Microsoft, capitulation and the end of Windows Everywhere

Tech culture is very fond of persistence, stubbornness, perseverance, and the idea that you should never give up. We're surrounded by stories of visionaries who were told they'd never succeed and went on to change the world. But sometimes, you should put selection bias aside and, yes, give up. 

This applies to big companies perhaps even more than for startups. Big companies have entire strategy teams devoted to working out what to do next and how to do it, and budgets to hire strategy consulting firms for millions of dollars to produce hundred-page decks with more strategies and ways to achieve them. Such people have little interest in saying 'give up - it won't work' (perhaps because that might mean you don't need a strategy team anymore). And there's no SmartArt for failure. 

Microsoft today, I think, is a case study in knowing when you should indeed give up, and what you should do after that.

As (hopefully) we all now understand, mobile is replacing the PC as the dominant computing platform. Smartphones sell in much larger numbers, have a much larger user base and are already close to taking a larger share of internet use than the PC in leading markets (such as the USA and UK). PCs aren't going away any time soon, any more than faxes or mainframes did, but they are the past, not the future. 

Since Microsoft's mobile operating systems have failed to achieve meaningful market share, Microsoft has hence gone from dominating sales of personal computing devices to powering less than a fifth. 

If you were running Microsoft, what would you do about this? 

The old option, from Steve Ballmer, was to apply the weight of Windows and Office on the PC to force Windows into mobile, using sheer effort to come from behind (as Microsoft had done many times before). Leverage Office and Windows against each other. Put together, late and in stages, an operating system that can answer iOS.  Pay developers to make apps for Windows Phone to seed the market, if you have to. Put Office onto your own platforms first, regardless of where the users are. When all else fails and Nokia tell you it's giving up, buy them out and make the handsets yourself. 

In the past, leveraging Windows and Office was the key to Microsoft's success, but that didn't work this time. Windows had actually ceased to be the dominant development platform in the late 1990s with the rise of the web (though that mattered less at the time since you still needed to go online, and for almost everyone that meant a Windows PC). Hence, though a big part of Microsoft's mobile strategy has been to push towards common code across Windows on the desktop and on mobile, so that it's easy to write apps for both at the same time, in practice that's largely irrelevant. The apps that people want on smartphones are not being written for desktop Windows anyway. Uber doesn't have a desktop Windows app, and neither does Instacart, Pinterest or Instagram. The apps and services that consumers care about are either smartphone-only or address the desktop using the web, with only partial exceptions for the enterprise. You can't tempt developers to support Windows Phone by saying 'it's easy to deploy your desktop app to mobile' if there is no desktop app. So Windows is not a point of leverage for Microsoft in mobile. Neither was Office. Few people really want to edit an Office document on a phone - a viewer is normally enough. And as Blackberry also discovered, enterprise support is not enough if the broader phone experience is sub-par. As Apple has added enterprise features, the appeal of Windows Phone has fallen away there too.  

There was a slim chance that Windows Phone might have been able to overcome all this and establish itself in 2011, when Nokia's partnership was announced. There was no chance at all by the time Microsoft bought Nokia in 2013. and so the write-down of that acquisition now comes as a matter of regret but not surprise. Windows Phone has failed to achieve enough scale to be attractive to developers: it is a third choice, or perhaps even fourth, after the greater appeal of just doing another iOS or Android project. There are fewer apps, and those that are there are later and have fewer features than those on iOS or Android. Consumers notice. Some people love their Windows Phones, but not nearly enough. 

Lumia unit sales (m)

Source: Nokia/Microsoft/a16z

So, Microsoft has missed mobile. Consumer PCs, slowly, will be a shrinking platform. Meanwhile weakness in mobile also bleeds back to the desktop and undermines Office. The shift away from the PC will be slower in the enterprise than in consumer internet, and so will the rise of alternative software models. But as I discussed here, the rise of SaaS services and new productivity models on one hand and more and more capable mobile devices on the other means that Office, and hence desktop Windows in the enterprise, is also probably a declining model. You may need a PC to run Office, but you can no longer assume you'll be running Office at all. 

This brings us to capitulation. The new CEO is acknowledging the end of 'Windows Everywhere' as the driving strategic engine for Microsoft, and also acknowledging the decline of Microsoft Office as the monolithic, universal experience for productivity. Windows Phone is no longer the centre of the strategy (if it survives at all as anything more than a Nexus-like niche). Microsoft is also suggesting that Xbox is not strategically core either, reflecting the reality that it will be the smartphone, not the TV or a box plugged into it, that will be the hub of the digital experience for most people. The smartphone is the sun and everything else orbits it. 

This is a little like Google's transition away from the plain-text web search as the centre of everything, and indeed Facebook's tentative shifts away from the Newsfeed. Microsoft has two huge, profitable businesses in Windows and Office: they will slowly go away, so how do you use them to create something new? Instead of every new project having in some way to support Office and Windows, how do you use Office and Windows to support the future? You must distinguish between things that prop up the legacy Office and Windows businesses (and Microsoft is doing plenty to do that), while using them to drive the new things.

But you also need to work out what that 'new' would look like. Google's mission is generalizable beyond 'web search' - really, (as I wrote here) it's a machine learning company whose mission is to understand everything and help you find it, and that doesn't have to mean a text search box. For Microsoft it's less clear. It delivered 'a PC on every home and on every desk', which once seemed like a crazy goal, but now mobile means 'a computer in every pocket' and Microsoft has little role to play in delivering that, so what does it do? Again, as I suggested here, enterprise platforms and productivity are going to change fundamentally, and that in turn will enable and feed off a shift away from PCs. Sharing document files (or copying them as web apps) is not the future - rather, the connective tissue of work needs to be rebuilt. By someone. I don't have a complete sense of what that looks like, but admitting defeat is the first step to working it out.