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Microsoft eats another US$1 billion as phone strategy shrinks to enterprise-only

Gregg Keizer | May 27, 2016
Consumer-play dead to Microsoft, which will focus remaining hardware goals on corporate.

Just ignore the talk of consumer, analysts said: The only remaining target for Microsoft, assuming it stays in the manufacturing business, is enterprise.

Carolina Milanesi, an analyst with Creative Strategies, envisioned a Surface-branded smartphone playing the same role as the Surface Pro, and aimed at corporate buyers who wanted to stick with a Windows-only environment. OEMs, like Lenovo and HP, that pitch deals to enterprises may want to build and sell Windows 10 Mobile devices for that reason, Milanesi said.

"There are ways of thinking about mobility that don't have a phone part to them," Milanesi added, ticking off other angles, including tablets in general, small-sized tablets specifically -- a Surface Mini, essentially -- with pen support via Windows Ink, and hardware, whether in phone, tablet or Lilliputian-sized PC format, that relies on Continuum, the Windows 10 feature that lets small devices serve as the horsepower behind a desktop setup. "There are different ways to appeal to users than phones," she argued.

Microsoft's strategy, what with the flop of its own smartphone business, has pivoted to stress apps, services and subscriptions for the two viable ecosystems, Google's Android and Apple's iOS.

And that's the smart card to continue playing.

"Where they're still in it, and should play, is services that empower the Android and iOS ecosystems," said Gold. "It should not have ever been in the cut-throat hardware business." Microsoft doesn't have to own the hardware to make money in mobile, Gold stressed, citing Office 365 as an example.

Moorhead, on the other hand, leaned more toward Milanesi's position, asserting that devices running Windows 10 Mobile could be profitable for OEMs. "I absolutely believe that there are unmet needs in the commercial smartphone market," Moorhead said. "There are ODMs (original device manufacturers) who are interested in incremental sales in the business market, where you can expect higher margins. HP and Alcatel make the most sense there."

Alcatel, now owned by Chinese technology firm TCL Corp., was formerly a part of U.S.-based Lucent.

Microsoft promised to continue support for existing Windows smartphones, including its own devices and those from partners. Last week, it pledged to keep at it on Windows 10 Mobile.

But there was little retrospection on the part of Microsoft, and virtually no post mortem explanation for burning through billions. Myerson was the exception. "When I look back on our journey in mobility, we've done hard work and had great ideas, but have not always had the alignment needed across the company to make an impact," he wrote in an all-hands email published by Recode yesterday.

"This is such an utterly clueless explanation of why Windows Phone failed that it's kind of stunning," countered Ben Thompson, an independent analyst who operates Stratechery.com, in a Wednesday analysis (subscription required). "Myerson still has the Ballmer-esque presumption that Microsoft controlled its own destiny and could have leveraged its assets (like Office) to win the smartphone market. Myerson still wants to blame (apparently) the Office division."

 

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