Microsoft won PC but lost mobile, what now?

Microsoft is bowing out of building its own phones for consumers. After dramatically scaling back its Lumia devices last year, Microsoft hammered the final nail in the coffin today with an additional $950 million write off and 1,850 more job losses. Microsoft's Lumia devices still account for more than 95 percent of all Windows phones sold, but a lack of new devices means sales and Windows Phone market share have declined sharply over the past year. Windows Phone is dead, and phone makers aren't

interested in reviving it. Where did Microsoft go wrong, and what does it do now?

Microsoft's announcement today puts a lot of its mobile errors into perspective. The software giant wasted "thousands of man hours of innovation" with its ambitious plans for Windows Vista, according to former CEO Steve Ballmer. Vista shipped a few weeks after Apple co-founder Steve Jobs revealed the iPhone to the world back in January 2007 and changed mobile computing forever. In hindsight, Vista was a great example of how Microsoft missed the sea change of mobile.

Instead of focusing its engineering efforts on Windows Mobile, Microsoft was too invested in desktop PCs and its success at dominating that category of computing. Windows Mobile had the basic concepts of mobile computing and apps long before the iPhone, but the UI was built for devices with a stylus, designed to look like a miniature version of Windows​ right down to the Start menu. Microsoft was obsessed with having Windows everywhere. Apple introduced a smart and simplistic mobile alternative to Windows, and the industry followed its path — Microsoft included.

Microsoft's mobile failings can be traced back much further than Windows Vista, though. Ars Technica recently profiled Microsoft's impressive attempts to bring the same version of Windows to all devices. It's a history lesson that highlights the big problems of Windows Phone. Microsoft introduced a unique and innovative Live Tile interface to the world with Windows Phone 7, but it never progressed into the mainstream thanks to the constant software reboots. Windows Phone 7 users were stung by ​a lack of upgrades to Windows Phone 8​, and even Windows 10 Mobile isn't arriving on all Windows Phone 8.1 Lumia devices. Windows Phone's constant reboots were all part of a strategy to get to a single version of Windows across PCs, tablets, and phones. It was an admirable strategy, but consumer confidence was hit time and time again as a result. Phone makers were also less inclined to pay for a license to use Windows Phone, and it took Microsoft years to make it free to truly compete with Android.

After unveiling Windows Phone 7 to the world, Microsoft even tried to launch its ill-fated Kin devices. Kin was based on Windows CE instead of Windows Phone 7, and an odd internal power struggle meant it ultimately failed and was killed off in favor of Windows Phone. It was an embarrassing misstep at a time when Microsoft was trying hard to get back into mobile.

Over on the PC side, Microsoft also attempted to convert desktop users into tablet ones. Windows 8 arrived with an entirely new interface that alienated many traditional PC users, and like Windows Phone it was a stop-gap solution. Microsoft chased after the iPad with Windows 8, just like it had chased after the iPhone with Windows Phone 7. The result after this hectic scramble is Windows 10. Microsoft has finally reached its goal of Windows everywhere, but it's a little too late for its mobile ambitions.

It will take many years to judge the benefits or drawbacks of Microsoft's universal app strategy, and even Windows 10 itself. Microsoft had hoped that Windows 8 would spur on Windows Phone apps, but that didn't work out. The hope with Windows 10 is that making it easier for developers to create apps for PCs and phones will help create a vibrant ecosystem. Microsoft now faces the challenge of a lack of actual Windows Phone hardware for developers to target, and the perception that Windows Phone is dead. At the same time, Microsoft has been aggressively supporting iOS and Android under Nadella's leadership, further complicating its Windows-everywhere strategy.

It's hard to say where Microsoft will pivot next. Last year, Microsoft CEO Satya Nadella announced a strategy of what looked like three phones per year to cover businesses, low-cost or emerging markets, and flagship devices for fans. Today's announcements scale even those modest plans back somewhat. "Great new devices" is the only promise Microsoft is providing now, and with no indication of whether we'll even see new phones this year, if at all. Many Windows Phone fans are hoping Microsoft will produce a Surface Phone, and that seems likely. However, Microsoft has consistently resisted creating a pure laptop or a pure tablet with its Surface hardware, so it's reasonable to expect a Surface Phone that looks nothing like a traditional phone

Microsoft has invested heavily in its Continuum feature of Windows 10 Mobile, to transform a phone into a full PC. While it works well, it's dependent on Windows 10's new universal apps to support it and make it worth using. Some rumors around Microsoft's potential Surface Phone have focused on the idea of using an Intel smartphone chip to allow existing desktop apps to run in Continuum, but Intel's Atom processor cancelationnow makes that seem very unlikely.

Microsoft had built thousands of Surface Mini devices to be unveiled alongside the Surface Pro 3, but CEO Satya Nadella canceled the smaller Surface just weeks before the announcement because the device wasn't differentiated enough from the competition. Microsoft has now started investing more in digital inking inside Windows 10, and it's easy to imagine a Surface "phablet" emerging with a focus on note taking as its key differentiator. Microsoft acquired its Surface Pen technology from N-trig last year, so there's clearly a renewed effort to make digital inking work well.

A SURFACE PHONE OR A SURFACE MINI?

A Surface phone or mini tablet won't be enough to rescue Windows Phone itself, but it could serve as a way for Microsoft to experiment with mobile devices and push the dream of a pocket PC being your only computer. It's still hard to imagine that future, but Microsoft is uniquely positioned to benefit from its work to standardize Windows across devices — especially with HoloLens. The biggest problem Microsoft faces with any potential device is just how personal phones are now and the many apps that make mobile computing more convenient. Microsoft has struggled to attract app developers, and without that basic mobility a pocket PC is great as a PC but not as a smartphone.

What's clear from today's announcements is that there was never really an easy route for Microsoft to tackle its mobile mess. Microsoft could have used the $8 billion it wasted on Nokia to acquire more productivity apps like Sunrise, Acompli, and SwiftKey, but it took a risky route because there weren't many alternatives to keep its phone OS dream alive. Microsoft will never truly give up on Windows Phone, but it's a dream that has largely failed. Microsoft is now facing the reality that people don't need Windows on their phones. That's a reality that has always scared the software giant, and it's now finally time for the company to embrace it, move on, and make great software for iOS and Android devices. Microsoft has already started doing that, and if it continues then maybe its mobile mess won't seem so messy after all.