Windows Phone: a product with so much potential that had everything going for it, and yet one that failed spectacularly.
Despite the billions of dollars and the priceless connections of Microsoft, the Windows Phone never took off and would go down in history as one of Microsoft’s most expensive mistakes.
In this video, we’re gonna look at the reasons behind its failure and the actions Microsoft could’ve taken to possibly prevent it.
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When Steve Jobs announced the iPhone in 2007 he took the smartphone world by storm. Well, how do I scroll through my list of artists?
How do I do this? I just take my finger and I scroll. Up until then, smartphones had a big problem: they had small screens with interfaces that were hard to navigate, and the reason for that was because half of the phone was occupied by a keyboard with tiny buttons you could hardly press with any precision at all.
What Steve Jobs showed to his extatic audience was a game changer, but it wasn’t just Apple fans there were watching.
The engineers at Google, which for the past two years had been building a smartphone of their own, had to scrap their entire project and to start over with a touchscreen design.
Their final product, Android, would arrive more than a year later, at which point the iPhone had taken the smartphone crown. The iPhone’s model was built on exclusivity: it was entirely produced by Apple to establish maximal control over the user experience and the quality of the product, which allowed Apple to charge a premium for their phones.
To succeed Android would have to adopt a different strategy: instead of going for exclusivity, Google tried to be everyone’s friend, partnering up with as many phone manufacturers as possible with the selling point of their phones being the fact that they were cheap, yet functional.
For a time, the smartphone world was in balance, with Android and the iPhone occupying very distinct segments of the market. And yet, this balance would soon be disturbed by another tech giant, Microsoft.
Now, out of the three companies, it was actually Microsoft that had the most experience with mobile devices.
Back in 1996 Bill Gates unveiled what he called the handheld PC, which was really more of a tiny laptop.
I’ve asked Tom McGill from the Windows CE group to join me on stage and give us a quick glimpse of some of the neat things that are built into the handheld PC.
For those of you that might not have seen one yet, Bill talked a little bit about the handheld PC and this happens to be the Casio unit actually.
The Casio unit is typical of the handheld PC, so it’s got a physical keyboard, a 480×240 2 bit per pixel screen, IR, PC card, upgradeable RAM, 2 AA batteries. So this is a pretty typical handheld PC.
The operating system it ran was known as Windows CE, which was basically Windows 3 modified to function on the lowest specifications possible.
Over the next decade, Microsoft would add features and develop this product line extensively, making another 6 full releases.
Between 2006 and 2008 Microsoft’s mobile devices claimed a 15% market share, greater than any of their competitors except Symbian by Nokia.
But this success is exactly what blinded Microsoft to threat of the iPhone. When Steve Ballmer, the CEO of Microsoft at the time was asked about the iPhone his reaction, well, let’s say it hasn’t aged very well.
Steve let me ask you the iPhone and the Zune if I may. Zune was getting some traction and Steve Jobs goes to Macworld and he pulls out this iPhone.
What was your first reaction when you saw that? $500, fully subsidized with a plan! I said, ‘that is the most expensive phone in the world’ and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good email machine.
What’s even more priceless, however, is the frankness of the next question.
How do you compete with that though?
He sucked out a lot of the spotlight in the last few weeks because of what happened at Macworld, not only with the iPhone, but with the new iPod.
How do you compete with that, with the Zune?
Right now, well, let’s take phones first.
Right now we’re selling millions and millions and millions of phones a year.
Apple is selling zero phones a year. Notice the stark difference between the two men: the reporter very clearly sees the innovations of the iPhone as a threat to the old smartphone establishment, but Microsoft’s CEO can barely look past the sales numbers.
And just in case you’re thinking he’s an exception, the CEOs of Blackberry and Palm were equally skeptical of the new iPhone.
It took Microsoft a full year of declining market share to finally realize that something had to be done.
Unlike Microsoft, Blackberry’s sales were still increasing, which gave them a sense of confidence they never recovered from.
Now as they say, it’s better late than never and when Microsoft finally got around to it, their development was actually pretty fast.
Microsoft began developing a touchscreen based mobile device in late 2008 and it took them only two years to get it ready for market.
What Steve Ballmer unveiled was indeed a very unique product whose advancement of smartphone design isn’t really widely recognized, but it should be.
At a time when the iPhone and Android were stuck with static icons, the Windows Phone gave you tiles with live information.
Overall, critics had much to praise: in terms of design the Windows Phone user experience was right up there next to Apple and because Microsoft had very strict requirements for the hardware used by phone manufacturers, all of the early Windows Phones were very powerful machines for their time.
And yet, Microsoft ran into a big problem very early on. You see, Microsoft was trying to do something very difficult: it was emulating Apple in trying to establish strict control over the user experience and hardware, but unlike Apple it wasn’t actually making its own phones.
This approach made the Windows Phone a very refined product, but the degree of control Microsoft wanted made working with them much more difficult for phone manufacturers compared to working with Android.
Unsurprisingly, most phone manufacturers decided to partner up with Google, which left Microsoft in a very bad position: it had a great product and no one to make it.
The only saving grace for Microsoft was a lucky connection: when Nokia replaced their CEO in September 2010, the new guy, Stephen Elop, was a former Microsoft executive and the first item on his agenda was to try to restore Nokia’s declining market share by abandoning Symbian and pivoting towards Windows Phone.
Now, you can tell that this was a very premeditated plan because this massive transition, during which Nokia completely changed their product offerings, happened in the span of a single year.
Nokia started selling their first Windows Phone in November 2011 and I can tell you right away that this was possible thanks to the billions of dollars Microsoft poured into Nokia as “platform support payments”.
Nokia was supposedly paying Microsoft a licensing fee, but in reality it was actually getting $250 million back from Microsoft every quarter, which more than made up for their expenses.
Of course, the other phone manufacturers knew that this was happening, which pushed them even farther away from Microsoft.
After all, why would they fund their own development and pay a licensing fee to Microsoft, when Nokia was getting it all for free?
Effectively, Microsoft had gone all in with Nokia and there was no going back.
But sadly for Microsoft, it was far too late.
By the time Microsoft solved its production issue, four years after the introduction of the iPhone, it had fallen to a 2% market share. Nobody was developing applications for the Windows Phone and why would they, considering that Android and iOS were clearly the winners here.
For its first three years, the Windows Phone App Store was empty: it didn’t have Instagram, it didn’t have YouTube, it barely had anything.
By 2013 the stock price of Nokia had fallen by 75% at which point angry shareholders were threatening to just fire Stephen Elop and get rid of Microsoft altogether.
In the end, that didn’t happen: Microsoft instead just purchased Nokia’s mobile phone division for $7.2 billion in 2014.
Here’s the funny thing though: the very next year Microsoft wrote off their investment for $7.6 billion, and then to top things off they fired almost 8,000 employees.
Microsoft kept Windows Phone on life support until October 2017, but it was clearly dead a long time before that.
And yet, it’s easy to imagine the different path Windows Phone could’ve taken had it only not been as greedy with its original philosophy.
Had Microsoft been willing to compromise on its control over production, it would’ve easily convinced the big manufacturers to use Windows Phone instead of Android.
After all back then Google had practically no ecosystem to speak of, while Microsoft had been a software titan for decades.
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Anyway, thank you for watching.
Make sure to like, subscribe, leave a comment, check out both my Skillshare classes (I just released a new one) and we’re gonna be seeing each other again in two weeks.
Until then: stay smart.