Where O where art thou Microsoft?

On Thursday July 17, 2014 Microsoft CEO Satya Nadella announced layoffs of 18,000 workers or 14% of Microsoft’s 128,000 workforce.  Most of those layoffs, 12,500 of them, were in the recently acquired Nokia phone division.

Well mergers mean layoffs due to “synergy” which is management buzzspeak for layoffs.  However many are pouring over these numbers to try to understand where Microsoft is going.  Here are my thoughts on that subject.

(1) Microsoft is abandoning non-Windows devices.
Goodby Nokia Asha and Nokia X Android devices.  Another way to say this is that Microsoft is focusing more on Windows devices.

(2) Microsoft is shutting down manufacturing sites.
This means the acquired Nokia group can only make a few devices now.  This rules out a Samsung-like strategy of proliferating lots of different devices, say with different screen sizes, to see what sticks.

(3) Really this is a prune-the-deadwood layoff.
Outside of the Nokia group, the 5,500 person layoff was actually fewer than the former CEO Steve Ballmer layoff in 2009 of 5,800 workers.  So this looks like more trimming around the edges with a 5%-ish layoff for core Microsoft employees.

(4) Google is the enemy, so do what they’re doing.
Google has more market cap and less than half the employees of Microsoft.  Google is the enemy via a process of elimination: (a) Apple is big and will always command a 10% impossibly loyal fanbase, so no point in assailing that.  (b) Facebook is big, but not really an enterprise business.  (c) Amazon is mooning us locally in Seattle, but only interesting as far as AWS and S3 are concerned.

(5) Grow the cloud and let 1000 clients bloom.
Nadella was chosen from cloud services and I’m sure understands Microsoft’s strengths and weaknesses there.  From the cloud’s point-of-view everything’s a client and it almost doesn’t matter what the client is.  There’s a connection at a certain bandwidth and you serve up what you can given the throughput you have.  Clients don’t matter individually, only collectively so that they are sucking and supplying data from and to the cloud.

Actually I’m not sure there’s much difference with what former CEO Steve Ballmer would be doing either, despite the “devices and services” strategy he outlined.  Sure Ballmer acquired the Nokia phone division, but I’m sure he’d gut them too.  Microsoft is about devices, but it’s always been about someone ELSE building and selling them.

Nadella’s memo on the layoff has the line: “We will build tools to be more predictive, personal and helpful.”  Generic, throwaway, but pretty much an indication of making your data available to you (stored conveniently in the cloud) and some kind of logic on patterns in it.  Perhaps Ballmer would care more about the devices, but I’m not so sure.

The difference I see between Microsoft and Google is that Google always tries to do as much in the cloud as possible before relenting to client-side computing.  I kind of see Android as a last resort that the browser was just not capable enough and creating Chrome to grow the browser where needed.  Microsoft started with languages and then operating environment (DOS) before operating system (Windows).  Microsoft has a history of rich client computing.  Google seems to come to that grudgingly.

So where are we?

I think Microsoft is going to replay the Windows vs. OS/2 strategy.  Back in the day OS/2 was very advanced, but pretty much closely held by one vendor (IBM of course).  Microsoft got competing PC makers to adopt Windows and avoid OS/2.  From Microsoft’s playbook, 2014 is 1984 all over again.  What’s 30 years between tech friends?

Today I think Microsoft sees Google in the IBM role and wants to isolate Android as much as possible and compete with Google in seducing OEM manufacturers to adopt Windows Phone.  Well why didn’t they do that already, you ask?  Nokia was the only vendor to choose Windows Phone enthusiastically and that was because a former Microsoft executive became CEO of Nokia.  Windows Phone was waaaay behind Android technologically when Stephen Elop took over Nokia.  Today Windows Phone is much closer in capability to Android.  Yes there’s still an “app gap”, but it has closed sufficiently not to be a marketing problem to OEMs.

Why would an OEM choose Windows Phone when the market hasn’t?  Well it’s about beating up Google.  Yes you can get Android for free, the Android AOSP (Android Open Source Project) code, but you don’t get the Google goodies like the Play Store, Maps and the Chrome browser.  Those must be licensed from Google separately.  OEMs would like better terms from Google on licensing that code.  That’s where Microsoft comes in.

Microsoft can offer Windows Phone on more generous licensing terms than Google Android.  That accomplishes several things: (1) Microsoft gets a notch for Windows Phone, (2) Google loses one, (3) a Windows Phone device gets built.

The last point is key.  Microsoft can undercut Google with OEMs and get Windows Phone devices into the wild.  Then it’s all a matter of user adoption, will users choose Windows Phone?  If so, Microsoft is back in the OEM software business.

So look for the Microsoft full court press on Windows Phone and Windows devices.  First Microsoft must sell OEMs, but they will get devices built by them, especially now that they’ve reduced the Nokia division structurally.  I think the Nokia group in Microsoft will emulate the Nexus device strategy of Google and make some reference devices, but the OEMs will be allowed more experimentation than Windows PC makers were allowed in the past.

The good news for Microsoft is that users tend to replace their smartphones every two years when their contract is up.  Since there’s still high smartphone turnover, there’s a chance to get that consumer to pick you and Microsoft is still betting on that chance.

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