With Nokia, Microsoft is showing it's not afraid to make bold moves. Just not the right ones

With Nokia, Microsoft is showing it's not afraid to make bold moves. Just not the right ones

Summary: After making a decisive move in mobile by buying Nokia's handset business, Microsoft is making one step forward and two steps back.

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Like Nokia's decision to start making Android phones, Microsoft's decision to stop selling them — and the wider restructuring the move was part of — seems a mixture of business sense and magical thinking.

Nokia, before its devices and services arm was bought by Microsoft, began working on Android devices. Quite when that work started we don't know, but as the first devices in the X line launched in February, we can assume it would have been somewhere between February last year and August 2012. That suggests the decision to explore the OS was taken before Nokia began negotiations proper with Microsoft over the sale of the handset business (a theory that chimes with reports that the Nokia-Microsoft negotiating table had an Android-powered Lumia placed on it).

So Microsoft wanted Nokia's handset arm, but not necessarily it's Android experiment: Microsoft's focus was, and is, pushing Windows Phone. It needs the OS to take off so it can sell software on top of it. It also needs those services to succeed on other mobile platforms, including Google's, as well, but that the company needed to produce Android handsets to achieve that doesn't - it seems - necessarily follow.

As the Nokia acquisition closed after the X launch, chances are Microsoft had no option but to put a brave face on the Android devices it was now selling. Stephen Elop, then still a Nokia employee touted the handsets as an "on-ramp" to Lumia, and as a "feeder system" for Microsoft services.

Selling consumers low-end devices today in the hope of moving them onto more expensive devices tomorrow is a sensible move. However, it did then, and still does now, beg the question of whether Nokia needed a range based on a forked version of Android to do that.

To do it properly would mean another push to get developers onboard, another charm offensive to get big name app-markers to join the party, and more integration efforts with Nokia's other products to make sure that on-ramp really does work. These are all things Microsoft has found difficult with Windows Phone, which has had its full attention: it was unlikely to pull off with the X line, which didn't.

The suggestion was that the X range would be chiefly aimed at emerging markets. The 'on-ramp' rhetoric, though it made sense, seemed retrofitted to the fact of the X's existence — if Microsoft wanted an on-ramp, it already had one in the form of the Asha and S40 ranges, both of which are extremely popular in emerging markets.

Microsoft's decision to do away with X appears to have been a swift one — the company released second-generation X devices last month, and then killed them off a couple of weeks later. It may have been swift, but it was a solid decision — why give yourself the headache of building another "feeder system" when you have a perfectly good one at hand?

That's where the thinking gets murky. In the middle of the huge restructure and mass redundancies Microsoft announced yesterday, it emerged that Nokia's old feature phone business — which makes the Asha, Series 40, and Series 30 handsets — was also for the chop.  

Like the X u-turn, the decision to shutter the feature phone business came not long after protestations by Microsoft that Asha and its fellows could also serve as a foundation on which Microsoft could later build with Windows Phone, migrating customers gradually onto smarter, and more expensive, devices. Elop even used the phrase "on-ramp" to describe the Asha business too.

But while the feature phones are still riotously popular in many of the markets Microsoft should want to play in, the business has been in decline for some time as the non-smartphones had to face competition from cheaper and cheaper Android devices.

So, again, that Microsoft decided to kill off that particular side of the business is not a surprise, and viewed from a certain angle makes a good deal of sense: why bother trying to build an on ramp to your desired platform in the first place, why not just get consumers on there straight away? Ditch Asha et al, and get developing markets onto Lumia first up?

But the thinking gets cloudy once again. In a memo Elop sent to workers yesterday when it was announced Microsoft would layoff half of the 25,000 Nokia workers it acquired, there were no specifics on emerging markets, though the word "affordable" was mentioned several times. The two aren't necessarily synonymous — the Lumia 520 is highly affordable for a smartphone, but not an emerging markets device per se.  

Elop's woeful opacity continued when it came to geographical differentiation: "we plan to select the appropriate business model approach for our sales markets while continuing to offer our products in all markets with a strong focus on maintaining business continuity. We will determine each market approach based on local market dynamics, our ability to profitably deliver local variants, current Lumia momentum and the strategic importance of the market to Microsoft," the memo said.

Erm, right.

Emerging market dynamics present all sorts of interesting challenges for Microsoft now. Though Microsoft is now pursuing both volume and affordability, it has scaled back the team in charge of such efforts, saying "in the very lowest price ranges, we plan to run our first phones business for maximum efficiency with a smaller team".

The company also wants to use Windows Phone as a way of getting more other Microsoft services and software into the hands of users. No great change there, of course, but having just laid off half of those former Nokia employees it hired, the task of getting more operators onboard with pushing Windows Phone presumably gets no easier.

Operators are so much more key to mobile success in emerging markets than they are here: if Microsoft wants to get more users there on its services, it must make sure they, the devices they run on, and the networks they're accessed over, are affordable (there are interesting emerging business models to be worked out here), and that data connections are reliable and ubiquitous. Operators will be make or break here.

Emerging markets bring their own engineering problems too — making a device robust enough to withstand days without power (try and imagine Windows Phone doing that. No, go on, try) or compressing data so web browsing over a feeble data connection is still feasible, but having decided to do away with Nokia's Oulu facility and Beijing counterpart, it may lose out on much of that emerging markets smarts.

Microsoft has its own problems too that could hamstring efforts here. Many of the large emerging markets, such as China, Indonesia, and India, are all dominated by OEMs whose names are unfamiliar to the west. Along with bigging up its own devices, it would make sense to try and court more of them to begin working on more Windows Phone models.  

It's not really an area Microsoft's excelled at in the past: when Windows Phone launched, LG, HTC, Samsung, and others all brought out Windows Phone-powered models. While all three are still on Microsoft's Windows Phone OEM list, they no longer  make much noise about it. Securing more love from local OEMs would not only mean higher volume, but also deliver Windows Phone into the affordable segment Elop craves.

It's made some efforts here already, having secured the support of Karbonn, set to launch three Windows Phone devices this quarter, and Lava recently, but a great deal more is needed. Google has already has the same companies and more signed up to deals that will see them launch more Android models cheaper and faster, thanks to Android One.

Google is going after the emerging markets hard, locking consumers into its own apps and services and locking Microsoft out of those users' digital lives. Microsoft now has to counter that threat with a stripped down affordable phones team, huge amounts of Nokia expertise leaving the building, and presumably morale heavily hit.

That said, it's not even clear from Elop's memo how much of a priority emerging markets are any more. Elop said that Microsoft will "focus on acquiring new customers in the markets where Microsoft's services and products are most concentrated", which wouldn't necessarily appear to be the developing world. I can only hope that wasn't Elop's message here, for such a mobile strategy would be madness.

Microsoft buying Nokia was, I still believe, a sensible move on the company's part and no one was under any illusion that redundancies and other changes wouldn't be part of that.

It wasn't perhaps expected that having bought what appeared to be so many useful assets when it acquired Nokia, it would do away with many of them and push ahead with a strategy that no longer quite has the props it needs to stand up. With its latest round of cuts, Microsoft has kicked customers right off its on-ramp.

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Topics: Mobility, Microsoft, Nokia, Smartphones

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81 comments
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  • I Disagree With the Author

    Dropping that silly Android X crap is a great decision. MS has enough money in the bank to make Windows Phone a true competitor to Android and iOS. I run Linux and Windows on the desktop and use both for server purposes, and Android on my smart phone. I am certainly not against having a purist's answer in the sense of a pure Windows phone that isn't something jerryrigged together.

    We need more big bold moves from the new MS that shows they aren't afraid to take some risks which is necessary to move forward. But they're taking the right ones, and more need to continue.
    Stilbe
    • Then you actually don't disagree with the author

      Probably would be a good idea to read the article.
      Mac_PC_FenceSitter
      • Well...

        I have no clue why this article drags on and on with what seems to be non sequitir thoughts.. just get to a point for the love of God...
        Stilbe
        • Point Being

          If the point was right move, wrong reason, then it does need some development to be taken seriously.

          I think this was a well thought out post.

          I don't think X development was hidden from Microsoft during the due diligence period. I also wonder about the point of spending resources to put out a v2 and killing it very quickly after. We saw something similar with the Danger acquisition. Do we think that affair reflected well on Microsoft?
          DannyO_0x98
        • Yeah...

          This was a long article that could have been a third of its size and been far more clearer.
          Rann Xeroxx
        • Ya, I tend to agree Stilbe.

          "I have no clue why this article drags on and on with what seems to be non sequitir thoughts.. just get to a point for the love of God..."

          You really do seem to be right.

          The article essentially says, "killing the Androids was not such a bad idea, but I think they might have turned their back on some other good ideas and resources Nokia has"

          But trying to pry loose what EXACTLY those things are, and why they are apparently significant enough for the writer to write the article about the issue, is practically impossible.

          Its sounds kind of like...Im not really sure, but kind of like the article is saying that Microsoft should have used Nokias resources to leverage their position in emerging markets but they have wiped that out not with the new structuring.

          If that's the general direction that's the main point of the article, its about as dead weak as you can get.

          It firstly implies that Microsoft themselves have no ideas of their own how they want to use Nokia that will assist them in emerging markets, or for that matter how they may use the resources of Nokia in even more important ways.

          It implies that because the author of this article seen the simple straightforward way Microsoft could have attempted to use Nokia in emerging markets that she likely has it right, and that despite Microsoft's multi billion dollar assets and resource they probably haven't come up with ideas that are as good, better, or perhaps are simply non existent. It implies that the author found no significant drawbacks in the straightforward approach and as such it was likely the best long term route to take.

          Quite frankly, the article just dosnt provide for one single compelling example as to why that kind of thinking has much merit.

          I think there are way too many people here at ZDNet in practically every corner who really need to start thinking like real business people if they want to make business predictions and assessments on business decisions.

          One good place to start, and Im going to suggest all writers here get real, Microsoft obviously, and I really do mean OBVIOUSLY must focus, concentrate and show unwavering optimum dedication to Windows Phone.

          If anyone here thinks otherwise they should really consider at least taking a few simple college level courses in business so you will wake up.

          This isn't Harvard grad stuff folks. My god, its about as bluntly obvious as being stuck in a sharks jaws and considering anything else besides getting out as job number one.

          Please.
          Cayble
    • Microsoft X crap

      I would say Microsoft X crap instead of Android X crap!
      ejespino1127
    • Google Tried The Same Thing With Moto...

      HP tried the same thing with WebOS. All these companies tried to enter the phone market, by either buying companies for their hardware platform, software platform, or both, and they all failed miserably!

      The difference between MS and everyone else... MS never learns from its mistakes.

      Seems as though MS has an entire division devoted to none other than burning money; second only to the US Mint.

      Just look at all their other products:

      * Xbox NEVER made a dime... period!

      * Everyone knows Windows RT is dead except MS!

      * Windows 8.1 update is so bad, it made my Lenovo Ideatab completely unusable. MS forces you to log in via your MS account so they can feed you ads. The Windows Store App pops up every minute and crashes, and the best part is, it can't be stopped no matter what.

      All the Metro apps are still slow and still crash, only now when they crash they bring down the entire system. I had to restore my hybrid back to Windows 8 just so I could use it. And this is an improvement over an already horrible OS?

      * Windows Phone users are all masochists. My old Windows mobile phone got 30-minutes of battery life and made pocket calls daily. MS burned Win Pho 7 users like they were dropping Napalm. Still, those same 5-users actually bought into Windows Phone 8, go figure. I think in the end the numbers speak for themselves. There are more users running WebOS on their phones.

      * Surface is a joke. Let's build a half-arsed laptop, let's not have a native keyboard and charge extra for a disposable one. Let's also tack on a clunky touch patch to our bloated Windows franchise and call it a mobile OS. Then we can say our keyboardless, half-arsed laptop is also a half-arsed tablet... we could even get gender confused MS fanboys to shell out 2-grand for one, if we offered a hot-pink keyboard option!

      * Office 365 is the biggest ripoff known to man! We know Office hasn't changed in over a decade, aside from annoying interface rearranges, stupid new color schemes, and of course that lovely ribbon. Still, we're going to charge every customer in perpetuity for the very software they already own. Brilliant.

      * The rest of. MS's lineup (Bing, Skype, Yammer, and almost Yahoo), are just white elephant, billion dollar losing money pits!

      And they wonder why there are layoffs?
      orandy
      • Wow!

        What do you really think? ;-)

        I don't disagree, but also think the next three years will be fascinating.
        rynning
        • The Only Thing Fascinating About The Next Three-Years...

          We be how fast MS can unwind their failed consumer businesses. If they hurry, they might be able to salvage their reputation in the enterprise as a legacy vendor.

          That's right, "legacy".

          Windows as a brand is fading. There are many other server solutions that companies can utilize, in order to process data on the back end, that are more cost effective and reliable than Windows (like various flavors of the Unix kernel).

          On the front end we have mobile. Using a full fledged OS is optional and not mandatory these days, as it was 5, 10, 15, 20, and 30 years ago... in Microsoft's heyday.

          Today both consumers and businesses have many choices to serve and access data, and MS is just one of them. Because of their reputation for beta testing their customers, not listening to customer feedback regarding their software, and releasing shoddy software in general, Microsoft will be relegated to writing patches for old software and trying to compete in areas they once owned.

          It appears that their litany of questionable purchases and business decisions are finally coming back to haunt them.

          Sure, the next 3-years will be interesting, just not in the way you think.
          orandy
          • Not sure what Microsoft you are talking about

            Microsoft is far from a "legacy" vendor. They have successfully build a robust cloud solution with Azure and cont. to add features and capabilities. They have successfully moved into the SaaS with Office 365 along with their CRM and other service products. And the next decade is all about information and Bing is part of that. They already are the #2 search engine with 18% share and growing and the Bing tech is being vertically integrated into all their products for business analytics in mind.

            There are no guarantees of success in any business segment but MS is doing OK.
            Rann Xeroxx
          • "...and Bing is part of that."

            ...in the same sense that Super Sugar Crisp is "part of a balanced breakfast."

            Which is to say, a small and unhelpful part.
            dwasifar
      • Not quite

        One of the hardest concepts for people to grasp, as far as I can tell, is that their experience is not automatically the same as everyone else's.

        I honestly don't have time to address every inaccuracy in your post right this moment, suffice to say you are wrong.
        dricht1
        • Well Then, As Tupac Once Said: "Stepup"

          Let me know what you find inaccurrate. Actually, the hardest thing to swallow is the truth!

          Fact number one: MS sucks, we all know that.

          Fact number two: we have used MS because we had to, not because we wanted to.

          Fact number three: their software has been so crappy over the years, they have actually socialized fanboys to expect: to run defrags constantly, to do system re-installs constantly because of virus meltdowns, to expect hundreds of bugs with every release, and the list goes on.

          Fact number four: MS has always been lazy and arrogant and failed to listen to consumers, because they never had to... they were the only game in town for decades.

          Fact number five: MS PCs had short life spans, were made with cheap and shoddy components, and came loaded with bloatware and other crap pre-installed.

          I could go on for a century, and you would still claim that MS can do no wrong, so what's the point?
          orandy
          • I didn't see any fact here

            Where are the facts?, changing Microsoft for Apple the same arguments can be written...
            ToriToriTori
          • Wrong again, and please stop embarrassing yourself

            Your first post was wrong on just about every point and like the person above I don't have time to address all the issues, but I do want to get to your second post.... and I hope and pray you get an education, but you claim to state "Facts" about MS, but all 5 of your points have zero factual basis and are all in fact "Opinions". Please learn whaty a fact is before you claim to have facts....

            You know what, I am going to address some of your issues in your first post
            1. XBOX has made a "dime"

            2. Windows 8.1 does offer a local account log in so you don't have to sign into a Microsoft account.

            3. Metro apps are not slow and horrible, and do not bring down the whole system when they crash, they kick you out to the start screen.

            4. Please show me the numbers on WebOS users versus WP8

            5. Your Surface remark is kinda funny, although completely wrong, it did make me chuckle ...one time...(as I'm typing this on my Surface Pro 2 that did not cost me $2000)
            6. Office 365 is a huge benefit to people and businesses who use and I mean "USE" office, and that's clearly not you if your confused and complaining about the ribbon.

            7. And lastly Skype and Yammer are billion dollar ventures in MS, not losing billions of dollars, and those are just a couple of MS's billion dollar venture, I believe they have close to ten different ventures within the company bringing in over a billion dollars.

            Read a little and please learn some facts before you post random non sense.
            blackanbald
          • Far Too Kind

            The US Mint makes coins. It does not burn money. Microsoft, being a company, is not exactly comparable to the Department of Treasury with regards to expenditures, as the former is there to produce things to sell at a profit and the other handles the assets and currency of the United States. While the DOT is charged with removing currency from circulation, that isn't the crux of the joke, so, for me orandy went off the rails right there.

            As to defending his non-joke points with an "we all..." follow-up. Some people clearly have and continue to disagree, i.e, not everyone. A lot of words nullified by easy refutation. Point 5 may be to Microsoft's advantage, but it isn't their control.

            Even if the products were poor, someone's buying them and profits are being made. These layoffs are not based on product failures — though Nokia was having problems in its phone division prior to transfer — but on acquisitions and strategy changes, eliminating redundancies and discontinuing projects that are distractions to newer foci.
            DannyO_0x98
          • The US Treasury Is Collectively Responsible For...

            The minting of coins and the destruction of paper money. I stand corrected. Do you want a cookie?
            orandy
          • At Least I Know The Difference Between "Your" And "You're"

            Allow me to provide you with this information genius:

            "Your" is used as in "This is your first English lesson."

            "You're" is a contraction for the words "you" and "are", as in "You're and Idiot."

            :o)
            orandy
          • Totally second that!

            ...except for the Ribbon. I still think that's horrible ;-)
            Anton Theunissen