On Thursday, Microsoft ended its brief fling with Android, dumping the Nokia X smartphone and fleeing back into the arms of its beloved Windows.
That Microsoft had made cuts following its acquisition of Nokia wasn’t unexpected; after all, the deal brought with it 32,000 Nokia employees. What wasn’t known was how many of those employees Microsoft was willing to give up, and, likewise, what this would mean for Microsoft’s strategic direction.
Satya Nadella’s memo provides the overall strategic direction for the move—necessary, he said, to “realign the workforce” to provide a “clear focus” for the merged company. But Stephen Elop, the executive vice president of Microsoft’s Devices and Services Business, provides the clearest look at what this means for the products you know and buy.
The short answer? Aside from the fewer number of employees designing, selling, and supporting Nokia products, not much. “..[W]e will continue our efforts to bring iconic tablets to market in ways that complement our OEM partners, power the next generation of meetings & collaboration devices and thoughtfully expand Windows with new interaction models,” Elop writes. “With a set of changes already implemented earlier this year in these teams, this means there will be limited change for the Surface, Xbox hardware, PPI/meetings or next generation teams.”
What’s clear, however, is that Elop was overruled on how to take forward the Nokia X, the Android-powered smartphone that Elop positioned as the gateway to Microsoft services. Nokia crafted the Nokia X as a way to take on cheap Android phones head-on, dodging Microsoft’s Windows licensing fees and coming up with a cheap entry point to OneDrive, Hotmail, and other Microsoft services.
And, for that matter, Nokia's feature phones will get the axe, too. According to a memo seen by The Verge, development and investment for Asha, Series 40, and Nokia X handsets will shift to what is described as "maintenance mode," and services that support these existing devices will be shut down over the next 18 months.
In April, for example, after the acquisition closed, Elop specifically talked up the Nokia X. “Microsoft acquired the mobile phones business, inclusive of Nokia X, to help connect the next billion people to Microsoft’s services,” Elop said then. “Nokia X uses the [Microsoft] cloud, not Google’s. This is a great opportunity to connect new customers to Skype, Outlook.com and OneDrive for the first time. We’ve already seen tens of thousands of new subscribers on [Microsoft] services.”
Even Nadella seemed to support the strategy. ““On every home screen out there our aspiration is to have one or many Microsoft icons representing Microsoft digital experiences,” Nadella told partners on Wednesday.
Developers, developers, developers
Today, Elop adjusted his position. “We will be particularly focused on making the market for Windows Phone. In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia,” Elop wrote in his Thursday memo. “In addition to the portfolio already planned, we plan to deliver additional lower-cost Lumia devices by shifting select future Nokia X designs and products to Windows Phone devices. We expect to make this shift immediately while continuing to sell and support existing Nokia X products.”
So what changed?
According to one developer who asked not to be named, the Android X was seen as something akin to BlackBerry’s adoption of Android apps: a recognition that what Microsoft developers were doing was in fact inferior to what the Android ecosystem was turning out. And in fact, that isn’t necessarily true: with all the fuss over whether or not Google’s YouTube should provide a native Windows Phone app, apps like YouTube HD arguably provide a better experience.
“That just sent a horrible message to developers,” said Patrick Moorhead, principal at Moor Insights & Strategy, of the Nokia X. “With Windows Phone being in such a tenuous position, anything that sends the message that Microsoft may not be the best in phones can keep a developer from making an application.”
Moorhead described the layoffs at eliminating “checkers of other people’s work,” eliminating layers of redundancy. One move, he noted, included consolidating the former Smart Devices and Mobile Phones business units into one phone business.
Elop also made one important point: that phones now serve a different purpose then they did at Nokia. “Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft’s overall strategy,” Elop wrote.
In other words, Microsoft’s goal is to showcase the work that Microsoft’s own development teams produce, as well as its developers and partners. The Nokia X simply didn’t fit with that vision.
Growing the market
That doesn't mean that flagship phones like the Nokia Icon don’t have a place in Microsoft’s new reality. “To win in the higher price segments, we will focus on delivering great breakthrough products in alignment with major milestones ahead from both the Windows team and the Applications and Services Group,” Elop wrote. “We will ensure that the very best experiences and scenarios from across the company will be showcased on our products.”
But the truth of the matter is that Nadella sees growing Windows market share as the way forward. And the easiest way to do that is with moderately priced Windows Phones that can attract new entrants to the Windows platform. Microsoft is third in the United States with just 3.4 percent of the market, according to comScore, although it has fared much better overseas.
At one time, that might have meant a resurgence of low-cost Asha phones. But not now.“In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia,” Elop wrote.
To Moorhead, Nadella is still “cleaning up the mess Ballmer made” with the Nokia acquisition. And maybe he is. But the Microsoft-Nokia deal is done, and Nadella’s best choice is to drive the Microsoft ecosystem forward as hard as he can.
Updated at 4:31 PM to add reporting from The Verge.