What Microsoft's latest layoff could mean for enterprise customers

Like a number of big-tech companies, Microsoft is starting off 2023 with a company-wide layoff. In Microsoft's case, approximately 10,000 employees, constituting five percent of the total workforce, are going to be cut between today, January 18 and March 31, the company has revealed. (Thanks to a local WARN filing posted today, at least 878 of those affected will be in the Redmond, Washington area.)

Microsoft has not disclosed which products and teams will be hit hardest. Officials have said that the company will be taking a $1.2 billion charge in Q2 FY23, earnings for which are coming next week. And "hardware portfolio changes" (which Bloomberg has heard means HoloLens cuts, among other possibilities), plus severance costs and campus real-estate consolidations, are all playing in.

But what does this round of layoffs, which are the second biggest (after Nokia) in the company's history, mean for Microsoft customers? Directions on Microsoft analysts have thoughts.

"Since mid-2022, we’ve covered a lot of retirements and end of life announcements in Microsoft’s product and service portfolio — more than I recall in previous years," said Directions analyst Jim Gaynor.

"My impression then was that Microsoft was paring down, consolidating their products and services, pruning corner case features/products that weren’t generating revenue, getting rid of things that were vanity or pet projects of favored senior people, and putting their foot down to 'ship it or kill it' on offerings that had languished in preview or experienced extended migration periods from an old to new version," Gaynor added.

It's hard not to notice that Microsoft extended the lifecycle of Azure servers last year, a likely cost saver. Plus the company moved to introduce more add-ons, like the $10 per user per month Teams Premium, that could end up bolstering revenues, especially when users realize that a number of current Teams features to which they currently have rights are are moving into this paid add-on. One could even consider the growing number of first-party ads popping up in Windows and Office as trial balloons for future paid ads, which could be yet another new money-making channel if Microsoft's advertising unit has its way.

There could be impacts, too, as Microsoft continues to try to squeeze more profits out of its current and future product line-up. Gaynor says customers shouldn't be surprised to see things like:

· More aggressive stances/approaches from Microsoft in contract negotiations

· Reduced/ended support for legacy products and scenarios (such as which versions of applications can run on which versions of operating systems )

· New capabilities/features will be used to push higher-end packages (such as E5 suites) or be part of paid add-ons, like Teams Premium

· Continued/increases push to subscriptions (see SharePoint Server Subscription Edition as one of many examples)

Directions on Microsoft's head of research Rob Horwitz says that these kinds of pressures should lead customers to be even more vigilant about their current and future licensing contracts with Microsoft.

As always, they need to think about using products more effectively (or, as Microsoft sugar-coats it, "Do More With Less"). But customers need to get even more proactive when it comes to mapping out their internal tech roadmaps, he says, by making sure that they fully understand their current needs, desired future state and the constantly changing Microsoft rules that govern them. There's little doubt that Microsoft will get more aggressive about licensing, in terms of pricing and compliance, going forward, Horwitz adds. And this is all happening at the very time that enterprises are becoming increasingly dependent on Microsoft.

Going forward, "Customers need to think about licensing like security," Horwitz says. "It's all about lowering the attack surface."