Nadella Bites the Bullet on Nokia and Apple Still Rules in the Enterprise

In what can’t be deemed a surprise, Microsoft CEO Satya Nadella last week announced the company will take a $7. 6 billion write-down on its $9.4 billion investment (81% of the initial value) in Nokia and will be laying off some 7,800 workers. While industry analysts estimate that over 90% of the Windows Phone devices that have been sold carry the Nokia (now “Microsoft”) label, clearly former CEO Steve Ballmer’s plan to emulate Apple’s strategy of controlling both the mobile device hardware and software could not save Microsoft’s Quixotic vision for Windows Phone. To his credit, Mr. Nadella is not afraid to pull the trigger when it comes to making tough decisions.

It is tough to stay on top in the mobile device market, but in truth, Microsoft probably doesn’t need a mobile operating system of its own to succeed. As iOS and Android came to prominence in the mobile O/S market, the question we were asking was, “Who gets the third seat at the table?” First we’d had the Palm-BlackBerry-Symbian troika, then it was BlackBerry-Symbian-iOS, so there was a tacit assumption there would be iOS-Android and someone else. Well, BlackBerry is essentially dead, Windows Phone is languishing with about 3% of the market, and Tizen seems to be a non-starter. For the foreseeable future, the smartphone market appears to be a two-horse race.

For enterprise buyers, Apple is clearly king-of-the-hill. Android may dominate in overall smartphone market share, but among enterprise users, Apple is holding onto a 70%+ market share. The real eye-popper is the fact that Apple gets 92% of the total operating income earned by the top eight smartphone manufacturers – that’s up from 65% last year. Those numbers come from Mike Walkley, managing director of investment firm Canaccord Genuity, as reported by The Wall Street Journal. 

There is no underestimating the importance of the iPhone to Apple’s business. For the fiscal year ending September 27, 2014, the iPhone racked up close to $102 billion in sales, 57% of the company’s total revenue. When you look at unit sales, Apple sold 169 million iPhones to 68 million iPads and 19 million Macs.

For the next round of models expected for the fall, Apple is asking suppliers to manufacture a combined total of between 85 and 90 million units. The two upcoming iPhone models will feature 4.7- and 5.5-inch displays, identical to the current iPhone 6 and 6 Plus. The next expected refinement in the user experience will likely be Apple’s Force Touch technology, which can distinguish light taps from firm presses, giving users new options to control a device based on how hard they push on the screen.

While the iPhone has become the major revenue producer for Apple, Samsung is seeing its profits dragged down by smartphones. The WSJ is reporting that the company is expecting its seventh straight decline in quarterly profits due largely to smartphones, and the latest Galaxy 6 and 6 Edge haven’t been much help.

Samsung reportedly misjudged demand for the Galaxy S6 and the curved-screen S6 Edge. The company geared production on the expectation it would sell four S6s for every Edge. In the end, the demand turned out to be roughly equal for the two, leaving a shortage of Edge models and excess inventory of S6s.

A recent report from Argus Insights claims the new Galaxy models simply didn’t “Wow” US buyers. The report claims, “After an initial boost in demand just as Samsung's flagships were released, consumers became less and less interested,… Demand for the Galaxy S6 and S6 Edge began to drop shortly after their release. At this same time, Apple's iPhone 6 saw an increase in demand, despite being on the market for several months.”

With Ballmer’s “Devices and Services” strategy in the can, where does Microsoft go with mobile? Ironically, the abysmal failure of "Ballmer’s Folly" along with the departure of Nokia CEO (and Microsoft alumnus) Steven Elop might give Microsoft the strategy it needs to succeed in mobile – swallow your pride and bet on the winners.

Microsoft is a software company, and its success in mobile should never have depended on its having its own mobile operating system; it rests on its ability to have Microsoft software running (and running well) on as many platforms as possible. In the enterprise the mobile platform of choice is iOS with Android running a distant second. This is all the more important now that the number of smartphones and tablets in use far exceeds the number of desktops and laptops.

To its credit, Microsoft’s implementation of Office on iOS is far superior to its Mac offerings, and that is even more true of Skype for Business. The Skype for Business app on my Mac crashes roughly a dozen times a week, mostly when coming out of sleep mode, and it seems to have a memory problem when it comes to keeping track of my password. The iOS version never fails.

It will be interesting to see if Microsoft can get in front of Apple on mobile devices that merge the Mac and iOS. Microsoft has not been particularly successful with the Surface Pro 3, the tablet-cum-laptop that could fill a particular niche for enterprise users. While Microsoft is hell bent on the Windows 10 strategy of having apps that run on any of its platforms, Apple has been following the strategy of integrating the Mac with iOS devices but, in the end, they are totally different platforms.

In the eight years since the iPhone launched and essentially created the modern smartphone market, we have seen any number of twists and turns. What has not changed is the fact that user expectations are now shaped by experiences in the mobile world, and the traditional desktop/laptop universe has had to struggle to keep up. In UC, user experience will be the key to technology adoption, and the mobile device experience has set the bar high.