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Microsoft and the Smartphone Problem

An Windows 8 HTC phone resting on top of another smartphone.

A Windows 8 HTC smartphone. Credit: 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.

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