Microsoft has as good as admitted defeat in the mobile market. The axing of another 1,850 jobs and a write-off of $950m from its Nokia acquisition, coming after the $7.6bn write-off last year, is the final nail in the coffin in the firm's attempt to have any serious share of the smartphone market.
The move means that Microsoft will effectively stop making consumer-focused smartphones and retain only a handful of smartphone manufacturing employees.
It's no surprise. Only this week V3 reported on Gartner data for Q1 2016 showing that Windows Phone devices made up a paltry 0.7 per cent of smartphone sales.
Any firm taking 0.7 per cent of a market over a three-month period would be worried. For it to happen to Microsoft, the biggest software firm in the world, is remarkable, especially given the time, money and effort behind it.
Not all of this is Microsoft’s fault. Vendors like Samsung and HTC have rarely shown much interest in the platform, leading to low sales, even less interest, even fewer sales, and so it goes on.
Meanwhile, Android and Apple had such a head start in the market that most consumers are deeply embedded in their app ecosystems and have little desire to change.
Furthermore, the release of Windows 10 Mobile, designed to complement Windows 10, which, despite its faults, is now in use by millions around the world, has done little to change Microsoft’s position in the smartphone world.
However, even with the low market share, job cuts and $950m write-off, Microsoft has said nothing about canning Windows Mobile as a platform.
Instead chief executive Satya Nadella insisted that the firm will find new ways to sell Windows Mobile.
“We are focusing our phone efforts where we have differentiation - with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” he said.
Roberta Cozza, a research analyst at Gartner, suggested that sticking by Windows Phone makes sense, for now at least.
"I think Microsoft is going to keep the Windows Phone platform as long as it can because the strategy it wants to push around Windows 10 is that it works across all devices," she told V3.
"It couldn’t push this message without showing that it can offer a Windows 10 smartphone experience."
Cozza added that Microsoft could find some traction in enterprises that still mandate the devices staff can use, especially as the move to Windows 10 is likely to take place in most businesses in 2017, giving the firm some time to recover.
Nadella with former Nokia CEO Stephen Elop during happier times
However, even with this push Cozza believes that the impact will be minimal. “We’re not even talking 10 per cent of the market here, more like low single digits,” she said.
Geoff Blaber, vice president of Research, CCS Insight also said that Microsoft will have to look to the enteprise for what little phone market it can maintain.
“The latest cost reductions underline the transition Microsoft is making away from the consumer to become an all-out enterprise services company," he said.
Even if enterprises keep Windows Mobile afloat, the chance of consumer growth seems almost nil, as the 0.7 per cent sales data shows.
However, similar things were said in the tablet space a few years ago when the iPad was king and Microsoft was nowhere.
Since then, Microsoft's Surface devices have garnered positive reviews, and sales have slowly climbed ever since.
The same thing could happen in the mobile market, and rumours of a Surface Phone have bubbled away for some time.
Neil Mawston of Strategy Analytics considers this as perhaps the best strategy for Microsoft to pursue.
“If Microsoft can replicate the success of Surface tablets in smartphones, Windows 10 Mobile will be back in business,” he told V3.
"[But] any recovery for Windows 10 Mobile from this point will take at least two or three years and require Microsoft to dig deep into its pockets. Recovery will not be easy."
Whether such a device arrives remains to be seen, although Nadella did say today that the firm will "continue to innovate across devices and on our cloud services across all mobile platforms", which leaves the door open for such a move.
A Surface Phone would leave Microsoft in the confusing position of producing smartphones - having just basically ditched its ownership of a mobile manufacturer - running a platform with effectively no market share.
Such a move could turn the company's mobile fortunes around, although it would be a comeback of Lazarus proportions (but no doubt similar things were said of Steve Jobs's return to Apple).
Nadella is in a tough position. The world is going mobile, and his entire ethos has been 'cloud first, mobile first'. The cloud story is going well, as have the efforts to put Microsoft apps on iOS and Android, but the firm's mobile efforts are clearly not.
“Satya Nadella’s vision from the outset was one of cross platform services and transforming Microsoft beyond its operating system legacy. The challenges facing the phone business is accelerating that transition,” noted Blaber from CCS Insight.
But Microsoft can't live in a mobile world without a mobile platform, even if it's only being used by a handful of core enterprise customers and the odd die-hard consumer.
So Nadella has had to write off a huge chunk of money, cut jobs and acknowledge that rivals Apple and Google have won the mobile market, while maintaining its development of the losing platform and possibly green-lighting the building of new phones.
Whether this commitment to Windows Mobile is worthwhile if the operating system's market share steadfastedly refuses to rise above one or two per cent is something Nadella will have to address in the next few years.
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