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Microsoft and the Smartphone Problem

What Microsoft’s job cuts really mean for the company.
A Windows 8 HTC smartphone.

A Windows 8 HTC smartphone. Kārlis Dambrāns

I was backstage at FiRe, the annual Future in Review technology conference I run, a few years ago, and Ray Ozzie (then Microsoft’s Chief Software Architect) and I were unwinding after a great interview. At that time, as now, Microsoft’s share was still a rounding error in the smartphone market, after spending billions.

I asked Ray about whether the company would stay in smartphones.

“Strategically, Microsoft has no choice,” he told me. I agreed then, and I agree now

 ——

Before Microsoft bought Nokia, I often visited Finland’s most important company. I’ve given keynotes at their Espoo headquarters, driven through the winter night snow with their top engineer to the company lab in Tampere, and visited with employees and execs in London and elsewhere. It’s safe to say that, before Steve Elop became chief executive at Nokia, mentioning the word “Microsoft” would have ended any conversation. 

Today, having bought Nokia (now a shadow of a shadow of itself), with Steve back in the Microsoft fold and new CEO Satya Nadella promising a “cloud-first, mobile-first” focus, the first layoffs have been announced: Half of the Nokia staff (12,500 employees) will be fired. 

It isn’t that anything “wrong” has happened here (contrary to some rumblings in Finland), but rather the opposite: What does Microsoft have to do to win, way too late in the game, if it has no choice but to be a player in the smartphone market?

Let’s spice the question up slightly by adding that the competition just expanded hugely to include Chinese “champion” (domestically-favored) players, which are specifically supported by Chinese government policies. And, for those new to the story, let’s also mention that the world’s leading phone OS is the Google freebie Android; that Samsung used Android while copying the Apple iPhone’s features slavishly; and that even Samsung is now threatened by China’s Huawei and ZTE as they push into world markets with copied designs and Politburo support.

This makes the recent World Cup series look like high tea.

 ——

Letting employees go from a company that had already won the self-imposed Market Share Shrinking award, as Nokia had, is not a shock — it’s just Business 101. There were too many employees for the revenue.

On the other hand, and much to its credit, Microsoft has just shipped a new, quite creative entry (“Cortana”) into the most important gateway smartphone product category (Virtual Assistants), a sure way to improve the situation. 

Here is the current score, as I see it: Satya Nadella has confirmed the company’s commitment to smartphones, even as he cuts employees. He’s also showing that he can be tough-minded in business, as well as a tech visionary. Cortana has a decent chance to improve things if the company can figure out a decent marketing plan (which is definitely not a given). And the Windows Phone OS, as small as its total share is, seems to be improving.

None of this puts Microsoft onto the real scoreboard yet, where Apple, Samsung and China, Inc. will be fighting for world domination and the high ground in technology. All that these staff cuts buy for the company is the ability to continue the fight, in a contest that ultimately may determine the fate of all of its employees, worldwide, and not just those spared the ax today.

Mark Anderson is CEO of the Strategic News Service, www.stratnews.com, and founder and Chair of the Future in Review Conferences, www.futureinreview.com. He can be reached at mark@stratnews.com.


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Comments:

Posted Thu, Jul 17, 9:38 p.m. Inappropriate

Not much strategic news here--just about nothing beyond the facts that Nokia, like RIM, is in danger of disappearing in a puff of smoke; that Nokia/Microsoft still haven't come up with a well-differentiated and strongly marketable product; and that the lag between industry leaders and me-too exploiters is getting mighty thin.

In this kind of environment, you've got to get to market with something new and sparkly...and I don't expect that to emerge from Redmond or Helsinki. Call back when you have a real tip for us, okay?

Seneca

Posted Fri, Jul 18, 9:30 a.m. Inappropriate

Recently purchased a WindowsPhone (Lumia icon - 2 mos ago.) I like the phone. I love the camera. I won't waste time repeating the known fact that there aren't many good apps for it. Google voice? Ha ha ha. Loved this on my android phone. No chance of ever getting it on a WindowsPhone. But one of the reasons I bought the phone was the promised great new 8.1 upgrade, announced months ago (in April), before I bought the phone, and referenced here (includes Cortana). Still hasn't come down the Verizon pipeline. Speaks volumes about Microsoft's muscle in the smartphone world. Can they not make Verizon push this 'revolutionary' upgrade to users? No. Apparently not. You can get it now, and have been able to for months, but only if you are willing to hack the phone, voiding your warranty. Crazy.

dwilson

Posted Fri, Jul 18, 9:41 a.m. Inappropriate

It's the same for BBRY phones. Verizon is generally a month to 2 or more behind the worldwide releases of BB10 os.

However BBRY does have the security phone buisness nailed down pretty tight and like MSFT cash in the bank. These two os's are dualing it out for approx 2% each of the US market share. The problem for both is that without market share there is no incentive to build apps for the phone OS. BBRY does run most Android Apps (less the Google specific ones like Google Voice) so there are plenty of alternative sources for apps and even less incentive to build a specific BBRY app. Windows 8 apps not so much as they are 100% tied to that 2% market.

http://gs.statcounter.com/#mobile_os-US-weekly-201427-201428-bar

GaryP

Posted Fri, Jul 18, 10:31 a.m. Inappropriate

You say "it’s just Business 101". There are more ways of doing businees than firing people. China is doing it another way. So is Germany. Stop accepting as true the "kool aid" the corporations our feeding you.

Posted Tue, Jul 22, 8:08 a.m. Inappropriate

They don't fire people in China and Germany? What planet do you live on?

Simon

Posted Tue, Jul 22, 8:10 a.m. Inappropriate

" China is doing it another way. So is Germany."

Mass layoffs in Germany highlight new stage in global slump

Last week, two major German industrial firms announced mass layoffs and a third filed for bankruptcy. Eon, Germany’s largest energy provider, confirmed that it will eliminate 11,000 of its 80,000 positions worldwide, including 6,500 in Germany. The company cited the German government’s decision to phase out the use of nuclear power for energy generation.

Simon

Posted Sat, Jul 19, 12:27 p.m. Inappropriate

Microsoft's biggest strengths, Windows and Office, are also its greatest weaknesses. Up until now it has been trying to leverage that "business" franchise in gaining entry into the "consumer" mobile/cloud market. The test for Microsoft is whether they are willing to:

1) Abandon their "embrace and extend" strategy (the Nokia acquisition being the latest) in that it can only result in compromised products that can't compete in a market that Microsoft doesn't monopolize.

2) Split the company in two by spinning off the mobile/cloud/gaming part from the business/systems part of the business. Invest in, rather than acquire, companies like Tableau, for instance.

The reality is that the smartphone business is going to have lower and lower margins - the real game will be in innovative cloud services. It is not who is making the phone or what is running it that matters, but what you can do with it.

Posted Sun, Jul 20, 6:36 p.m. Inappropriate

CrazyDonkey. Good insights. The problem that Windows and Office created was that it turned Microsoft into a defacto monopoly. In the process, the sense of competition was killed within the company as they were able to kill off competition just because they 'owned' the desktop. AOL and Netscape both suffered that fate. But now there is no desktop. It's all about applications. As you mention, people don't care what they are running. They care what they can do with it.

I've heard the split the company suggestions before. You can't split the cloud the way you suggest because the business systems are eventually going to all migrate to the cloud. I think it's just a matter of time (and bandwidth). Once everyone gets the equivalent of Google Fiber speeds everyone's computer can really just become a dumb terminal. Who is going to want to install any software or maintain an operating system? It will be like the telephone systems. What people own will be the equivalent of a handset and the main 'switch' will be the growing populations of data centers.

Microsoft seems to have embraced this pretty aggressively in their approach to Azure, which was recently rebranded from Windows Azure to Microsoft Azure. The Windows brand is finally being decremented in importance.

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