Microsoft in early October finally did what it should have done years ago: It killed Windows Phone. The smartphone operating system’s fate was sealed when Joe Belfiore, corporate vice president in Microsoft’s Operating Systems Group, sent out this tweet: “Of course we’ll continue to support the platform.. bug fixes, security updates, etc. But building new features/hw aren’t the focus.”
That effectively pulled the plug on an unsuccessful, unloved operating system that was being kept on life support by Microsoft. Around the time Belfiore announced its demise, the operating system had a vanishingly small market share: 1.3% in the U.S., and lower than that in most other places around the world, including 1% in Great Britain and Mexico, 1.2% in Germany and 0% in China.
It was an anticlimactic ending to an operating system that had been around in one form or another since the mid-1990s, when its predecessor for mobile devices, Windows CE, was announced. Microsoft pumped countless billions of dollars into its mobile efforts, and it utterly failed.
It may be, though, that the demise of Windows Phone indicates that good things are ahead for Microsoft — that is, if its death means that the company has finally and truly shed the arrogance that hounded it for decades.
A look at some of Windows Phone’s history shows just how far that arrogance extended. Most people may not remember, but Microsoft released a smartphone operating system five years before Apple did. The Pocket PC 2002 operating system was soon revised and renamed Windows Mobile 2003. By 2005, Microsoft had a 17% market share of the then-small smartphone market, behind Symbian, with 51%, and Linux, with 23%.
But Microsoft never reimagined what an operating system on a smartphone should be. Back then, Microsoft was obsessed with trying to figure out ways to extend Windows’ reach. Apple, thinking differently, built an OS specifically suited to smartphones. When the iPhone was released, Windows Mobile’s market share plummeted, and Microsoft never recovered its once solid mobile standing.
And it did try, spending billions along the way. It ramped up development work to move from Windows Mobile to Windows Phone. It spent US$400 million on marketing alone to launch Windows Phone in 2012, and that’s apart from the $150 million spent in marketing by its partner AT&T. Business Insider estimates that $1,666 was spent in marketing and advertising for each Windows Phone sold — quite a bit higher than the retail price of $100, later slashed to $50.
Faced with such sizable losses, other companies might have rethought their ability to succeed in the market, or at least shifted course. But Microsoft, under Steve Ballmer, was still the arrogant company that believed it only had to slap the word “Windows” on a product to get the world to embrace it. Here’s what he had to say in 2007 to USA Today after the release of the iPhone: “There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item. They may make a lot of money,” he conceded, but Apple would do it with 2% or 3% of the smartphone market, and “I'd prefer to have our software in 60% or 70% or 80%.”
Now, of course, that 2% or 3% would probably look pretty good to Microsoft. (The interview is a time capsule of misplaced optimism, with Ballmer dissing Google Docs and hinting at great things to come for the Zune music player.)
Under Ballmer, arrogance led Microsoft to double down on mobile when a change in direction was sorely needed. All those expenditures I already noted pale in comparison to the $7.2 billion it spent to buy Nokia’s devices and services division in 2013. Market share for Windows Phone remained minuscule, however, and before long the Nokia investment evaporated in a $7.8 billion writedown. From that point, most industry observers felt it was just a matter of time before a similar fate befell Windows Phone. The fact that it took two more years suggests that residual arrogance isn’t easily rooted out.
Microsoft got nothing for the billions it spent on its smartphone efforts — except possibly a tempering of its culture. CEO Satya Nadella has none of the arrogance of his predecessors, Ballmer and Bill Gates. He recognizes that there’s more to success than just exploiting the Windows brand name. Windows no longer drives Microsoft’s growth; its various cloud services do. Azure revenue was up 97% year over year, the company reported in its fourth-quarter earnings report for 2017, and revenue in what Microsoft calls its Intelligent Cloud segment of the business was up 11%. Nadella says that the future of the company will be closely tied to its efforts to build artificial intelligence into all of its products and services.
There’s no mobile in the mix. Let’s hope it stays that way. Windows Phone should join Microsoft failures such as Clippy and the Zune, good only for an occasional laugh line. And fever charts tracing Windows Phone’s dwindling market share should be framed and situated prominently somewhere in Redmond as a reminder of where arrogance can lead you.
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