If Microsoft’s Lumia smartphone line died, the company wouldn’t mourn. By all indications, it’s already preparing for a future where Windows phones could be reborn as business productivity devices, or even just as a collection of mobile apps.
Let’s be clear: Microsoft does not want to kill its Lumia line, but it may be forced to. Last Thursday, Microsoft disclosed that Lumia sales had plunged to less than half what they were a year ago—during a quarter when Microsoft launched two flagship phones and its latest OS, Windows 10 Mobile. Fourth-quarter device revenue took a hit as a result. Meanwhile, Apple has reaped enormous profits from its iPhone and related services.
Plan B: Rebirth as mobile productivity tool
Windows Phone’s apparent doom could have an alternate ending, though. The thorn in Microsoft’s side has always been the lack of third-party consumer apps. Microsoft could keep struggling to lure apps to its ecosystem...or it could abandon the consumer market, wiping the slate clean.
Radical as that sounds, Microsoft’s recent messaging has been laser-focused on productivity, from Office to Surface tablets, to its push into business intelligence, So it makes sense that Microsoft might rethink its phone as an entirely new device, optimized for business.
We could be seeing the broad outline of such a ‘Plan B’ coming together, if all recent rumors came true. That is, if Microsoft developed a next-generation phone companion to a Surface tablet, enlisted a trusted band of partners to make more hardware, and continued improving its mobile productivity apps.
Windows Phone fans are already praying for the mythical Surface phone, reportedly under development within Microsoft. Designed to complement the successful Surface tablet line, a Surface phone would succeed where BlackBerry failed, becoming the best phone to get stuff done.
If Microsoft delivered a phone on par with its Surface tablets—currently earning over a billion dollars per quarter for Microsoft, by the way—that would be a major step on the road to recovering its reputation. But a Surface phone may not appear for months, and Microsoft has to placate customers who want something sooner. Here’s where some friends could pitch in.
Historically, Microsoft has followed the playbook that Android wrote: Woo phone makers and persuade them to adopt Windows Phone. Aside from the HTC One M8 experiment, however, that strategy failed. So now a new plan is forming, along with a new team of partners: Acer launched the Liquid Jade Primo Windows Phone at IFA, along with its own custom Continuum Display Dock. Lo and behold, a Vaio-branded Windows phone is en route as well.
What we’re seeing here are not traditional phone vendors agreeing to sell Windows phones. Instead, Acer and Vaio are PC vendors looking to expand into new markets, but without having to compete with Samsung, Huawei, and other entrenched Android phones. Hardware vendors can boost their profit margins by selling a bundle of hardware and related services—we’ve seen companies like Dell build their entire business around such an idea. And Microsoft will undoubtedly bend over backwards to help them.
Plan C: A world of mobile apps and services
Let’s just hypothesize, however, that Windows Phones fail completely—from Microsoft, Acer, Vaio, and others. In this scenario, Nadella kills the Surface phone. Partner support dries up. Microsoft sighs, shutters its phone business, and redefines a “universal” app as one that roams among the PC, tablet, Xbox, HoloLens—plus iOS and Android.
Today, Nadella’s mantra of “cloud first, mobile first” says nothing specific about devices. Microsoft considers itself to be a cloud company, capturing and parsing data it collects from sensors, the web, enterprise applications, and the like. In the meantime, its developers are busy linking that cloud to as many hardware platforms as possible.
You’d be shocked at how many apps Microsoft has authored for both iOS and Android—as far as Android is concerned, the tally is 57, by my count. Fifty-seven! For Microsoft, each of those apps represent a trading desk: You put data in, and receive knowledge out. And all of them look suspiciously like the pieces of a Windows phone: Cortana, Word, Excel, Outlook, OneDrive, Bing, Groove, Skype. Does it matter that Apple or Google supplies the app and the hardware that captures the photo? Not really.
Without hardware, Microsoft’s apps and services are like seeds, blown by the wind. They’ll land on a user’s iPhone or Android phone. Maybe they’re choked out by Apple’s own services, or ruthlessly rooted out by its third-party app policy. Some of those apps, though, land on fertile ground. They’ll migrate to the home screen, where they’re used frequently. Notifications will intelligently advise the user to take action, and suggest related Microsoft apps that might add additional value. Slowly, a Microsoft app garden will begin to grow.
Eventually, though, investors will demand that this strategy return a profit. Does this mean Microsoft will add ads to its mobile apps? Possibly. But in the end, all roads lead to Office 365, the repository where data is stored and knowledge springs forth. That’s the end game: subscription revenue, a tithe paid to Microsoft to ensure you’re as productive as possible. As long as Microsoft gets its cut, the company really won’t care what hardware you use—although you might see a push to tie those phones to the Xbox platform.
Again, this is not the ideal scenario. A future built upon mobile apps would be another step down for Microsoft in terms of revenue and reputation. A phone’s app drawer is a mosh pit of software competing for your attention, and Microsoft would find itself competing directly with the likes of Adobe or Polaris Office. But think about it—Microsoft’s already laid the groundwork for this strategy, too, embracing platforms like the iPad with widely admired mobile versions of mobile Office for iOS and Android. This bears repeating: Microsoft has already won itself a sterling reputation for productivity apps on Android and iOS.
At this point, Microsoft doesn’t have to commit to any particular path. Maybe Lumia claws its way back into the consumer market, evolving into the phone platform for work and play that former CEO Ballmer always hoped for. Maybe it doesn’t. The point is that Microsoft has several options.
This is realpolitik, Windows Phone style. Microsoft’s consumer phone business may die. Windows phones for business may die. But Microsoft will endure.
This story, "Windows Phone's next life: How Microsoft could recast it for productivity or services" was originally published by PCWorld.