Earlier this week, Microsoft announced that it is slashing 7,800 jobs, mostly from the phone-hardware business it picked up from Nokia. As a result, the software giant is writing off $7.6 billion (£4.9 billion), which is actually more than the $7.2 billion (£4.6 billion) it paid Nokia in the first place.
But, more importantly, the move signifies that Windows Phone, its smartphone operating system, is now being put on the slower release cycle.
Microsoft is scaling back. The software giant is losing money instead of making anything big off its phone division. In the five years of its existence, Windows Phone is yet to get past three per cent market share. And that’s finally a reality check to its ambitions.
Too Little, Too Late
Microsoft was late to join the modern mobile party. Apple unveiled the original iPhone in early 2007, and Google started to develop Android in 2008. But it was not before February 2010 that Microsoft announced Windows Phone.
Ever since, the company has tried to play catch up with other companies, but despite its efforts, things never seemed to be working out.
What Happens Now?
It’s evident that the Nokia gamble hasn’t worked out for Microsoft. But does it mean there won’t be any new Windows Phones? Not really. In an email to employees, Satya Nadella writes, "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".
"In the near-term, we'll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility", adds Nadella. This suggests that the company wants to reduce the number of phones it launches every year, not close down shop for good.
In the email, Nadella goes on to promise that the company will be releasing "better products". "We'll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they'll love", Nadella wrote.
But it might not work, and make things worse for Windows Phone. The problem is that Windows Phone - unlike Android or iOS - isn’t anywhere popular enough to attract users and make them purchase the devices.
Microsoft is betting on reducing the number of devices, hence the operating cost, investment, and, eventually, loss. What it doesn’t realise is that this move could even further reduce its relevance in the mobile market.
But perhaps that’s not the aspect Microsoft is aiming at anymore. We have seen Chinese companies like OnePlus manage to generate major revenue despite not releasing many phones. The company has only made one phone so far, and it has been a huge success. With Windows 10 on the horizon, Microsoft is perhaps hoping to turn the tables with a flagship smartphone. But will it be able to pull that off? Only time will tell.
Microsoft isn’t giving up on Windows Phone, yet. It just doesn’t want to invest in it as much. It’s an interesting business strategy.
The company has tried to attract users - release a hell of a lot of affordable Windows Phones, and entice app developers to support the platform - but it has only lost money doing it as a result. It will be interesting to see how this move affects the Windows Phone ecosystem.