Microsoft is cutting 18,000 jobs this year, realigning phones business – is it enough?

By Kip Kniskern | Posted July 17, 2014 12 comments

Today, as expected, Microsoft announced significant job cuts as it moves into the new fiscal year and continues to integrate Nokia’s phones businesses into the company. The majority of those cuts, some 12,000 over the next 12 months (with 13,000 total cuts coming almost immediately, and the other 6,000 spread out over the next year), will come out of Nokia, or at least will eliminate jobs that have become redundant due to the Nokia acquisition. The job cuts are part of a systemic re-alignment of the Nokia phones businesses as they integrate into Microsoft. Both Satya Nadella and Stephen Elop released email memos announcing the changes, here are the highlights as they relate to phones:

  • Microsoft is effectively killing the “Nokia X” Android based phones line. The exact wording is a bit murky, Nadella said “we plan to shift select Nokia X product designs to become Lumia products running Windows”. We suppose that those other “non-select” designs will just be cut. This does mean that Microsoft will continue to focus on getting Windows running on low end devices, a reason for offering up the Nokia X to begin with.
  • While Nokia’s business model was to sell as many phones as possible, Microsoft has a different focus. From Elop’s email:
    “It is particularly important to recognize that the role of phones within Microsoft is different than it was within Nokia. Whereas the hardware business of phones within Nokia was an end unto itself, within Microsoft all our devices are intended to embody the finest of Microsoft’s digital work and digital life experiences, while accruing value to Microsoft’s overall strategy. Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope. Therefore, we plan to make some changes.”
    While Nokia has long given Windows Phone its best hope, Nokia’s strategies have never been in complete alignment with Microsoft’s. The Nokia X is the most glaring example, but the Bing Maps/HERE Maps dichotomy is another, and even Nokia’s focus on selling low end phones into areas that would have little use for Microsoft’s services is another. Elop goes on to say:
    “In short, we will focus on driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone. With more speed, we will build on our success in the affordable smartphone space with new products offering more differentiation. We’ll focus on acquiring new customers in the markets where Microsoft’s services and products are most concentrated. And, we’ll continue building momentum around applications.”
  • Microsoft is consolidating Nokia’s Smart Devices (Lumia Smartphones, etc.) and Mobile Phones (Asha feature phones running Symbian) into one business unit. Again, Nokia’s focus to get a Nokia phone into as many hands as possible, Windows OS or not, has changed.
  • Microsoft’s new selling strategy for Windows Phones is in “making the market”. To do that, Microsoft plans to target “the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia”. But Microsoft won’t be leaving the higher priced markets out of the picture either, according to Elop:
    “To win in the higher price segments, we will focus on delivering great breakthrough products in alignment with major milestones ahead from both the Windows team and the Applications and Services Group. We will ensure that the very best experiences and scenarios from across the company will be showcased on our products. We plan to take advantage of innovation from the Windows team, like Universal Windows Apps, to continue to enrich the Windows application ecosystem.”
  • Nokia’s “first phone” business (read: Asha) is now apparently in maintenance mode, according to a report from BGR India:
    “This means there will be no new features or updates to services on any Mobile Phones platform as a result of these plans.”
  • According to Tom Warren at The Verge, Nokia’s MixRadio is also in “maintenance mode”, and Microsoft is in discussions to sell off the Xbox Music-like service to a third party.

Microsoft is making other cuts besides at Nokia. One area that will apparently bear the brunt of the cuts is at Terry Myerson’s Operating Systems Group, according to Mary Jo Foley:

CEO Satya Nadella is making the investment of core engineering tools a top priority as part of his new strategies for the company. That means he is prioritizing non-sexy internal-facing tooling for things like source code control, collaboration management, and code sharing across divisions, I hear from my contacts.
Under the new structure, a number of Windows engineers, primarily dedicated testers, will no longer be needed. (I don’t know exactly how many testers will be layed off, but hearing it could be a “good chunk,” from sources close to the company.) Instead, program managers and development engineers will be taking on new responsibilities, such as testing hypotheses. The goal is to make the OS team work more like lean startups than a more regimented and plodding one adhering two- to three-year planning, development, testing cycles.

Sales and marketing will also be affected, and COO Kevin Turner announced in an email quoted by Mary Jo, that sales, marketing, and services would “reduce our reliance on contingent staff augmentation by over 20 percent year-over-year”.

For Windows Phone enthusiasts, the news is generally good. The thorn-in-the-side Nokia X experiment seems to be over, and Microsoft is killing off just about everything that isn’t Windows Phone coming out of Nokia. Microsoft is focusing on “platforms and productivity”, and while this all sounds good, too, it hasn’t worked in the past, and there’s not much indication that anything is different this time around. Steve Ballmer once famously shrugged off the iPhone, believing that Windows Mobile’s superior capabilities in the enterprise would be enough to hold off the threat coming from Apple. That didn’t work, and now, with this week’s announcement by Apple and IBM that Apple is getting serious about the enterprise, the job of pushing Windows Phone isn’t any easier.

More than that, Microsoft still doesn’t appear to grasp the power of the consumer in today’s marketplace. Whether you’re a CEO or a barista, you still want a cool phone, and that appeal has nothing to do with enterprise features. For Microsoft to appeal to “productivity” is barking up the wrong tree, and it always has been. We’ve yet to see what new phone capabilities are coming out of Microsoft, and they could indeed make Windows Phone “cool”, but that doesn’t seem to be the objective, and that’s too bad.

In short, an enterprise ready phone isn’t going to sell any better now than Windows Mobile 6 sold against the iPhone. We’re hoping Microsoft has a lot more up its sleeve than that, or we’ll be writing about more job cuts to come.

Posted July 17th, 2014 at 9:43 am
Category: News
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  • cybersaurusrex

    It sounds like any phones that don’t run Windows or Microsoft services will be closed down–meaning, feature phones and Asha.

  • http://outlookers.org/ Gee

    One thing, i’m wondering though, is why did they not close the MSN brand. We have lots of duplicates now with the Bing services (News, Sports, Finances, Weather, Health, Food…). Also MSN data are actually based on the Bing plateform now. And what about this MSN Premium subscription how come they haven’t shut it down yet ?

    More about this thought here :
    http://outlookers.org/post/92135637063/one-thing-microsofts-massive-layoffs-did-not-address

    • Joscelin Trouwborst

      Microsoft has had a plethora of brands for a long time and they should consolidate and focus to get all the Microsoft value potential to market.

  • chinch987

    Another editorial ruined excess drivel. First off the “cool” phone FAD is over with… phones are commodity items now including iPhones. Yawn. Jump the shark is evident when you have 4th graders with iPhones.The barista & soccer moms with phone w/ broken glass is evidence of people being tapped out by nonsense purchases (that don’t really better their life).

    Ballmer was correct in $799 iPhone was DOA. The price drop reflected that. What he (and others like Verizon) missed on was the desperation of Cingular/Att to BUY CUSTOMERS using this device (buying them from apple for $700 and selling to customers for $199)

    In the USA the carriers killed the smartphone purchase options giving you apple or Samsung basically. Now they’re trying to undo the damage with non-subsidized plans (which people with bad credit can’t take advantage of). Hard to pin that on MS sorry wrong place, wrong time.

    Elop clearly laid out what MS is doing with phone hardware. Of course he’s panned by iBloggers and iHaters. Which is fine.

    Finally it’s obvious Nadella was opposed to the Nokia purchase, which took far too long anyways to complete anyways (see Nokia X). With full steam ahead of “universal apps” it’s clear Threshold is the final destination (for devs and consumers) with Win 8x bridging the way (phone and computers). The damage from Sinofsky and Balmer (not merging phone+windows earlier) can’t be undone quickly plus phone hardware is just catching up to make this an affordable reality. Optimizing Win 8.11 for low memory PC devices for example is not hyped but will pay off later. Go buy an iPhone or android device already if this pains you.

  • Joscelin Trouwborst

    Good article with challenging conclusion that I agree with.

  • Joscelin Trouwborst

    By the way, you have noticed that the OneDrive storage upgrade is rolling out? Got my 1 TB with Office365. YES! ;-)

    • http://outlookers.org/ Gee

      Off topic, but yes got my TB too. O365 Personal has such a great value. i’m also considering using Skype only with my monthly 60 minutes. Now a question for you : Those 60 minutes only seem to be working towards landlines and not cellphone. is this true fro you as well? When trying to call a cellphone, a message tells me to buy credits

  • Joscelin Trouwborst

    Kip, it seems to me that some conversation could be provoked with articles on Skype, the new Photosynth Preview and what the Bing brand could encompass. E.g. I would like to see Bing do all (moving) picture things, like having a Bing Camera app on my Lumia, consolidating the current plethora.

  • gamefm

    This saga shows that either he is quite a normal ceo. Following norms, stay within corporate and wallstreet boxes. Or MSFT is lacking financial resource to substain its business.
    I am not personally impact but i do feel sad. I feel that all human talents are precious, it is a leader to bring the best out of everyone. Assuming 1 person can increase company profit by $1. Letting them go without trying to find a way plus spending money due to lay off is dumb.

    Big does not always mean slow and retarded. With modern technology, communication huge work force can still stay agile and mean. The concept of lean and mean are for 60’s.

    Firing those personel who poison company morale is a must. However reducinv work force size for sake of reducing is just lazy. Unless they are in financial turmoil.

    Create awesome culture, stop being a sheep which follow wallstreet and financials institutes preference.

    Just my thoughts, i am still a MSFT fan. Just sad that new leader give up so quickly. I am sure he has thinked deep, MSFT need him to be deeper, broader and further. As his decision affect the spirit of the company.