With Windows Phone It’s Not The What, It’s The Why

On December 4, 2014, Techpinions’ own Jan Dawson wrote a 33 page report on Windows Phone. While it sounds long, for those interested in the topic, it is easy reading and I highly recommend it to you.

Jan’s report answered the “What” questions — What’s gone wrong with Windows Phone and What should Microsoft do about it. His answers are compelling. But I am far more interested in the “Why” than the “What.” Why is Microsoft doing phones at all?



Why Windows Phone? Does it help sell more Window’s licenses? No it does not. ((Microsoft launched Office for iPad in March and says it’s seen 40 million downloads of the three apps since then. But the full functionality of the apps has only been available to Office 365 subscribers, and it’s added less than three million Home and Personal subscribers since then, at roughly the same pace as it added subscribers earlier.  People have been very interested in the apps, but most haven’t been willing to pay for the full functionality (or already had access to it through existing Home or Business subscriptions ~ Jan Dawson)) Microsoft is now giving away Windows on any device smaller than 9 inches. Microsoft Windows phone is not necessary to pursue that strategy.

Why Windows Phone? Does it help sell more Office licenses? No it does not. Microsoft is now giving away Office on all mobile devices under 9 inches. Microsoft Windows phone is not necessary to pursue that strategy.

Why Windows Phone? Does it help entice more people to upgrade to Windows 365? There is no evidence that it does.

Why Windows Phone. Does it make money from the sale of hardware. Not it does not. Windows phone is a money loser.

Estimated share of Q3 handset industry profits: Microsoft: -4%, Motorola: -2%, HTC, BB: 0%, LG: 2%, Samsung: 18%, Apple: 86%. ~ Kontra (@counternotions) 11/4/14

Further, if is far more likely that Microsoft is making far more money from licensing its patents to Android manufacturers than it is from selling its own phone hardware.

Strategy Tax/Conflict Of Interest

Why Windows Phone? Does it complement Microsoft’s licensing model? No it does not. If fact, it does just the opposite.

Microsoft’s Windows Phone directly competes with its own manufacturing partners. ((With the Lumia line, now manufactured by Microsoft Mobile following its acquisition from Nokia, Microsoft is now playing Windows Phone from both sides, as the only licensor and by far the largest licensee. It’s competing with its other licensees in the most direct and dominant fashion, even as it seeks to increase the number of OEMs using Windows Phone. ~ Jan Dawson)) And if you think those manufacturers haven’t noticed, then you haven’t been watching as they one-by-one flee the market.

In what is yet another blow to Microsoft’s mobile efforts, Huawei — a top-5 smartphone maker in 2014 — confirmed to The Seattle Times that for the time being, it is done with Windows Phone. What’s more, the company’s head of international media affairs said that Huawei has not made any money with Windows Phone… and neither have any other Microsoft partners. ~ Zach Epstein, BGR

Where Is Microsoft Headed?

Microsoft is doing a great job of moving towards services. Its Windows, Office and on-premise Server businesses are throwing off cash, while Office 365 and Azure are rapidly growing.

Windows hardware is not only doing poorly, it is antithetical to Microsoft’s services business model. Consider the following four quotes from Satya Nadella:

— (Microsoft’s core question is) How do we harmonize the interests across end users, developers, and IT?

— Microsoft wants to be a player everywhere.

— I definitely don’t want to compete with our OEMs.

— We are a software company at the end of the day. ~ Satya Nadella

You cannot harmonize those quotes with the sale of Windows Phone. And, in fact, I don’t think that Nadella actually wants to be in the hardware business. It was forced on him by his predecessor and he is slowly backing away from it.

I’ll make a bold prediction. Microsoft will eventually drop Windows Phone. Unfortunately, based upon what we’ve seen of Satya Nadella’s cautious style, I think it will be later rather than sooner.


Windows Phone is probably a lost cause…

When a lot of remedies are suggested for a disease, that means it can’t be cured. ~ Anton Chekhov

…but so what? That’s not the problem. The problem is that Windows Phone doesn’t advance Microsoft’s strategic interests. Yet Microsoft is pursuing it anyway. That’s bad strategy…

Endurance is frequently a form of indecision. ~ Elizabeth Bibesco

…and it needs to stop.

It is better to run back than run the wrong way. ~ Proverbs

Microsoft needs to stop doing what others are doing just because others are doing it.

Once a problem is solved, you compete by rethinking the problem, not making a slightly better version of the current solution. ~ Benedict Evans (@BenedictEvans)

Instead, Microsoft needs to focus its efforts on those areas where it has a competitive advantage.

It’s not about doing what you can, it’s about doing what others can’t. ~ C. Michel ((Excerpt From: C. Michel. “Life Quotes.” C. Michel, 2012. iBooks. https://itun.es/us/AyIDI.l))

I fully understand that this is easy for me to say and hard for Microsoft to do…but that doesn’t make my advice any less valid. What I’m suggesting is the hard path but its also the smart path and the courageous path.

The right thing and the easy thing are never the same. ~ Kami Garcia

Microsoft’s future is in services and that future can be great. But that future does not need hardware and, in fact, hardware is impeding Microsoft’s progress. And I’m not the only one to say so:

Abandon devices. The devices business is only worthwhile if you are able to sell at a high margin; while this does not offer the margin percentage of software licensing, the absolute monetary value of a high margin device is significant ($300+ for an iPhone, for example). However, Lumia’s are simply not competitive at the high end; all volume to date is that the very low end (<$150), and is being sold at a loss. Moreover, Lumia volume is too low to be supply chain competitive, at least once the former Nokia feature phone business is spun off. ~ Ben Thompson

Microsoft should embrace their future and let go of everything that ties them to their unsuccessful past. And that especially includes Windows Phone.

Post Script
Jean-Louis Gassée has a very different, yet very compatible, take on Microsoft’s hardware future. Highly recommended.

Published by

John Kirk

John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?

28 thoughts on “With Windows Phone It’s Not The What, It’s The Why”

  1. I made a “sympathy purchase” of a Lumia 1520 as my second phone. Turns out I like it a lot. If MS is being stupid and stubborn from a strategic point of view, I hope they remain stupid and stubborn. We could use the threat of competition.

    1. I was careful not to criticize Windows Phone in any way. In my opinion, it is the strategy that is flawed, not the product.

    2. Agreed. Windows Phone OS is actually great. Beautiful even.

      And I strongly believe they will see continued success in entry-level because they offer a quality phone for cheap vs. the other crap smartphones. And they would be even MORE successful if Microsoft actually TRIED and put significant effort targeting entry-level & marketing to them.

      Instead it seems Microsoft’s refuses to acknowledge that market. Focus instead on mid-range and competing against high-end iPhone – NEVER going to happen! They’re not going to get the high-end.

      Their strategy remains flawed to keep Windows Phone (maybe)… But even their decision to keep Windows Phone… their strategy executing in the mobile market has been horrible.

      That being said. The Windows Phone OS is great.. it’s pretty

  2. Mr. Kirk: Mildly disappointed that the article was so short.

    But then, your argument is now honed to its essence. All reasonable men with good humor* can agree: Microsoft would do well to exit the mass market consumer goods arena and FOCUS.

    My thanks to you for all the memorable articles throughout the year. I never tire of explaining to coworkers/ passersby why I’m failing to stifle an urge to laugh out loud. Best wishes for the new year to you and yours.

    *boundless hope for you, klahanas.

  3. “Microsoft should embrace their future and let go of everything that ties them to their unsuccessful past. And that especially includes Windows Phone.”

    Brilliant. That sentiment should be obvious but I don’t think it is.

    1. Microsoft embraced the future with Windows Phone. They were the first one to introduce Flat UI something which Apples Iphone, OSX, Googles Material design including Android L has copied. The majority of the tech media are biased against Microsoft and its platform, look at consumer satisfaction feedbacks. WP is a very highly rated OS, in many cases more so than Android and iOS. The media needs to give Windows Phone its fair shake. It revolutionized design language.

      1. “The majority of the tech media are biased against Microsoft and its platform, look at consumer satisfaction feedbacks.” – Tony Prescott

        I don’t think your claims of media bias are sustainable. Most reviews speak well of Windows Phone even as they note its poor sales numbers.

        As for consumer feedback surveys, the only feedback that one needs to know is the amount of dollars voted by consumers for their preferred product. In that survey, Windows Phone loses hands down.

        Further, in my opinion, none of that really matters. Even if Windows Phone does better, it will not advance Microsoft’s strategic issues. Microsoft does not need to be good at everything. But they do need to be good at that which differentiates them. Phone hardware is not that thing.

  4. Outstanding as always.

    However, my guess is all those rabid WinPhone fans won’t see Microsoft go down without a fight and do their best to sustain Microsoft’s hardware endeavor.

    WinPhone has a fan base. The question is: will Microsoft continue to lose millions just to appease a handful of frothy-mouted fans looking for a smartphone capable of 30-megapixel shots?

    As you said, based on Nadella’s penchant for undoing Ballmer’s colossal screw-ups my guess is, as your also ascertained, that it won’t happen tomorrow but will happen eventually.

    1. It is said that Nadella voted against the acquisition of Nokia and then reversed his position. That was probably a very realistic thing to do and the only way that Nadella could have become CEO.

      Satya Nadella has moved very quickly on some things and I think he’d like to move away from phone hardware too, but Microsoft only just acquired Nokia. I think he’s moving as fast as he thinks he’s able to do.

      As an aside, I think Microsoft’s board handled the Nokia acquisition as badly as possible. First they resisted Ballmer’s request that Microsoft buy Nokia, then they caved to Ballmer’s demands, then they all but booted Ballmer out the door. They could have save Microsoft and Satya Nadella a ton of grief if they’d stuck to their guns and removed Ballmer without first acquiring Nokia.

  5. Isn’t MS selling hardware mostly about software and services ? If MS stop selling Windows phones, who’s left selling them ? If there’s no Windows option in Mobile, how dangerous is that for the MS apps, admin and dev ecosystems in the mid- and long-term ?

    1. It could well be one of their loss leaders. Some would say Surface is another. If they are looking at it from a systems point of view, it may make sense. Then there’s some items you need to carry for credibility. “Service items” if you will. McDonalds makes most of it’s money on traditional meals, but has gotten into more healthy items as well, as a for instance.

    2. “If there’s no Windows option in Mobile, how dangerous is that for the MS apps, admin and dev ecosystems in the mid- and long-term ?” – Obarthelemy

      Microsoft is transitioning from software that only works on Microsoft devices to software that works on ALL devices. In other words, Microsoft wants its Apps and administrative tools to work on all platforms.

      A rough analogy. Microsoft used to sell diesel fuel (Windows operating system) and 95% of all cars (computers) on the road used diesel. But today, only 14% of the vehicles are diesel so Microsoft wants to sell fuel (it’s apps and administrative services) to ALL cars (computing devices). In today’s world, there is no need for Microsoft to make and sell it’s own car (phone hardware).

      1. That is by far the most clarifying point you have made on this subject. Ever!
        So Windows desktops are only 14% of all kinds of computers? Asking, not questioning.

          1. Thank you, for beating me to the punch and providing that information, Shammer. Techmpinions readers are the best!

            “MS COO Turner: We have 14% share of all devices (including our 90% PC share).”

            That quote was made on July 14, 2014. Ben Bajarin just speculated that more smartphones might be sold in the fourth quarter of 2014, than all PCs were sold in 2014. What that means is that Microsofts share of all computing devices — phones, tablets, notebooks, desktops — is continuing to shrink as phones and tablets grow while notebooks and desktops remain constant.

            In other words, Microsoft’s share of the computing pie is ever shrinking. Or I should say WINDOWS share of the computing pie is ever shrinking. Microsoft is trying to provide services to the ENTIRE pie. That’s their new strategy and a very wise one, in my opinion.

          2. Okay. Wow! That’s because the pie has gotten bigger. Much bigger.
            That also means Macs represent 1/8th to 1/10th of that. I’m impressed. Just because there are more bicycles on the road does not diminish scooters. Or Macs…. 🙂

          3. “That’s because the pie has gotten bigger.” – Klahanas

            Yes, we agree. The computing pie is growing by leaps and bounds. Traditional PC sales are flat or possibly diminishing a bit. So their percentage of the overall computing pie is shrinking but their absolute numbers are not.

            Microsoft does not want to be isolated on that portion of computing that is not growing. For them to keep up, they need to be in phones and tablets. That is not going to happen at the hardware level or the operating system level but they can keep up with the growth of computing by making their services work everywhere.

      2. I’m not sure causality is that way, and I’m not sure MS have said anything to that effect, and I’m not sure we should take what MS says at face value..
        MS are getting some client software to work on non-MS platforms, and some dev & admin tools to also work with non-MS platforms. Not because they want to, but because they have to since their mobile offerings are so much behind (whether just in share or in capabilities/desirability is another debate). If MS didn’t port their stuff, customers would have to start using something else, which is the least desirable outcome: MS stuff on MS platform > non-MS stuff on MS platform > non-MS stuff on non-MS platform. In no way does it mean that MS are happy when customers use a non-MS platform or non-MS stuff.
        As for MS & Cloud, the way I see it for now is :”Hey IT managers, your bosses hear about Cloud, want Cloud… so now we’re saying we’re doing Cloud, and you can keep buying from us like before. Oh, and it’s gonna be a rent, not a purchase”.

        1. Windows 10 will make it much easier for developers to port their notebook and desktop software to tablets and phones — but here’s the thing. People don’t use their phones and their tablets in the same way as they use their notebooks and their desktops. Look at the existing applications on both the iOS and the Google Android platforms. There is almost no crossover between applications that run on notebook/desktops and apps that run on phones/tablets.

          1. “There is almost no crossover between applications that run on notebook/desktops and apps that run on phones/tablets.”

            Well, sort of, though. There are a lot of apps that are mobile equivalents of what one would use a web browser for on a desktop/laptop, particularly with retail and other ecommerce (Kayak, etc.). And there are a lot of apps that try to bridge work flows between desktop and mobile, like Bluebeam Revu, various mobile CAD apps, etc. And there are other apps like Evernote, that aren’t just trying to be bridge apps.

            I agree that device use is different on many levels. I can only imagine MS’s approach is to help some legacy companies make the transition to mobile and leverage their PC software dominance. There are a lot of enterprise apps that just can’t seem to figure out how to go mobile (such as CAD apps as I’ve mentioned here before). And as much as this may seem like an efficient, bullet proof way of handling the shift, it sure sounds like it will be more a cluster-eff than anything compelling. MS can’t even seem to get developers to implement touch to close/minimize windows. This is not going to end well for them from what we’ve seen so far.


          2. Are they that different ?
            – Web, email/IM/social, light games, media players… everyone around me seems to use those a lot on both – individual apps may vary, but the thrust is the same, if you take away pro use.
            – Most of the differences can be explained by the lack of a desktop app, or a monopoly. I’d love to have an RSS reader or an email client as good as the ones on Android for my Windows PC, but they just don’t exist, or cost hundreds, so web app it is.
            I think the issue is confusion between device (Mobile vs PC), and scenario (Consumer vs Entreprise).

  6. Microsoft had to get into Hardware because of the failure of Windows Mobile 7 which was a better software suite than iOS junk, but could not get OEM’s to bite. Mainly because it was not built on ARM and intel did not make great stride in ATOM yet. They can’t go back. They purchased Nokia because Nokia was getting too big, they were getting a piece of every smartphone sold (they own all mobile data patents). And they had customized the Windows Phone OS enough that it was almost its own OS, and then they started literally duplicating Windows Phone on Android… Can you say last straw? Nokia had to go away. And now Microsoft is poised to Take all of mobile! Like they did everything else.

Leave a Reply

Your email address will not be published. Required fields are marked *