month on rumors about who will be the next CEO and when that person will be announced.

Despite the company’s continued enormous profits during Ballmer’s tenure as CEO — $5.2 billion last quarter, up 17% from the same quarter last year – critics have been calling for his replacement for years, and his successor must address some of the reasons they’ve been so vocal.

Clearly Ballmer did a lot of things right, but his missteps hurt critics’ perception of him. Ultimately a lot of complaints had to do with speed.

“Hey, dude, let’s get on with it,” Microsoft board member John Thompson told Ballmer earlier this year, according to a story in The Wall Street Journal. “We’re in suspended animation.”

The conversation was about Microsoft taking measures to catch up to Apple’s and Google’s consumer products, but it was emblematic of some other notable snafus during Ballmer’s 13-year tenure as CEO. Microsoft participates and is expected to lead in markets ranging from enterprise software and services, to consumer software and services, to games, to tablets, to phones, to search. Its competitors are well heeled giants focused on fewer products on which they bring to bear enormous amounts of cash and expertise.

But under Ballmer, Microsoft missed the main wave of the mobile revolution in both tablets and phones, offering products in both areas that just didn’t capture customers and have gone through iteration after iteration trying to catch up. And as Ballmer himself says, his biggest failure under his leadership was Windows Vista, which he says in a Fortune article took too long – eight years – to get right with the shipment of Windows 7.

Ballmer took steps to address this lack of agility earlier this year with a corporate reorganization and management overhaul that has been playing out over the intervening months. Those changes have to be endorsed and taken on by his replacement or rejected and reworked if the company hopes to move more quickly in such a variety of realms.

The new boss also needs to make sure that when products do launch, that they’re ready. Under Ballmer, Windows 8 was an ambitious change from Windows 7 that would have taken some getting used to no matter what because of intentional differences from its popular predecessor. But only 10 months later with the release of Windows 8.1 did Microsoft address problems that should have been resolved at launch.

Microsoft entered the computer hardware market with its laptop/tablet Surface line but wound up writing down $900 million in Surface RT losses, something the company can afford financially but that hurt its reputation in a market it wants to dominate. Its Surface RT (now Surface 2) looks like an attempt to better Apple’s iPad by adding Microsoft Office to a tablet. It’s solid hardware but is doing poorly because of price, and a dearth of apps that customers actually want.

These are part of Ballmer’s legacy, and the stigma should leave when he does. His replacement needs to make clear that nothing Ballmer left behind is sacred.

No. 3: Build on the success of Office 365

Microsoft successfully bet that customers would rather buy Office as a service that is available from multiple machines – including phones – and is constantly updated than to buy it as software they have to install and upgrade as they go along. It comes along with cloud storage, too.

Office 365 scored 1 million users back in May. That doubled by the end of October, a strong start and an important part of transitioning users from software buys to continuing services. At $100 per year for Office 365 Home Premium, that’s already a significant revenue stream that seems to be soaring. It helps validate the company’s definition of itself as a services and devices operation.

No. 4: Make Office available for iOS

Businesses are dealing with Apple devices as part of their bring-your-own-device programs, and it’s time Microsoft acknowledged it.

Since corporate customers are not limiting their employees to using Windows-only devices, Microsoft should not freeze out those other devices from using their popular productivity suite. Popular isn’t not a guaranteed status, and there are competitive alternatives — such as Google Apps — that Microsoft should not ignore. It’s better to sell a product to Apple customers than it is to ignore them and drive them to buying someone else’s product.

No. 5: Chase down Amazon Web Services with enhancements to Azure

Microsoft has been chipping away at Amazon Web Services, racking up impressive numbers of new customers and producing a constant beat of new features for its own cloud service. This includes multi-factor authentication for services, adding big-data analytics based on Hadoop, auto-backup to Azure, and creating a public cloud for government (planned).

No. 6: Get more Windows 8 apps

The Windows Store boasts more than 135,000 applications, but no single one of them nor even a collection of them is compelling enough to cause customers so choose Windows 8 in order to use the apps.

Microsoft needs such apps and needs them soon. Think the next Angry Birds.

Without an A-list of apps, customers will seek other platforms that have what they want without giving Window 8 much consideration despite its other merits.

The company has been luring apps and game developers for more than a year to create apps and games for Windows 8, offering deals on tools and attractive splits of revenue when their products are sold through the Windows Store. It’s even given away Windows 8 laptops and tablets to attendees at its developer conference.

It has also partnered with third parties for Windows 8 versions of popular games. One example is Disney, which in some cases has released Windows 8 versions of its games before releasing them for Android — a step toward making Windows 8 relevant.

Its efforts seem to be working. In August, user-interface developer Infragistics came up with the 100 must-have apps that are available for iOS and found that just 54 of them were available for Windows 8. The 100 were a smattering of social-site apps such as Google+, services such as HBO GO and PayPal, and resource sites like IMDB. Now, though, 72 of those apps are available for Windows 8.

Coming up with the next Angry Birds requires inspiration and innovation in a way that can’t be plotted out, but Windows 8 needs that kind of lightning to strike.

Beyond that Microsoft needs compelling business apps to be written for Windows 8, taking advantage of its touch-friendliness. Expanding the usefulness of Windows 8 by making workers more productive when they use it will make it more attractive.

No. 7: Promote Windows 8.1 for business

It may already be too late, but as Windows XP fades into end of support this April, Microsoft needs to do all it can to push those XP diehards into buying Windows 8 machines as a replacement.

Figures indicate that Windows 7 is gaining in popularity while Windows 8 is dipping, according to NetMarketshare statistics.

One remedy for this could be pushing Windows 8 into large businesses, which would not only boost sales but also promote consumer popularity by forcing workers to become familiar with the operating system.

But adopting Windows 8 wholesale into enterprises is a longshot given that the touch aspects that make Windows 8 superior in some cases to Windows 7 aren’t needed to do many corporate jobs. Those that lend themselves to touch, such as mobile workers and sales staff, could transition to Windows 8 while others remain on Windows 7, but that’s a long process. It could result in businesses hanging on to Windows 7 until Microsoft irons out the kinks, much as they did by hanging onto Windows XP, skipping Vista, and ultimately adopting Windows 7.