Microsoft is dropping products and handing customers to competitors in the latest sign of CEO Satya Nadella's strategy to focus the company

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Microsoft CEO Satya Nadella.

• Microsoft is cutting Invoicing and Outlook Customer Manager - two products aimed at small and medium businesses, each set to retire in 2020.
• The company is handing off customers of those products to smaller competitors by securing them free one-year subscriptions.
• The move - paired with a recent partnership with Salesforce, often a direct competitor - shows Microsoft is having to choose which businesses it wants to emphasize and business applications might not be as much of a focus moving forward.
• The test of Microsoft's efforts to refocus and prioritize will be whether Microsoft can come up with a coherent strategy that works across all of the company's businesses and products, one analyst says.
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Microsoft plans to discontinue two products geared toward small and medium businesses and offload customers to smaller competitors - and the move may reveal a change in strategy for the Redmond, Washington-based company.

Earlier this month, Microsoft notified customers that in 2020, it plans to cut two products available through its Office 365 Business Premium productivity suite: Microsoft Invoicing, which goes away on Feb. 8, and Outlook Customer Manager, which will retire June 30.

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ZDNet first reported Microsoft's plans, which were confirmed by the company to Business Insider.

Microsoft started notifying customers earlier this month about plans to discontinue to products and, and is offering free one-year subscriptions to similar services from smaller competitors.

"To help customers who have been using Microsoft Invoicing, we've worked with Invoice2Go to offer the eligible customers a special one-year subscription. Similarly, to help customers who have been using Outlook Customer Manager to track customers and deals, we've worked with Nimble CRM to offer eligible customers a free one-year subscription. Customers will receive a unique promo code to take advantage of these offers," Microsoft said in a statement.

While Microsoft said the products have a "limited number of customers," the move - paired with the company's recent partnership with Salesforce, often a rival - shows Microsoft is having to choose which businesses it wants to emphasize and business applications might not be as much of a focus moving forward, Nucleus Research Director of Research Seth Lippincott said.

"They are having to triage where they are putting their energy," he told Business Insider. "This is an additional sign of where we think Microsoft is going - and it's pretty clear business applications is not where they want to be for the long haul."

Dropping products, staying focused

It's a move that's proving to be a key part of Microsoft CEO Satya Nadella's playbook. Under his almost six-year reign as chief exec, Microsoft has proven a willingness to cut life support on struggling products like the entire Windows smartphone business, and instead double down on platforms from rivals like Google and Apple.

It isn't a surprise Microsoft would drop the products, Lippincott said, as small businesses - the target customer for both of the newly-discontinued products - often don't have heavy-duty requirements, and can often get away with using something free (or, at least, free to start) from startups and other smaller vendors.

"It's hard to justify continuing to invest in a product others are giving away," he said.

There's even some precedent for Microsoft leading customers of its defunct apps right to the (former) competition: When Microsoft pulled the plug on Groove Music, its relatively unpopular music streaming service, it offered tools to import user playlists into Spotify.

This time out, the beneficiaries of Microsoft's chopping block are Nimble, a customer relationship management and social media management tool for small businesses, as well as Invoice2Go, a mobile invoicing app for small businesses. Both are subscription-based and offer plans for as little as $19 per user per month for Nimble and $2.99 per month for Invoice2Go.

Microsoft's Office 365 Business Premium productivity suite, for comparison, starts at $12.50 per user, per month when billed annually.

Overall, Lippincott said it's indicative of a broader strategy from Microsoft to move upmarket and focus its efforts on where the company sees the most growth potential - namely, larger customers, where the company has historically been a market-share heavyweight, and where it has several solutions custom-tailored to their needs.

'Undermining' business applications to emphasize the cloud

The changes come as Microsoft is putting aside its longtime rivalry with Salesforce, a key rival in that upper-market kind of customer, as part of a master plan to grow its cloud business.

Microsoft's Azure will now be the public cloud underpinning Marketing Cloud, Salesforce's cloud software for marketing professionals, and the companies are working on a way to allow Salesforce customers to share information within the Microsoft Teams chat app.

The deal is intended to help get Azure in front of more customers. The partnership, however, risks Microsoft's own competing customer relationship management business Dynamics in order to promote its cloud business, Lippincott said.

"The Salesforce partnership is almost undermining Dynamics in order to promote Azure as the cloud of choice," he said.

Business applications and CRM are still a large part of Microsoft's business, Lippincott said - but the recent moves to emphasize the cloud show where Microsoft is really staking its bets for growth. Microsoft is a big company, with a ton of different product lines and business areas. Sometimes, as in the case of the Salesforce deal, those interests may compete, Lippincott said.

The test will be whether Microsoft can come up with a coherent strategy that works across the company, where the company can successfully partner with and compete against frenemies like Salesforce.

"Whether Microsoft can get out of its own way is always the question," he said.