Microsoft has not given up on Windows phone and here’s why

Mark Coppock

The future of Microsoft’s smartphone business has been a topic of widespread and increasingly acrimonious discussion for some time now, and a major pain point for Windows and Microsoft enthusiasts. The themes range from “Windows Phone is dead!” to “Windows 10 Mobile is dead!” to “Microsoft has given up on its smartphones business!”– and every other conceivable combination of hyperbole.

Let’s take those specific themes in turn. First, of course, Windows Phone (the operating system) is “dead”– it was replaced by Windows 10 Mobile. And, of course, Windows 10 Mobile isn’t “dead”– it’s being actively developed by Microsoft. The question of whether Microsoft has “given up” on its smartphone business, however, really depends on exactly what we mean by that, and we’ll get to just that question in a moment.

Of all of the things being talked about, though, perhaps the strangest (and, I would submit, the most ridiculous) is the suggestion that Microsoft should abandon Windows 10 Mobile and instead offer smartphones running Google’s Android mobile operating system. One such example is a story over at TechnoBuffalo, which was penned in response to the news about Microsoft’s final shuttering of the Nokia remnants. Another example was from a month or so ago, written in response to generally bad news around Microsoft’s smartphone market share.

The most basic and immediate question raised by this peculiar suggestion is: why in the world would Microsoft do such a thing? And I’m not just being rhetorical: really, what would be the purpose?

Note that the specific proposition — that Microsoft should adopt Android to save its smartphone hardware business — is probably not worth discussing all by itself. Yes, you can concoct a rationale and make it sound perfectly reasonable in a vacuum — Android dominates in smartphones, making a version of Android means instant access to that market, and so if you want to compete in making smartphones then Android seems to be one possible avenue. But that entire line of reasoning relies on one really bad assumption.

That assumption is shared by a number of other competing ideas, including the ones that say that Microsoft is failing in smartphones. The Android proposition, therefore, presents the perfect opportunity to raise other important points that are more generally applicable and to do away with that one really bad assumption that is often at the heart of many of doom-and-gloom stories.

That really bad assumption is that Microsoft actually wants to be in the business of selling smartphone hardware.

What is Microsoft’s business, really?

Historically, Microsoft is not and has never been a hardware company (Xbox and HoloLens and the rest aside, for the moment). For decades, Microsoft has produced operating systems like MS-DOS and then Windows, and its OEM partners have made the hardware to run them. Microsoft has also made productivity and server products that run on top of the operating system, the latter of which OEMs have also leveraged in building out their own businesses. And this same business model was applied to Windows smartphones at the very beginning, when Microsoft introduced Windows Phone 7 and a number of OEMs, (Samsung, Dell, HTC, and LG) released smartphones based on it.

In short, Microsoft built itself into a multi-billion dollar global corporation by laser-focusing throughout most of its history on being a successful software company. At the same time, Dell, HP, Lenovo, AMD, Nvidia, Logitech, and many, many other companies built their own successful businesses around making hardware that runs and supports Microsoft software. This general ecosystem was given a name, specifically the portmanteau of “Wintel” combining Windows and Intel, and on PCs, at least, Wintel remains just as descriptive today.

Former Microsoft CEO Steve Ballmer did develop and begin implementing a strategy that included a foray into hardware as a bona fide aspect of Microsoft’s strategy. Even Ballmer, though, seemed to have a limited vision of what hardware meant to Microsoft, as he indicated in his 2012 letter to shareholders:

We will continue to work with a vast ecosystem of partners to deliver a broad spectrum of Windows PCs, tablets and phones. We do this because our customers want great choices and we believe there is no way one size suits over 1.3 billion Windows users around the world. There will be times when we build specific devices for specific purposes, as we have chosen to do with Xbox and the recently announced Microsoft Surface. In all our work with partners and on our own devices, we will focus relentlessly on delivering delightful, seamless experiences across hardware, software and services. This means as we, with our partners, develop new Windows devices we’ll build in services people want. Further, as we develop and update our consumer services, we’ll do so in ways that take full advantage of hardware advances, that complement one another and that unify all the devices people use daily. So right out of the box, a customer will get a stunning device that is connected to unique communications, productivity and entertainment services from Microsoft as well as access to great services and applications from our partners and developers around the world. (emphasis added)

Certainly, at the very least, this doesn’t sound like a company that ever intended to replace its OEM partners with its own hardware. Looking in from the outside, it seems much more that Microsoft’s major hardware moves, such as the Nokia acquisition and the introduction of the Surface line, were outliers borne of desperation and frustration rather than a wholesale shift in strategy.

In desperation, Microsoft bought Nokia in part because the Finnish phone maker was struggling and Android would inevitably have become an attractive option–and losing Nokia would have spelled immediate death for Microsoft’s mobile OS at a time when its ultimate failure as a mainstream product wasn’t nearly so obvious. Without Nokia, and with other Windows Phone OEMs already having backed away from the OS, the future of Windows Phone was bleak.

Microsoft was thus faced with a difficult choice. Either purchase Nokia, or give up on smartphones well before there was sufficient reason to throw in the towel. In hindsight, the decision to purchase Nokia seems like the wrong one given that over $10 billion was essentially wasted. At the time, though, there were reasonably good arguments to go forward with it.

The Surface line, on the other hand, was a frustrated reaction to years of inferior OEM Windows machines (inferior to Apple’s MacBook and with nothing that competed with iPad) and a desire to put a best foot forward with Windows 8. Surface was meant to serve as a halo product to show what’s possible with Windows 8 (and now Windows 10), as well as to demonstrate to OEMs that quality Windows machines were possible and to pressure OEMs into making them. Intel had its own similar initiative, Ultrabook, that arguably had the same general goal of making Windows machines more competitive with the MacBook.

Likely to Microsoft’s mild surprise and delight, Surface took off, probably well beyond Microsoft’s initial aspirations, and has become a multi-billion dollar (and profitable) business in its own right. Furthermore, the Surface line succeeded in creating a vibrant 2-in-1 market that is currently the only PC segment that is growing in sales and one where Microsoft competes well head-to-head against Apple.

In essence, Surface overachieved, and so Microsoft will most certainly continue the line given just how popular and influential it has become. Surface can continue to serve as a halo product for Windows 10 without costing Microsoft an arm and a leg and indeed while helping to bolster the company’s financial performance.

But that still doesn’t mean that Microsoft wants to be a hardware company. With CEO Satya Nadella in charge, the answer to that question has likely been made unequivocally clear. As he outlined in his letter to employees on June 17, 2015:

Terry Myerson will lead a new team, Windows and Devices Group (WDG), enabling our vision of a more personal computing experience powered by the Windows ecosystem. We will combine the engineering efforts of our current Operating Systems Group and Microsoft Devices Group (MDG) led by Stephen Elop. This new team brings together all the engineering capability required to drive breakthrough innovations that will propel the Windows ecosystem forward. WDG will drive Windows as a service across devices of all types and build all of our Microsoft devices including Surface, HoloLens, Lumia, Surface Hub, Band and Xbox. This enables us to create new categories while generating enthusiasm and demand for Windows broadly. (emphasis added)

That sounds very much, once again, like Microsoft makes hardware specifically to drive the Windows 10 market in the direction that Microsoft wants it to go, not a company that wants hardware to be at the center of its revenue-generating businesses. Completely erasing the Nokia acquisition as Microsoft has now done is just a fat red line drawn sharply through the idea that Microsoft wants to be a smartphone hardware company.


Wherefore art thou Windows 10 Mobile?

And so, where does this leave Windows 10 Mobile? The shortest answer is: it leaves Windows 10 Mobile exactly where Windows Phone began, and exactly where Microsoft has been telling us it resides. That is, Windows 10 Mobile is and will remain nothing more nor less than Microsoft’s Windows 10 SKU for OEMs that want to make Windows smartphones and other small Windows 10 devices. Windows 10 Mobile will take its place alongside every other Windows 10 SKU, right beside Windows 10 Home and Pro and Enterprise and IoT. Windows 10 Mobile is, in essence, the logical extension of Microsoft’s universal Windows 10 strategy — you can’t be Windows Everywhere if you don’t run on smartphones.

To be a little more precise, Windows 10 Mobile will serve as a secure, manageable mobile OS for OEMs like HP who want to offer complete soup-to-nuts Windows 10 solutions for business, and specifically enterprise, companies. Simply put, Microsoft will place the onus of manufacturing Windows 10 Mobile devices where the company has always intended, on its OEM partners.

Microsoft is now doing what they likely intended to do all along–act as the company that provides the (mobile) operating system for OEMs to use in making the (smartphone) hardware. A recent email from Microsoft’s Terry Myerson to partners makes that perfectly clear:

I want to assure you that your investment in Windows phones is not at risk. The mobility of the Windows 10 experience remains core to our More Personal Computing ambition. We will continue to support and update the Lumia devices that are currently in the market, and development of Windows 10 phones by OEMs, such as HP, Acer, Alcatel, VAIO, and Trinity; as well as develop great new devices. We’ll continue to adapt Windows 10 for small screens. We’ll continue to invest in key areas -security, management, and Continuum capabilities – that we know are important to commercial accounts and to consumers who want greater productivity. And we’ll help drive demand for Lumia devices.

What about consumers?

What’s most unclear at this point is where Windows 10 Mobile will play in the consumer smartphone market. Clearly, that market is dominated by Android and Apple’s iOS, and breaking into that market has proven difficult (or perhaps impossible) for Microsoft to this point. Indeed, given the now-saturated nature of the smartphone market (78% of potential smartphone purchasers already own a smartphone, meaning most new customers must be convinced to switch from another platform), it’s likely impossible for anyone to break in.

If you hope to see Windows 10 Mobile become a competitive consumer smartphone platform anytime soon with access to all of the apps and services that iOS and Android users enjoy, then you’re likely to be disappointed.

The Lumia line of smartphones represented Nokia’s and then Microsoft’s previous best effort to gain some traction in the consumer smartphone market, and now it’s likely a foregone conclusion that the Lumia brand will give way completely to the Surface Phone. The question then becomes, why will Microsoft bother to make the Surface Phone if they don’t want to be a hardware company?


Microsoft’s Nexus program?

As far as I can tell, it’s almost guaranteed that the Surface Phone will serve precisely the same purpose as the original Surface. That is, the Surface Phone will show OEMs how to make the best possible Windows 10 Mobile devices while demonstrating the best and most important Windows 10 Mobile capabilities. Surface Phone will showcase Microsoft’s vision for Windows 10 Mobile, in much the same way and for the same reasons as Google’s Nexus program does for Android.

If the Surface Phone catches on and contributes some profit to Microsoft’s bottom line as Surface 2-in-1s have done, then great. At the same time, if the Surface Phone and OEM devices become hits with consumers and help Windows 10 Mobile compete in the consumer smartphone market along with OEM devices, then that will likely just be gravy. Ultimately, I would never say that Microsoft would turn down success with consumers (and nor would their OEM partners, I’m sure), I’m just saying that right now, mainstream smartphone consumers are not Microsoft’s primary concern.

So, what about this Android idea?

If any of what I’ve written here is valid, particularly that Microsoft really doesn’t want to make smartphone hardware a major part of their business, then why in the world would they start making Android smartphones? Doing so would be the quickest possible way to kill off Windows 10 Mobile and obliterate the universal Windows 10 strategy. OEMs would be furious and alienated. Such a move would also severely damage Microsoft’s Universal Windows Platform strategy, and hamper its Windows 10 Mobile business and enterprise play.

In short, it’s an idea that makes utterly zero sense.

What does make sense is that Microsoft will continue to push its cross-platform productivity strategy, ensuring that all of its productivity and cloud products run on every meaningful platform. Meanwhile, the company will work to ensure that all mobile platforms–iOS and Android included–can work as seamlessly as possible with Windows 10. Along these lines, Android is a very extensible platform, and so it’s no surprise that Microsoft is making Google’s open source mobile OS work well with Windows 10.

It’s all about that business customer

Meanwhile, Windows 10 Mobile will offer the best solution for businesses looking to standardize on a secure, manageable platform that runs their line-of-business applications without issue. In this regard, Microsoft has actually made themselves fairly clear, in memos such as the one Microsoft sent a few weeks ago to its OEM partners:

I understand that you are hearing concerns from certain partners about Microsoft’s commitment to the mobile space.

Let me be very clear: We are committed to deliver Windows 10 on mobile devices with small screen running ARM processors.

We are currently in development of our next generation products and I wanted to reconfirm our commitment to Windows 10 Mobile. We believe in this product’s value to business customers and it is our intention to support the Windows 10 Mobile platform for many years. We have a device roadmap to support that from Microsoft as well as our OEM partners who will also be selling an expanded lineup of phone devices based on this platform.

Microsoft is now a “cloud-first, mobile-first” productivity solutions company, and business customers are central to the company’s strategy. It seems safe to assume that any hardware the company makes will be aimed at supporting those efforts, which are primarily around Windows 10, Office, Azure, and other cloud and productivity products and services. Windows 10 Mobile remains an important software product within the company’s overarching strategy, and just where it fits at this point seems clear — the statement from the memo above, “We believe in (Windows 10 Mobile’s) value to business customers,” is fairly straightforward.

If you’re an enterprise customer that needs to create a system used by 50,000 employees that can reliably and securely run your line-of-business applications and is easy to manage, then having the same operating system on your company-issued smartphones as runs on desktops and notebooks and 2-in-1 machines makes a great deal of sense. And if you’re an HP, then the ability to incorporate such a smartphone into your sales proposal is eminently attractive.

If you’ve read all the way to the end of this piece, then you know that I’m not very bullish on the notion of Microsoft dumping Windows 10 Mobile for Android. In fact, the day that Microsoft starts selling Android smartphones is the day that I paint my car white and slap a huge Apple logo onto the hood. I guarantee you, neither of those is likely to happen.

At the same time, I find it just as unlikely Microsoft will ever stop developing Windows 10 Mobile. While the future of Windows smartphones in the mainstream consumer market remains unclear, and we’ll likely have to wait until 2017 to see what Microsoft plans next for their own smartphones, the company clearly intends to continue to have a presence in the smartphone market.

And so, yes, Windows Phone is dead, Windows 10 Mobile is not, and Microsoft is not giving up on smartphones. The company is simply incorporating smartphones more intelligently into the strategy that they’re implementing today, while keeping an eye on an extremely uncertain future. The biggest thing to remember, though, is that no matter what, making smartphones is not Microsoft’s primary business — and once you accept that, then all of the pieces starting falling into place.