A few well-regarded flagship devices, a focused core experience, a vibrant app ecosystem, and a belief in the quality of its own products: Apple lives and breathes these things, and has achieved massive profitability in the phone space as a result. And it's about the only strategy Microsoft has left to try.
Soon after purchasing Nokia's device business for $7.2 billion last year, Microsoft began to dismantle it--first laying off a third of the staff, and more recently waving goodbye to business unit head Stephen Elop and other top executives. Today it's writing off another $7.6 billion in impairment from the Nokia Devices and Services Business and laying off 7,800 employees. These actions tacitly acknowledge two errors: First, buying Nokia itself was a colossal mistake. Second, the strategy of making mass-market boring phones instead of eye-catching flagship phones was failing.
But ignore all the enormous numbers flying around, and focus on what's important. The $7.2 billion Microsoft paid for Nokia is the same amount the company doled out to shareholders just last quarter, in both share repurchases and dividends. Wall Street might be livid, but Microsoft's still got plenty left in the war chest.
The real question is whether Microsoft's Windows Phone strategy is still viable. And the answer is: yes--although Microsoft is now essentially betting the farm on a successful launch of Windows 10 Mobile this fall. Nadella pledged to bring to market a more "effective" portfolio of Windows phones, a strategy of tough love that managed to be both practical as well as aspirational.
"We plan to narrow our focus to three customer segments where we can make unique contributions and where we can differentiate through the combination of our hardware and software," Nadella wrote in an email that the company published. "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."
A solid business experience, flagship devices, and budget phones. Well, two out of three ain't bad.
Going it alone
It's not entirely clear what Nadella's long-term strategy is. Optimists will note that Nadella explicitly states that he is "committed to our first-party devices including phones." Pessimists, like analyst Jan Dawson, believe that Microsoft's strategy of pushing core services like Outlook, OneDrive, and more to iOS and Android is a hedge that gives Microsoft a graceful way to exit from the phone business if need be.
If Microsoft is going to make a go of Windows Phone business, it will have to go it alone. In June, AdDuplex's sample of Windows Phones found that more than 96 percent of them were manufactured by Microsoft.
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