What does Microsoft's $7.6bn, 7,800-person layoff mean for Windows Phone?

Microsoft Sign

Microsoft’s mobile business just keeps calling wrong numbers.

On Wednesday chief executive Satya Nadella announced he had “restructured” the company’s smartphone business laying off 7,800 staff and writing off $7.6bn.

Ex-Microsoft boss Steve Ballmer’s dreams of making it big in mobile with his 2014 purchase of Nokia Devices have essentially gone up in smoke.

Nadella said: “We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family.”

But what will happen to Microsoft’s Windows Phone and the ecosystem that it has attempted to rebuild from the demise of Windows Mobile five years ago? Nadella states that, “in the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”

What that really means is that Microsoft is largely throwing in the towel on smartphone hardware. In laying off the 7,800 staff it has neutered its ability to operate a multi-device lineup under the Lumia brand.

Unsustainable

Since its purchase of the Lumia division, Microsoft has released a series of lacklustre consumer devices with little to differentiate themselves from the competition or previous models released under Nokia.

“It is unsurprising that Microsoft has made deep cuts here. Its global smartphone marketshare has been in the low single figures in a market dominated by Android and Apple’s iPhone. That is not a sustainable position,” said Ben Wood, head of research for CCS Insight.

Windows Phone sales have faltered against strong competition, even in the low-end market where Nokia smartphones performed well pre-Microsoft purchase. In one of its strongest markets, the UK, Windows Phone declined from a marketshare of 11.3% to 7.4% between the end of 2013 and the end of 2014, according to data from Kantar Worldpanel. Microsoft’s share was even smaller in the US – its home market – with just 4.3% at the end of 2014 and declining to 3.8% in the first quarter of 2015.

Microsoft is on the cusp of releasing its most important version of Windows in recent memory. Windows 10 promised to unify Microsoft’s range of Windows devices, from desktop computers, to laptops, convertibles, tablets and even phones.

But it currently has very few big-name manufacturers actually making Windows Phones – Nokia was its primary customer. That is unlikely to change in the near term. It has a growing collection of small, no-name Chinese manufactures, and will likely be attempting to bring China’s largest Windows PC manufacturer, Lenovo, on board.

In the immediate term, Microsoft is more likely to attempt to approach the mobile device segment from other angles.

Apps, Office and others’ platforms

It has begun spreading signature Microsoft apps onto other smartphone platforms. On Google’s Android operating system, Microsoft has over 10 apps available including OneDrive, OneNote, Office, Outlook and Xbox Smartglass. Microsoft has around 60 apps on Apple’s iOS running on the iPhone and the iPad, including games.

In fact Microsoft has recently been making deals with Android smartphone and tablet manufacturers to pre-install a small army of its apps on big-name devices from Sony, HTC, Samsung and others.

Wood says: “Microsoft’s decision to put high-quality versions of its Office suite on Google’s Android and Apple’s iOS was the nail in the coffin of Windows Phone. It will be very pleased if everyone buys a subscription to Office 365 to use it on others’ platforms as that’s a much more sustainable business.”

Microsoft is obviously concentrating on integrating its services into others’ platforms and to allow them to link in with the greater Windows ecosystem without relying on specific Windows Phone handsets.

But Microsoft will also need a proof of concept smartphone line, similar to what it is doing with its two-in-one Surface tablets to show people what is possible with a Windows smartphone, if it is to entice third-party manufacturers. It could extend the Surface line to smaller devices, although it is never likely to be a volume player.

“A Surface business model versus a fully fledged portfolio fits better with Nadella’s vision for Microsoft,” said Carolina Milanesi, chief of research for Kantar Worldpanel.

For now the future looks dim for Windows Phones, but perhaps Microsoft can make one good phone by consolidating its teams and do what Apple has managed with essentially one smartphone – now two – a year.

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Powered by Guardian.co.ukThis article was written by Samuel Gibbs, for theguardian.com on Wednesday 8th July 2015 16.45 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010