So whither Microsoft? If Nadella knows, he is keeping it well hidden
A thousand cuts, but no actual death
Analysis After Microsoft’s mega jobs bloodbath, we’re still not much wiser about what Microsoft will look like in five years' time. Steve Ballmer turned the focus from PCs to devices and services – manufacturing its own devices, and promoting its own services regardless of the platform. Satya Nadella was supposed to bring further clarity.
Yet apart from pointedly distancing himself from the “devices and services” slogan, he fudged the big questions in a widely-derided piece of waffle. Nadella said nothing, but repetitively and at great length. He probably thought it was a clever synthesis, but it was an epic Hegelian fudge.
Putting two contradictions together in the same sentence does not resolve them. Here, I'll look at the big issues that remain unresolved. In fact, I’ll just pick two.
In his first utterances as CEO, Nadella immediately dropped “devices and services” for “mobile first, cloud first”, and left himself plenty of time to explain what this meant, for practical purposes. Six months on, we are none the wiser.
For example, there will be times when Microsoft wants to promote a cool service at the expense of a platform. Skype might be a good example: the poorest version of Skype is the one Microsoft produces for its own Windows Phone. There might be a time when it wants to use a service exclusively on one of its own, favoured platforms. Cortana is an example of that. Yet no sooner had Cortana excited Microsoft developers at Build attendees, then the company promised it would soon follow on other, non-Microsoft platforms. Oh.
No one expects a clean answer to these questions - and a CEO who gave one would risk looking dogmatic and ideological. But that’s where the vision thing comes in a bit, and where leadership is needed: it offers guidance to the execs who need to set the strategy.
Similarly, nobody is really sure whether Surface was supposed to make money, or just be a showcase for Microsoft software and services. To date it’s lost a lot of money, and even though it’s improved enormously, remains an awkward Frankenstein’s monster. It's luxury consumer hardware, sold at luxury consumer prices, with commodity business software inside.
1. Are you an Enterprise company or an Everything company?
Windows enterprise sales are steady, but consumer sales are in sharp decline, as punters find cheaper and more attractive alternatives. Simply putting a crude, Tablet-like interface onto Windows, or bundling Office, hasn’t made the PC platform more attractive. Many argue (here and elsewhere) that it’s made them less attractive.
Without consumer services Microsoft would be smaller and more profitable, argue dissident shareholders – and, vitally, more focused. This would mean shedding Xbox, Bing, Surface and Lumia. Unsuccessful CEO candidate Stephen Elop favoured shedding Xbox and Bing to focus on Enterprise and Devices. The board appears to be hopelessly divided over this, leaving Nadella walking the proverbial tightrope.
But as the smoke clears, we see Microsoft is still an “everything” company. Nadella hasn't actually cut anything strategic. So, depending on how charitable you feel, it is now either more focused or more hamstrung. Two examples support the negative view. Nadella emphatically said he was keeping Xbox - while Microsoft dropped ambitious and imaginative plans to create Xbox TV shows and “experiences”. Nadella used the word “experiences” twenty times in his speech, but then went and canned a load of them. How do we make sense of that?
A decision was also needed on what to do with Nokia’s former feature phones business, which generates half of the incoming acquisition's revenue. This cheap end of the business plays well in emerging markets where consumers are still up for grabs, and a lot easier to lure and retain. High-end Lumia could continue to struggle for years in Western markets, but grow into a successful mass market platform in India and China, used by “the next billion” (as Nokia used to call them) consumers, the emerging middle class of the developing world.
The mutant Android X range was supposed to be a bridge to that future, but Nadella shot the X Android range and put the rest of the low cost devices, Series 40 and Asha, into mothballs. Lumia today is simply more expensive than most Indian consumers can afford - it was left to Elop to try and square the circle.
"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” Elop wrote. Which sounds very cautious - probably wisely so.
In each case - Xbox and phones - Microsoft is “staying in the game”, but making its products less broadly unique and attractive. Xbox doesn’t have an innovative TV studio, and the phones division doesn’t have a way for emerging markets to clamber aboard easily. They’re already choosing $30 Androids over $90 Lumias, and will become much harder to woo back.
This brings us to the second question.
2. So what’s your hardware for, exactly?
Are Microsoft devices a profit centre, or just a showcase? Who knows? Again Nadella ducked this one - Nadella’s epic email didn’t include the words “income” or “profit”. Will Lumia be indulged as Surface was, as a loss leader? Will it be indulged at all, for much longer? Nadella’s 3,300-worder didn’t mention Lumia by name once. And the cuts have fallen hardest on the incoming Nokia devices unit.
This all looks a little ominous. In Jean Louise Gassee’s distillation of Nadella’s document into 200 words (“Microsoft’s new CEO needs a new editor”) the message is "I’ve determined we’ll never make money in tablets or smartphones".
Maybe that’s coming, but Nadella thought it too early to say.
In his first 60 days Nadella had picked up lots of kudos for decisions made by his predecessor. Microsoft scrapped royalties for phones and small tablets - and has won a dozen new OEMs. It showed off Office for the iPad, and made Windows more coherent with many overdue changes that were unveiled at Build. Almost all were long-term plans put in place by Steve Ballmer, who unselfishly allowed his successor to take the credit.
But last week Nadella ducked the opportunity to clarify things and provide leadership, leaving the big issues more confused than ever. ®