The last twelve months have been pivotal for Microsoft, the company which once promised to put a PC on every desk but now settles for a vague mission statement about “achieve more”.
The new mission statement was announced by CEO Satya Nadella in June, replacing Ballmer’s 2013 commitment to “a family of devices and services". It is significant that Nadella dropped the reference to devices. Microsoft still talks incessantly about “cloud and mobile”, but mobile now means iOS and Android as well as what is left of Windows Phone.
Windows Phone? This was the year that the dream ended, despite the high quality of Microsoft’s mobile operating system. In April 2014 the company completed its acquisition of Nokia's mobile phone division and related services, and with Windows 10 on the horizon the stage was set for another major push at making a success of Windows Phone.
At the Build developer conference in April the company announced not only details of its Universal Windows Platform (UWP), which enables the same Windows 10 code to run on phone and desktop, but also tools for porting iOS apps and an Android runtime.
Just a few months later it was over. Nadella announced a change in leadership teams and the departure of ex-Nokia CEO Stephen Elop in June, then in July came a $7.6bn writedown in the value of the Nokia mobile phone division and related services acquisition along with around 7,800 job losses “primarily in the phone business.”
This was more than just another failed acquisition, joining other disasters such as aQuantive in 2007 (digital marketing, $6.2bn value written down in 2012), or Danger in 2008, which led to the Kin phone debacle.
Microsoft’s decision to cut back Windows Phone was done in the knowledge that mobile devices and apps are the driving force in personal computing today. The company is betting that it can succeed in cloud and services, with an increasing number of its applications (such as Office) running on Apple or Google OSs.
Microsoft is still making Lumia phones, though with a cut-down range and marketing that promotes phones running Windows 10 Mobile as productivity devices that work like a PC when connected to a large display, rather than as mainstream smartphones.
Microsoft's new phone strategy, because everyone wants a phone that works like a PC
This year was also the year of Windows 10, which was delivered with remarkable speed, just six months after its first detailed announcement in January. The pace of its production was indicative of Microsoft’s determination to escape the unpopular Windows 8 and to put some momentum back into the PC market. According to IDC that effort is not yet successful, with PC sales expected “to fall 10 per cent in the fourth quarter of 2015”, despite a generally favourable reaction to Microsoft’s new Windows.
Windows 10 is not just an upgrade, it is a new direction for Microsoft’s operating system. Key differences are that upgrades are free from Windows 7 or 8, at least for the first year, and that Windows is being delivered “as a service”, which means both security and feature upgrades delivered incrementally and indefinitely.
Another aspect is that a version of Windows 10 works on multiple device types, including PCs and tablets, phones, Xbox One, and small computers like Raspberry Pi.
The problem with Windows 10 and the UWP app strategy is that most mobile devices run iOS or Android, especially now that Microsoft itself has pulled back on Windows Phone.
Windows lost momentum
Windows lost huge momentum as a result of the failure of Windows 8 and the shift in strategy back to a desktop-oriented operating system, rather than one optimized for touch and tablets. Further, although Windows 10 is better in some aspects than Windows 7, the user interface is less consistent and traces of Windows 8 oddness remain.
Early bugs and privacy concerns about data gathering also marred the launch. Microsoft now need to stick with its Windows strategy for a few years, refining the system and building the application ecosystem.
Windows 10: well received but no PC saviour yet
Fortunately for Microsoft, its cloud story looks much better. It is finding success with Office 365, a suite of hosted services including email, document storage, and collaboration tools. Alongside Office 365 there is Azure, a full range of cloud services that is a clear number two behind AWS.
In its latest results, Microsoft reported Azure revenue up 121 per cent year on year. In November, the company announced plans to build an Azure region (multiple data centres) in the UK.
Microsoft’s server products also continue to perform well. Whereas Windows on PCs has suffered from strategy lurches as well as strong competition both from Apple and from mobile operating systems, its server strategy has been sharply focused on virtualisation, modularity and automation.
Windows Server 2016 is not ready yet, but in 2015 we saw promising previews of the next generation of Hyper-V, its virtualisation platform. Another interesting preview is Nano Server, a stripped-down server which fits neatly with the trend towards microservices, distributed applications composed of many separate services, as well as cloud deployment where a lightweight operating system is an advantage.
The company has also figured out that if applications are hosted on Azure, or consume Microsoft services such as Azure Active Directory or Office 365, then it can profit whatever the operating system. In November it announced a partnership with Red Hat to support Red Hat Enterprise Linux on Azure.
Microsoft is also busy building a cross-platform server application platform with its open source project called .NET Core, a fork of its Windows-only .NET Framework. ASP.NET web applications can run on Windows, Linux or Mac.
In 2015, Microsoft lost the mobile wars, made gains in cloud, and moved its application platform towards open source and cross-platform development. Windows on PCs looks headed towards a long slow decline, despite the efforts made with Windows 10.®