Is there room for hardware in the new Microsoft?

Since Satya Nadella took over as CEO of Microsoft, there have been voices from time to time that speculate or suggest that the company should backing off its hardware forays Lumia, Surface, and Xbox are frequently questioned by industry analysts who question the advisability of Microsoft developing and manufacturing such products, primarily because of its low market penetration and/or low net profits

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There was a lot of speculation this week about a turn by Microsoft in that vein, due to Satya Nadella&39;s letter to his employees in which he talks about the need for make difficult decisions to achieve company objectives."

I personally think that these readings are wrong. Therefore, in this article I want to first argue why Nadella's strategy does not mean stopping Lumia phones, abandoning Windows Phone (now Windows Mobile), or leaving sideways Surface tablets. And secondly, give reasons why this strategy is correct in the current context.

Satya confirms it: Microsoft will continue manufacturing phones and tablets

"First of all, it should be clarified that Nadella&39;s famous letter, which includes the phrase about difficult decisions, does explicitly mention device manufacturing as part of the company&39;s future. "

Or translated into Spanish:

It is clear then that first-party devices will continue to be part of Redmond's strategy, but Is this the right decision?

Microsoft needs Windows on mobile

Nadella's Microsoft sees itself, in the words of the CEO himself, as a platform and services company that seeks to empower people and organizations, in a world where mobile and the cloud are the first gateway to digital (the famous mobile-first, cloud-first).

It is clear then that Microsoft continues to want to enter mobile once and for all, and with good reason: although the desktop will not die next year, nor in 5 more, it is happening that more and more users connect exclusively from mobile phones It is estimated that by 2018 more than 50% of the world's users will fall into this last group, that is, people who only use a smartphone to access the web or applications, without using laptops or PCs at any time of the day. In this context, a Microsoft that stays out of mobile is a Microsoft that condemns itself to being irrelevant.

"That being said, if the new Microsoft conceives of itself as a platform company, the most logical and straightforward thing to do is to enter the mobile-first world with its own mobile platform: Windows Phone or Windows 10 Mobile."

But for many that is not so obvious. Given the unsuccessful attempts to spread Windows Phone to the masses, wouldn't it be better to give up on it, and focus on offering services and applications for Android and iOS? After all, Microsoft can still profit from the mobile app boom via Azure, and revenue from subscriptions to Office, OneDrive and Skype, and Bing/Cortana on other platforms.

There are actually a couple of reasons why Microsoft keeps pushing Windows for mobile. The first is the same reason why they developed their own engine for Edge instead of adopting WebKit: avoiding vulnerability against controlled platforms by third parties (Android and iOS).And the second is the value itself of the convergence between desktop and mobile .

"Or is it reasonable that a company dedicated to platforms does not have its own mobile platform in a world that it defines itself as mobile-first?"

The latter is at the center of the Windows 10 value proposition: the synergy generated with the groundbreaking idea of ​​universal apps . If it turns out, Windows 10 will be more than the sum of its parts, or the sum of a mobile OS with a desktop one, and developers will start to prioritize the Microsoft platform as it will allow them to access more devices and users, with less effort and cost. This only works if Windows is also present on the mobile.

…and Windows on mobile needs Lumia

You may have noticed that I haven't talked about hardware for about 6 paragraphs, in an article that tries to be about hardware, but that part goes here: if Microsoft persists in its attempts to have a mobile platform their own, like they're doing with Windows 10, they have to keep making their own hardware, yes or yes, until that platform takes off , since so far no one else is getting serious about making Windows phones.

" Lumia is instrumental in building the marketplace for Windows on mobile. Therefore, it is not serious if it does not generate benefits while it meets that other objective."

"The key thing here is to understand that Lumia is instrumental in building the market for Windows on mobile, which is what really matters at Nadella&39;s Microsoft. As he himself said, Redmond doesn&39;t make hardware for hardware&39;s sake (we&39;re not in hardware for hardware sake)."

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That implies that It is not so serious if that hardware generates little (or no) profit What is serious is that Windows Phone It still has little market share, or its ecosystem is dominated by Lumia phones, with almost no third-party presence. These are issues that Microsoft urgently needs to address, and perhaps they do have to make tough decisions to do so, as Satya&39;s email stated."

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In short: with Windows 10 (which is arguably the game of the decade>commit to staying on mobile hardware for at least several more years. "

The Strange Case of Xbox

The Redmond console case is a bit rarer. Xbox fits much less than Windows Phone in the vision focused on productivity that Nadella has been trumpeting, but at the same time, the CEO himself has taken it upon himself to explicitly confirm that this console and its video games have a insured future in the company. He did it in 2014 when he announced his new vision, he does it again in the email he sent this week, and he has also reaffirmed it with concrete actions, like the purchase of Minecraft.

Despite having little to do with productivity, Xbox has a secure future within Microsoft "

There seem to be several reasons behind this: the first is an interest in being relevant in the consumer market, maintaining a brand that is valued and loved by consumers.Apparently it is also expected that from the Xbox team there will be a spillover effect>innovation towards other areas of the company (Kinect, voice recognition, graphics engines, etc), and also that synergies be created with the Windows ecosystem, through greater integration between Xbox and Windows 10"

But the main reason seems to be that Satya sees gaming as a critical sector for the digital world, just as the mobile sector is. In his own words ">

Surface: putting pressure on manufacturers that are not up to the task

We move on to another product that has been questioned repeatedly. The Surface has been attacked for poor sales, the huge losses caused by the first generations (particularly the Windows RT models, which now won't even be able to upgrade to Windows 10) and for competing with Microsoft's major partners: the PC manufacturers

The issue of sales and losses has already been solved in the latest models, which are having a better reception in the market. But even so, what is the raison d'être of these tablets, if there are already manufacturers making similar products?

Like Lumia, Surface computers are tools for ulterior goals. One of them is setting an example to manufacturers who have not lived up to the task (both in quality and innovation), thus setting them a goal that they must reach or exceed . In simple words, make them wake up .

Microsoft needs users to be able to see Windows through quality devices, not just mediocre PCs full of crapware

Surface exists because Windows needs a reference device that allows us to properly appreciate the innovations of the system. This is how it seeks to fight against the effects of a commoditization of the PC that has plagued the market of cheap, but mediocre equipmentMany times, this mediocrity results in a lower value for Windows as a system, leading consumers with higher incomes to prefer to switch to Mac because of its promise of quality.

Learn, manufacturers, this is how things are done "

Having a reference device>shows the full potential of Windows on cutting-edge hardware. Therefore, the benchmark for measuring Surface is not so much that it sells a lot, or generates benefits, but that it drives better standards in other manufacturers and adds value to Windows as platform (growing the ecosystem pie, rather than taking it away from others)."

That last one explains, for example, why Redmond canceled the release of a Surface Mini at the last minute: there are already many manufacturers doing well in the segment of small 8-inch tablets, so no there was room to offer enough differentiation.Instead, Microsoft seeks to supply those segments where the ecosystem f alters, such as high-end PCs.

Software innovation often requires hardware innovation

Then we have the problem of innovation. Microsoft has learned that software innovation must often be accompanied by major hardware changes, but sometimes no vendor wants to risk making such changes

Sideshow: A secondary screen on laptops that allows information to be displayed without opening the laptop. An example of Windows innovations that did not spread to the market due to lack of interest from manufacturers. "

The history of Windows is littered with great innovations, which never reached end users due to lack of interest from manufacturers, or Well, they were poorly implemented by these. The manufacture of a reference team>"

Band and HoloLens: hardware to create new platforms

To conclude, and as an extension of the problem of innovation in Windows, proprietary hardware also helps Microsoft to innovate by creating new platforms That's the case with Band and HoloLens, two products Redmond doesn't expect to make a buck with either. , rather they are conceived as precursors of entirely new ecosystems.

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Microsoft taking risks creating (and selling) these devices that use their own platforms builds confidence for other manufacturers to join them, since they see that Redmond is testing their own food . Also, and as in the case of Windows, this hardware fulfills the role of setting an example>it helps to create a critical mass of users in cases where there are economies of scale on the demand side ."

In the case of the Microsoft Band there seems to be something of the latter, since the company would be using the first buyers of this to collect data with which to calibrate its Microsoft He alth platform, for the analysis of he alth data in the cloud.

Conclusion: hardware as a means and not as an end in itself

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Prior to Nadella&39;s arrival as CEO, Ballmer envisioned Microsoft as a device and services company, in the sense that they expected to profit from those products. Satya has rightly swept away that definition, as a forward-thinking company is not defined by what it sells (something that can change frequently), but because of how it creates value for its customers."

There is Microsoft hardware for a while

In this context, hardware currently occupies an instrumental role in Microsoft's mission, helping to empower its platforms, strengthening innovation of its software, and helping to reach a critical mass of users in those areas where it is needed.

Therefore, there is Microsoft hardware for a while, although it probably still doesn't generate much direct benefit. As long as the other objectives are met Redmond can live in peace with it, since it is not the direct profit they are looking for when launching these devices.