No earnings decisions have been made, and rolling soap operas are typically an opportunity for business leaders to address the good, the bad, and the ugly of their company’s recent activities and investments.
Microsoft recently released information regarding its fiscal 2024 second quarter earnings call. The call hits all expected notes like genAI. However, interestingly, despite the increased push to develop XR solutions starting in mid-2023, Microsft did not mention any MR/spatial applications, HoloLens 2, or industrial metaverse roadmaps.
About Microsoft’s recent performance Amy Hood, EVP and CFO, MicrosoftIt was mentioned as follows:
Sales for the quarter were $62 billion, up 18% and 16% on a constant currency basis. Adjusted for expenses in the second quarter of the prior year, operating income increased 25% and 23% on a constant currency basis, and earnings per share increased 26% and 23% on a constant currency basis to $2.93. Results exceeded expectations and we delivered another quarter of double-digit top and bottom line growth.
While Microsoft is primarily focused on offering a much broader portfolio of digital solutions than just immersive solutions, it’s interesting to note that there’s no XR at all. Notably, the company’s XR investments appear to have declined compared to its genAI investments less than a year ago. You can only pick it up mid-year.
The company continues to deploy immersive solutions for enterprise end users around the world, working with clients such as the U.S. Army, Boeing, and SNC-Lavalin. It also dropped a major Microsoft Mesh update in January that introduced immersive VR meeting features to its popular Teams video conferencing platform. So not all is lost.
However, on the hardware side, even if the device is still in use, no new hardware has been confirmed. But once again, HoloLens 2 is dormant. Does this mark the final bit of the device, or is it just an obstacle?
What the Microsoft CEO said
There could be a number of reasons why XR was dormant during Microsoft’s recent earnings call. In particular, the main reason is that Microsoft’s genAI and Cloud investments clearly outperform XR, taking center stage from the leading digital solutions company.
CEO Satya Nadella famous:
This was a record quarter driven by the continued strength of Microsoft Cloud, which exceeded $33 billion in revenue, up 24%. We have moved from talking about AI to applying AI at scale. By infusing AI into every layer of the technology stack, we’re helping them win new customers and drive new benefits and productivity gains.
According to Nadella, the company is seeing this success through its new “as-a-service model,” which “makes it easy for developers to use LLM from partners like Cohere, Meta, and Mistral on Azure without having to manage the underlying infrastructure.” he said
Nadella also explained that Microsoft’s Azure AI platform has approximately 53,000 customers, “more than a third of whom are new to Azure in the last 12 months.”
Nadella added:
Overall, we are seeing larger and more strategic Azure deals, with an increasing number of multibillion-dollar Azure commitments. Vodafone, for example, plans to invest $1.5 billion in cloud and AI services over the next 10 years to transform the digital experience of its more than 300 million customers worldwide.
Will AI Redefine Microsoft in XR?
“We are also leveraging this AI moment to redefine our role in business applications,” Nadella said. Compared to Microsoft’s bumpy XR road over the past two years, it is clear that the nascent AI environment is a conducive one for Mccriosoft and provides clear financial benefits for the company. So it’s understandable that Microsoft might turn a blind eye to XR again, despite beefing up the engine to make it feel like a second wind to the space.
Nadella added:
Toward the future of work. A growing body of evidence clearly shows the role AI will play in transforming work. Our own and external research shows that using generative AI for specific job tasks increases productivity by 70%. And overall, early Copilot for Microsoft 365 users were 29% faster on a set of tasks like searching, writing, and summarizing. In just two months, companies like Dentsu, Honda, and Pfizer have all deployed Copilot to their employees, outpacing the E3 or E5 product lines.
“By 2024, AI will be the top part of every PC,” he explained. Seemingly all the focus is on Microsoft’s AI. Microsoft believes its partnership with OpenAI, a leading genAI company, has been incredibly successful.
Even in the gaming section of the earnings call, which is the most common XR use case, Microsoft didn’t mention anything about XR. Once again, it is natural to mention the power of AI in this field as well.
Finally, Nadella explained:
This AI generation will be different. Starting with the move from GPT 2.5 to 3, it will be used internally in developer scenarios using GitHub Copilot. That’s right. I think this is where we’re most advanced in terms of economic benefits or productivity benefits.
All of this can’t quite put the nail in Microsoft’s XR coffin. The company has a lot of wheels to spin, and XR is just one of many valuable investments for the company. The arrival of Vision Pro may also cause the company to reevaluate its stance on XR hardware and software. After all, Microsoft used spatial computing before Apple.
The company is still active in XR, as Microsoft is also deploying versions of its immersive productivity solution on the Meta and Apple MR headsets. But once again, investment depth may be reduced in favor of AI.