Introduction and Ballmer's folly
Microsoft is a company on the edge, not of disaster per se but of a choice between what it could be and what it will be. Under the stewardship of Satya Nadella, the company has, at least from the perspective of an outsider, progressed more in a single year than it did under the latter half-decade of Steve Ballmer's reign, both in terms of culture (which, admittedly, is hard to define) and strategic direction.
Of course, one of the defining moments of Steve Ballmer's term as Microsoft's CEO came toward the end in the form of a $7.2 billion (around £4.6 billion, or AU$9.6 billion) deal to purchase the phone division of Nokia. After originally angling for the whole company, including its mapping division, Ballmer had to settle specifically for phones, sealing the deal just before he retired.
Earlier this week, Microsoft announced a complete write-down of the Nokia purchase, a purchase that the company lost over $10 billion (around £6.5 billion, or AU$13.4 billion) on alongside the firing of nearly the entire staff of the phone company, a move that, while necessary, has drastically impaired the morale of workers. These decisions were made by Nadella who, in a company-wide memo, espoused Microsoft's new focus on a "mobility of experiences" across their devices.
Mobility of experiences
What does "mobility of experiences" mean? Essentially, Microsoft no longer minds which devices a customer uses to access its services. Whereas before Microsoft wanted to own the whole experience, from device to software, now Redmond simply wants as many people using its services as possible.
Almost on the day Microsoft announced it was to purchase Nokia various pundits, including Ben Thompson of the Stratechery blog, foresaw the eventual write-down. Nokia, once a stalwart of innovation, had been reduced to the sole – or as close as makes no difference – manufacturer of Windows Phone handsets, which had driven the company to near bankruptcy.
The motives for the acquisition, however, are less than clear. The initial agreement struck between Microsoft and Nokia meant, in effect, that Redmond had all of the best bits of the Finnish phone maker, at a cost of zero billion. Over the course of the agreement, Nokia's financials became more and more uncertain as competition from rivals, who adopted Google's Android over Windows Phone, essentially forced Nokia out of the market.
From this perspective, it would seem that Nokia required saving – if Microsoft had not stepped in, the company would have gone under, evidenced by the debt-relief built into the deal.
Ballmer's final folly
But what Microsoft gained from the acquisition still remains unclear, especially as there has been no increase in either handset output (in fact, it could be argued there has been a decrease) nor market share gains of Windows Phone, despite Microsoft now owning both ends of the spectrum: hardware and software.
Some have simply written off the deal as Ballmer's last big mistake, the final folly of a man who was on the way out anyway. For a man who constantly claimed to love Microsoft – and more than likely did – signing a deal which eventually ended up costing the company $10 billion (around £6.5 billion, or AU$13.4 billion) seems counterintuitive, even for Steve Ballmer.
The road ahead
Going forward, Microsoft's future as a manufacturer of hardware seems uncertain. Obviously the company still owns Nokia but the current strategy isn't working and, despite the potential of Windows 10's integration of desktop and phone, there seems little way in which the tech giant can increase its market share on smartphones above 10%, let alone anything higher. Paul Thurrot, a prominent Microsoft pundit, argued that the decision to stop activity pursuing Windows Phone was the right one, even though it left a community (albeit a small one) largely out in the cold.
With no pressure to pursue phones, Microsoft can focus on its Surface line and on the 'future', a mystical place that the company is currently attempting to shape with HoloLens. Where its phone strategy has failed, HoloLens may succeed as few other 'virtual reality' solutions have either the same integration with an operating system (Windows 10) or an explicit focus outside the world of gaming. Facebook's Oculus Rift is, as the company pointed out at an event, primarily focused on gaming and while HoloLens does have this aspect – think Minecraft– there are other dimensions, as the company stressed during its various keynotes.
Tough choices
Many commentators have highlighted Nadella's use of common sense when making decisions about Microsoft, especially in relation to tough decisions such as the write-down. Whereas Microsoft of old may have struggled on for a few more years, Nadella's Microsoft has put its metaphorical hands up and admitted defeat hoping to move past this and improve the services the company is actually performing well in.
The company has not quite given up on phones, however. Nadella described Microsoft's plans going forward as "narrow[ing] our focus to three customer segments where we can make unique contributions" which includes giving business customers exceptional tools, especially with regards to security; giving "phone buyers the communication services they want"; and giving "Windows fans" new flagship devices.
However, as Thurrot notes, none of these will either (a) generate income or (b) serve as a long term plan which is where Nadella's "mobility of experiences" comment comes in. Effectively, Microsoft wants to "spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly" according to Nadella. In plain English this does not include manufacturing phone hardware but expanding projects such as HoloLens and the Surface line.
Death knell
In late 2015 and early 2016 we can expect to see this vision begin to be realised as Microsoft distances itself from Windows Phone which is being rolled into Windows 10 anyway. Phones that run Windows will still be made by Redmond in the near term, if only to showcase the company's software innovations such as Continuum.
As time marches on, however, smartphones running Windows will be pushed away and made the responsibility of third parties which is, in effect, saying that the ecosystem will die as over 90% of Windows phones are manufactured by Nokia. The end of Windows Phone is here and it has come at the hands of Microsoft.
- Microsoft is now focusing on what matters – but is that the consumer?
from www.techradar.com
