Memo to Microsoft: Keeping your promises is probably a good idea

Blame SatNad, not NYPD, for the mobile blues

Microsoft CEO Satya Nadella

Comment Back in the day, the old IBM was famous for never breaking a promise to customers. For example, when IBM bought Lotus it was to honour a commitment to provide customers with office group productivity software that its own teams of programmers couldn't keep. IBM kept Token Ring and OS/2 customers happy long after the products were obsoleted.

But when pundits declared that Microsoft was "the new IBM" in the mid-Nineties, it appears that keeping promises was one characteristic it decided not to emulate.

This week one of Microsoft's customers has been forced to defend its acquisition of 36,000 Windows Phones two years ago amid great fanfare. Throughout 2014 Microsoft and Nokia (the marriage had yet to be formalised) had promoted the consumer phone OS as "truly enterprise grade" boasting of its security and remote management. It's now dumping them for iPhones.

The deal turned out to be a little more complicated than first pictured by the New York Post ("NYPD needs to replace 36K useless smartphones"), which broke the story. In September 2014, as businesses sought to migrate away from BlackBerry, Microsoft claimed it had 21 per cent of mobile B2B phone sales, far higher than the 3 to 5 per cent global consumer device share. "2013 was the year we ate our vegetables," Microsoft's Joe Belfiore told attendees at Mobile World Congress. Which is a perplexing way of describing the enterprise plumbing Microsoft had built into the WP ecosystem, like VPN support. Earlier, Microsoft had done the hard work moving WP 7.5 from a CE kernel to the NT kernel used from WP 8.0 onwards. If you were already developing and deploying Microsoft apps, WP was now another build target.

Customers in finance and telco had also plumped for Windows Phone. Opting for Microsoft wasn't a dumb decision, but looked a fairly safe one.

A CIO could equip staff with Android and attempt to secure it, with Samsung Knox, but that was still a relatively new and unproven product, and Samsung wasn't geared up with the enterprise support teams that Microsoft has. It turns out the NYPD got the phones for free, and was exercising a midterm contract option to move on.

The cost of rewriting fewer than a dozen custom apps is certainly much lower than the $12m to $20m (our estimate) of going for Android or iOS. At the time, budget Android meant Landfill Android. iOS would have certainly have been the safe choice – but imagine the outcry from the public if it had spurned 36,000 free phones and paid the Apple tax? NYPD's deputy commissioner of IT Jessica Tisch has a public duty to spend money carefully. It was a relatively risk-free decision.

However, no CIO likes to find themselves left high and dry two years into a deal. The blame here can fairly be directed at Microsoft. Having talked up Windows Phone's enterprise credentials a great deal throughout 2014, and demonstrated its commitment to first-party client devices by acquiring 32,000 Nokia staff for $5.4bn, it was reasonable for customers to expect an ongoing commitment. But that evaporated in a blizzard of cancellations and corporate waffle.

From the start, Microsoft CEO Satya Nadella was being groomed to be a cross between a futurologist visionary and a motivational speaker. Hardware was uncool and didn't fit. Initially Nadella came up with the tortured formulation "cloud first mobile first" (aka CLOUDOBILE) and recommitted to end points (aka continuing to make phones).

Microsoft acquired the impressive Nokia pipeline, but then kept it idling throughout 2014. The following summer 7,800 positions were cut, mostly from the phone division, and also saw the "McLaren" flagship reportedly cancelled. The next spring, the final fruits of the Nokia-owned design team emerged: the Lumia 640 (and 640 XL) phone, solid low-end products. Surprise, surprise – without a broader mix of products, Microsoft would warn investors that "phone hardware did not meet its sales volume and revenue goals, and the mix of units sold had lower margins than planned".

By September, it was clear that the Windows Phone would be EOL'd, and its anointed successor, a Mobile ARM branch of Windows 10, would be a second-class citizen. And so it proved to be: when the first Windows 10 phones appeared at the tail end of 2015 they were barely usable.

Microsoft is paying the price for neglecting what any business needs to do: look after your customers. It isn't just a mobile thing, although over the years mobile seems to have been the most readily disposable problem at Redmond. In 2007 Windows Mobile was snuffed out for a new, all-consumer offering which then took four years to mature to be a viable enterprise client OS. Then that was abandoned. Today its replacement is just an afterthought: Microsoft continues to release Windows 10 Mobile builds, but only a handful of hardcore enthusiasts install them at their own peril. The last one broke Maps, fingerprint reader and bluetooth.

Kicking mobile repeatedly has done wonders for Microsoft's share price: it's now nearly double what it was when Microsoft completed the acquisition of Nokia's phone division. But what does it do for Microsoft's reputation as a low-risk enterprise choice? As Nadella himself pointed out three years ago: "Without the end points you aren't going to have the impact in the world and people's lives." ®

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