Microsoft Can Dominate the Virtual Reality Space

A few years ago, Microsoft Corporation (MSFT) was entirely dependent on its Windows operating system to generate revenue. However, over the last few years, Microsoft has managed to successfully diversify its revenue stream by entering the smartphone and cloud markets.

That being said, not all of Microsoft’s ventures have been successful.

As per IDC, Windows phones managed to govern just 0.4% of the worldwide smartphone market in the second quarter.  Android and iOS devices controlled over 99% percent of the smartphone market combined.
The lack of a mobile platform severely prevented the company from expanding its cloud-based services such as Cortana.

Deprived of users feeding data to those services, the entire utility of Microsoft’s cloud platform Azure as an analytic tool dropped. As an outcome, the company decided to shift its focus from smartphone market as it decreased the number of smartphones it would launch every year.

A corner has been turned

However, the company is now belligerently focused on cloud-based software solutions, an approach that is projected to produce massive cash flow to increase growth and cover dividend payments.

In the most recent quarter, the company’s productivity and business processes segment sales surged 8% to $7 billion, whereas the intelligent cloud segment sales escalated 10% to $6.7 billion. This clearly suggests that the growth in these segments permitted the company to deliver top-line growth of 5% throughout the quarter.

Apart from all this, Microsoft is also focusing on the gradually rising AR-VR market by introducing HoloLens. It is basically a reality headset that projects holographic images onto real surfaces. Big companies like Lowe’s and Volvo are already testing this device.

Furthermore, Volvo publicized that HoloLens could propose new ways to explore its cars as well as services. Volvo is the first automobile company to use Microsoft’s HoloLens and it could provide a great start to the company, and with time, several other automakers could also approach Microsoft for its HoloLens technology.

At present, only developer edition of HoloLens is available, but the company is on its way to release it for public soon. The launch of HoloLens will allow the company to create massive revenue producing app environment for HoloLens. Given the potential of the AR and VR market, I think Microsoft’s recent plans will benefit the company in the long-run.


Although not all of Microsoft’s diversification efforts have been successful, the company is still taking steps in the right direction. Branching out into the AR and VR market will definitely help the company in the coming years, and investors can consider looking to profit from this segment can buy Microsoft as it has a good margin of safety due to its other businesses and won’t rely entirely on its AR/VR prospects.



Published on Oct 17, 2016
By Prudent Investor

Copyrighted 2018. Content published with author's permission.

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