Kill Windows Phone or risk dying, analyst tells Microsoft

That won't happen after Nokia acquisition, but Ben Thompson argues a focus on devices will weaken Redmond where it's strongest, in services

Microsoft should have given up on Windows Phone while the getting out was good, an analyst argued last week.

Instead, the technology giant, rocked by a slump in PC sales and playing catch-up in mobile, decided to double down with a $7.2 billion deal to buy Nokia's handset business and license much of its patent portfolio, a move that will probably make the Redmond, Wash. firm the only smartphone manufacturer to rely on Windows Phone.

Ben Thompson, an industry observer and independent analyst who writes on his website, was blunt in his take on the Nokia acquisition.

"The tragedy in the deal is that I think Microsoft ought to abandon Windows Phone," said Thompson. "The war is over, and iOS and Android won. It would be far better for Microsoft to focus on serving and co-opting those devices, instead of shooting the most promising parts of their business in the foot for the sake of a platform that is never going to make it."

Others have agreed with parts of Thompson's argument.

"My initial reaction, like many, was that this changes nothing," said Benedict Evans, an analyst at U.K.-based Enders Analysis, of the Nokia purchase. "Windows Phone is failing because of a classic vicious circle: consumers will not buy it because it has very few apps, and developers will not target it because very few consumers own one."

Both Thompson and Evans pointed out that with Microsoft's acquisition of Nokia -- the Finnish handset maker responsible for 84% of all Windows Phone sales -- other OEMs, lukewarm to Windows Phone at best, will simply drop the OS to focus fully on Android.

"Ownership by Microsoft will not of itself change the sales of Windows Phones. If anything, it will decrease them, since it prompts other OEMs to give up on it entirely," wrote Evans in a post to his personal blog last week. "It will not make more developers make Windows Phone apps or more consumers buy the devices. And it does little or nothing for Windows on tablets."

Absent a truly radical solution, Microsoft's hand was likely forced by Nokia's weak financial status, analysts have said. Microsoft was afraid that Nokia would fail, and take Windows Phone down with it. That theory got a big credibility boost on Friday when Nokia immediately drew on $2 billion in convertible bonds that Microsoft offered to buy as part of the agreement.

CEO Steve Ballmer, who last month announced he would step aside in the next 12 months, had the support of the Microsoft board of directors and its chairman, company co-founder Bill Gates, in the Nokia deal. Alternative strategies were either dismissed -- after all, Ballmer has been the driving force behind the pivot to a new "devices-and-services" strategy, again with the board's support -- or simply quashed. Doing anything else would have been unthinkable to the board, and if he had pressed it, it's likely Ballmer would have been immediately fired.

That didn't stop Thompson from advocating for Windows Phone's demise, positing that as a more viable long-term strategy than what Microsoft is now pursuing.

At first glance, the Nokia acquisition made sense, said Thompson in an interview Friday. "The acquisition of Nokia is certainly not a black-and-white situation, but on the surface if you are committed to a devices and services strategy, which Microsoft says it is, it does makes some sense, even if they had Nokia under their thumb earlier," he said, referring to the 2011 agreement under which Nokia bet everything on Windows Phone. "There are efficiencies that accrue [with owning the hardware], as Apple has demonstrated. But the problem with the acquisition is that I disagree with the underlying strategy that drove [the Nokia purchase]."

1 2 3 Page 1
Page 1 of 3
7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon