For those of you that might be wondering what we are talking about here, let me give you a little refresher. In the not too distant past Microsoft tried to build a phone called the Kin. This phone was an unmitigated disaster and almost killed off Microsoft in the mobile market completely. Before that Microsoft failed to produce a viable competitor for the iPod with their Zune Products (even though the ZuneHD was superior in most ways). If you need something a little more recent you only have to look as far as the 3-4% global market share of Windows Phone or the $900 Million write down for the Surface RT. It just does not seem like Microsoft gets the market they are trying to get into when you consider their track record.
So why is Microsoft wanting to do this if they have shown they do not know how? Well it is simply to build a more consistent revenue stream in the form of a devices and services division. If you look at the way the market is heading the move is not unexpected, but it will be a shock to Microsoft’s customer base and is also a little late in the game to be effective in the short term. For this move to have been truly effective Microsoft really need to begin making the shift a couple of years ago. This puts them in a very unusual position; they are the new guy on the block with almost no market share for the products and services they are trying to build on. It does not mean they cannot make this a success, but they have to do it the right way. Their current mad rush is doing more harm than good although there are some smart things happening too.
Over the last couple of weeks Microsoft has made some changes to bring people back to the fold. They have partially abandoned their “Apple” style pricing on the Surface RT and are now trying to position it in the same manner that many Android manufacturers did. The Surface Pro also received a price cut although it is still more expensive than many full laptops with similar or better specs. To help overcome their eco system weaknesses Microsoft cut the annual developer fee from $99 down to $19. We are not sure that this will help much, but it is at least a step in the right direction. Other, less substantial, moves are the renaming of existing services to make them sound better.
There will be more changes to come and although we can expect some additional announcements in the next couple of months the pace may actually slow on the transition from software to devices and services. The reason for this is that Microsoft must build consumer confidence in their products; both physical and in the cloud. Right now all of them are too new to be a big seller and trying to make the change too fast will end up very bad especially with the current feeling about privacy and cloud services. This means further price cuts, bundles and also changes to Windows and other products to bring back the masses. One of the big ones that we are all expecting is the potential return of TechNet. Removing this was a very bad idea as it was one way that people and companies were able to work with Microsoft products to test and develop applications.
In the end the purchase of Nokia’s devices and services division is simply a step along the route that Steve Ballmer envisioned for Microsoft. It is a route that might change in 12 months depending on how consumers react. We still could see Microsoft spin off the Xbox and Mobile division into its own company to preserve core value. In many ways the $7.2 Billion dollar purchase of Nokia makes this even easier to accomplish. We will say it again, the next 12 months are going to be very interesting for Microsoft and the consumer electronics world…