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Microsoft focuses smartphones on the enterprise - better late than never

26 May 16

Article by John Delaney, Associate VP, Mobility, IDC Europe

Microsoft recently announced a further scaling back of the mobile phone manufacturing business that it acquired from Nokia in 2013. It will lay off 1,850 workers, taking an impairment charge of around $950 million. This move follows the sale last week of Microsoft’s featurephone business to FIH Mobile and HMD Global for $350 million. Moving forward, Microsoft will be focusing its smartphone business completely on what it refers to as the "commercial segment".

Ever since Microsoft took over Nokia's mobile phone business, as one of the final acts of Steve Ballmer's reign, its smartphone strategy has been too ambivalent to succeed. Microsoft has neither made a wholehearted commitment to driving mass-market uptake, with commensurate levels of resource and senior management buy-in; nor has it focused solely on the market segments in which the strengths of its smartphone offering play most effectively. Now, at last, Microsoft's ambivalence is over. It has chosen to follow the second of these strategic paths, by scaling back its smartphone operations and concentrating its efforts completely onto the enterprise market.

We believe that this decision is the right one. The mass market for smartphones has moved beyond Microsoft's grasp now: it is an iOS/Android duopoly. The enterprise market, though, still offers potential opportunities for Microsoft, if it addresses them with sufficient vigour. Our research clearly shows that following the recent vogue for BYOD, European enterprises are shifting back towards corporate selection and procurement of the smartphones that their employees use. The things that enterprise buyers look for in a smartphone are very different from the things that consumers look for. Windows offers a number of advantages in this context, such as out-of-the box compatibility with the Microsoft infrastructure and application software that is widely used by enterprises. The key advantage of Windows for enterprise buyers is that it is available in a consistent form on both high-end and low-price devices. Enterprises choosing Windows can combine the iOS proposition of a consistent, unfragmented platform, with the Android proposition of low-price/high-volume devices. This is Microsoft's sweet spot in the enterprise market.

But although Microsoft's decision is the right one, it's also one that should have been taken sooner. When IDC started to advocate an enterprise-focused strategy in 2014, smartphone penetration in the European workforce was around the 45% mark. In our most recent enterprise mobility survey, fielded this Spring, we found that penetration had grown to 56%. That means the greenfield opportunity for Windows smartphones in Europe is smaller by at least one-fifth now than it was two years ago (and by more than that in practice, since the total addressable market is smaller than 100% of the workforce.) Moreover, Microsoft has missed out on most of the opportunity that arose during the past two years as a result of enterprises moving away from BlackBerry as their standard smartphone, and looking for something to replace it.

The enterprise smartphone opportunity is still substantial though; and better late than never. Having finally grasped the nettle, it's imperative that Microsoft moves quickly to make the most of the opportunity that remains. High-priority actions include:

  • Partnerships with the leading vendors of enterprise mobility management (EMM) software, to strengthen the manageability proposition of Windows among organisations that are using those vendors' products
  • Re-alignment of distribution strategy, to focus on the smartphone channels used by enterprise procurers
  • A high-profile marketing campaign aimed at the target segments
  • Most crucially of all: doing whatever it takes to get the leading enterprise ISVs (Salesforce, Oracle, Sage, etc.) to build and maintain excellent Windows Mobile versions of their application software.

We believe that Microsoft's decision is necessary (albeit overdue), but we also acknowledge that it is a painful one. The loss of 1,850 jobs is no small matter, and it is a sad denouement for the story of the Finnish mobile phone powerhouse that was a groundbreaking and innovative player in its prime. But given the current circumstances, we believe that Microsoft is now, at last, following the path that is most likely to lead it to success in the market for its smartphones.

Article by John Delaney, Associate VP, Mobility, IDC Europe

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