When Microsoft executives previewed Windows 10 back in January, they showcased the operating system’s cross-platform capabilities using multiple devices made in-house: Lumia phones, Surface tablets, the Surface Hub, Xbox, and HoloLens.
Going forward, some Microsoft devices might be permanently relegated to that showpiece realm. On Wednesday, Microsoft CEO Satya Nadella announced the company would be cutting 7,800 jobs, mostly from its phone hardware division created by the $7.2 billion purchase of Nokia a year ago. That follows layoffs of 18,000 employees, more than 12,000 of whom worked on phones. Microsoft also will be recording a $7.6 billion charge from the declining value of its phone assets.
“I am committed to our first-party devices including phones,” Nadella wrote in an email to employees that, as so many Nadella emails do, turned into a company statement. “However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family.”
The layoffs are consistent with Nadella’s focus on cloud-based productivity software and follow former Nokia CEO Stephen Elop’s departure from the company in June. Furthermore, Windows Phone’s meager 2.7 percent market share wasn’t building any momentum for the phone division. What’s interesting about the timing, though, is its proximity to the release of Windows 10, due July 29. Phones clearly won’t be a defining element of Windows 10’s rollout, but, in its pursuit of tech’s productivity title, are Microsoft’s other devices getting in the way?
“That’s a good question,” said Tom Mainelli, vice president of devices at research firm IDC. “Microsoft’s existing hardware is still a bone of contention between Microsoft and its partners, and there’s no simple way forward with the hardware.”
Take the Surface tablet for example. The device embodies the work-anywhere approach of a work-everywhere company, and it hit $1 billion in sales in Microsoft’s second quarter. That was a 24 percent year-over-year rise, and its $713 million revenue in the latest quarter is up 44 percent, driven largely by sales of the high-end Surface Pro 3.
The numbers suggest the Surface is one of Microsoft’s more successful devices, but it’s far from a market powerhouse. Apple’s iPad revenue was $5.4 billion in the latest quarter, and $9 billion the one before that. Just 5.1 percent of tablets run a Windows operating system, according to IDC.
Outside of PCs, there are few Windows devices in the market, so Nadella is positioning his company’s software to play nice with more popular alternatives — an approach that could render Microsoft’s devices unimportant. But, as Steve Kleynhans, the vice president of research firm Gartner’s mobile and client computing unit, pointed out, now is the time when Microsoft needs devices to show off what Windows 10 can do, and third-party hardware makers likely won’t fill that role.
“A PC maker has to look at every little thing that they put in a machine and know whether they’re going to get paid for it, and a lot of the newer features and functions, you’re not necessarily going to get paid for it,” Kleynhans said.
Third-party hardware might have inferior microphones that hinder Cortana communication, for example, or low-grade iris and fingerprint scanners that jeopardize security but improve margins. Microsoft hardware doesn’t have to be profitable — it rarely is now — so it can feature the extra bells and whistles to sell folks on Windows 10’s more advanced capabilities.
But that’s a short-term view. Windows 10 treats the PC as the hub of tasks and experiences that are shared with other devices. If the OS is successful, gear makers will tailor their devices to its features. Where Microsoft could leverage in-house hardware is by focusing on devices that aren’t in direct competition with partners, namely Xbox and HoloLens.
Kleynhans and Mainelli both said HoloLens could quickly be adopted in the enterprise sphere. “Let’s use the example of a small architecture firm,” Mainelli said. A firm, using Microsoft’s stock software, can give clients a realistic view of a renovated building, while “competitors are showing up with paper blueprints or a CAD drawing. ROI on something like HoloLens; it can pay for itself in one job.”
On the consumer end, Xbox can entice gamers to Windows 10 and vice-versa, something that can’t be said for the company’s console and OS competition.
Windows 10’s rollout comes with high stakes. Computing as a whole is less centralized than it was back in Windows’ and Microsoft’s heyday in the 1990s and 2000s, and Nadella has implemented strategies to proliferate Windows and its connected products. There’s no doubt Microsoft’s devices are a vestige of a former era; what’s uncertain is the role they’ll play going forward and in Windows 10’s outcome.