Analysis: Microsoft’s Mobile Strategy is About Moving Past the Smartphone Defeat (Premium)

Microsoft CEO Satya Nadella has been on a whirlwind worldwide tour promoting his book, Hit Refresh. And an interview this week at the GeekWire Summit shed some new light on Microsoft’s evolving mobile strategy in the wake of its Windows phone defeat.

You have to jump past the softball questions about cricket and the book, but at about 52:30 in the video version of the interview, we finally get to some meat. And a lot of words, often delivered in a very contorted way.

Which is of course why I exist. Let’s dive in and get some clarity.

“How much of a disadvantage is it that you don’t have [] on the smartphone right now?” GeekWire’s Todd Bishop asks. “And how will you overcome it?”

“There are 300 million PCs sold [in a year], and a billion smartphones,” he answers, framing the situation quite inaccurately: Actually, PC makers sell well under 300 million units per year now, with less than 270 million sold in 2016 and sales falling again this year. Meanwhile, hardware makers sold about 1.5 billion smartphones last year.

“Therein lies the math,” he says. Therein lies the corrected math.

“I take inspiration, quite frankly, from our own history,” he continues. “There was a time when the only hub for all things was the PC … until it was not.”

Sure. This view, of course, echoes what I’ve been writing and saying for a few years now.

“Today, of course, the convention wisdom is that, that’s it, this is it, the last device [presumably the smartphone] that you will ever need and want and have. And if you [Microsoft] don’t participate in it [the smartphone market] this second, there is no way. Except, the two companies you mentioned [Apple and Google] were born after … or, the rebirth, at least, of Apple [with the return of Steve Jobs in late 1996] came not because of their PC share going up, it was mostly because of what they did with the iPod and then the iPhone later.”

[Apple was founded on April 1, 1976, almost exactly one year after Microsoft was itself founded.]

“So the question really is, for us [Microsoft], how do we meet the reality of today and then invent our own future?” he says, finally getting to the point. “The way I think of that is, first, let’s make sure our software and applications are used on iOS and Android. So we want to be first class. Most people don’t remember this, but Office was there first on the Mac before Windows was even a platform. And so this is not new to us.”

OK. That is a bit of a contortion since the “us” there is a company that bears zero relation to the one that brought Excel and then Office to the Mac 30 years ago. History is what it is. I think the better way to articulate this is that Microsoft has always done what is pragmatic. When the Mac was the only forward-leaning PC platform, it put new products on the Mac. When Windows was dominant, it focused mostly on Windows. And now that mobile is taking off, it is focusing there. This is the real consistency for the company: Going where its customers are.

Anyway.

“Whether its LinkedIn, whether its Skype, whether its Office, whether its Outlook … [that they] are used every day. Or our games: Minecraft, uh [That’s about it, I guess. —Paul] we want to make sure … [to] do our best work on iOS and Android.”

“We also want to look at these changes in form/function,” he says, getting to mobile hardware and the strange hopes and dreams of the remaining Windows phone holdouts. “What is a mobile device today? How is that going to be shaped? Whether its what we did with Surface, which after all is a category [called] 2-in-1 where nobody thought there would be such a category [Microsoft did not invent the 2-in-1 PC category and it was not the first to ship such a device. –Paul], we invented it [Nope. –Paul], we popularized it [Arguably true. –Paul] to the point where we now have, you know, good competition. [Copycats. –Paul] That means we gotta keep at it. What’s the next form function change? And also, what are these big new changes? Like Mixed Reality, which, in fact put everything up in the air … If you can start seeing your computing in front of you, you probably won’t keep reaching for your phone as the hub of everything.”

Wow.

So two things to that.

Mr. Nadella is suggesting that, because Microsoft invented a product category with Surface, which it did not, it can do so again in the future. And, further, that Mixed Reality could be the thing that displaces the smartphone. Mixed Reality is interesting, I guess. It’s really just virtual reality on the PC right now, and true Mixed Reality with HoloLens, a very big, bulky, expensive, and niche device. But it’s perhaps more fair to point out that the future of Mixed Reality is more likely going to happenon the smartphone, not replace it. My opinion, for sure.

“I feel we’ve got to do our best work, and take some bets,” he says. “Some we’ll hit, some we won’t. But we are very, very committed to both making sure our cloud services are available as great applications on every mobile end point, and [that] we invent the next set of devices, the next set of form factors with the next set of natural interfaces.”

This is reasonable.

If you are a Microsoft fan, knowing that its products and services will always be available on the popular mobile devices of today is reassuring and gives us the certainty we need. And if you are a Microsoft fan, knowing that the firm is still trying, and is still reaching for some future in mobile is likewise reassuring. It won’t be a smartphone. But you never know.

Speaking of which.

“Have you given up on [making your own] smartphone hardware?” Mr. Bishop bluntly asks as we all lean in and pray for a non-waffling answer.

“The thing we absolutely do not have [is] the share to have [our own] smartphone hardware that’s a real consumer choice,” he says, somewhat awkwardly. “That’s the reality of it.”

Then he says something I appreciate in mocking the supposed news this week that Microsoft just now abandoned smartphones. Since, you know, they announced they were doing this over two years ago.

“There’s a lot of [laughs] press, I think, this week, suddenly, around this, but the reality is that we cannot compete as a third ecosystem with … no share position and attract developers.”

“So the thing we are doing is to make sure the [Windows Mobile] software is available so that we can service the enterprise customers who really don’t care about a lot of things [like apps and ecosystem support] that a consumer would care about. And its [Windows Mobile is] one operating system for us [e.g. Windows 10]. So it’s not like we have a phone operating system that is separate from the Xbox operating system that’s separate from the Windows operating system. [Actually it is like that, but whatever. —Paul] It’s one platform. And so that’s where we are. And what we’re all in on is to say, OK, what do we want to do with Surface? How are we going to push the boundaries of what is a PC even? And, all-in on Mixed Reality, all-in on gaming, all-in on all of our applications on iOS and Android, and that’s how we’re going to go at it.”

So there you go.

Microsoft is not making any more traditional smartphones. So no Surface phone as most would describe it.

Microsoft will continue to support customers on popular mobile platforms (Android and iOS) with its apps and services.

Microsoft is interested in inventing new form factor categories for mobile, as it claims to have done with Surface Pro.

Microsoft believes that Mixed Reality could be a technology that displaces the smartphone as the new hub for all things.

This is, perhaps, not that surprising. But it’s nice to see the most senior Microsoft executive of them all formally state, for the record, what the company is planning on doing about mobile.