As I write this, I’m heading to New York City on Amtrak’s Acela Express to attend the Microsoft Windows 10 Devices event. I do so with a sense of both excitement and dread because this event is a watershed moment for Microsoft and its mobile devices. There’s no kind way to say it: If this generation of first-party devices doesn’t succeed in the market, Microsoft’s role in the industry will forever change.
Granted, Microsoft’s role has already changed. As Benedict Evans so ably pointed out on Twitter recently, Microsoft’s relevance in the personal computing market—which commingles smart phones, tablets, and PCs of all kinds—has shrunk from nearly 100 percent in June 2007 to roughly 15 percent today. What happened in June 2007, you ask? Right. The first Apple iPhone was released.
The iPhone was its own watershed moment, of course. And not just for Apple, but for the industry personal computing industry. What we’ve all collectively discovered is that many people—most people—can get real work done on highly mobile devices that are simpler than traditional PCs. And this, combined with the resulting shift from traditionally packaged software to online services and mobile apps, has resulted in Microsoft’s slide over the past several years.
“Relevance” is of course a squishy term. But I’ve been arguing for years that Microsoft’s dominance of the PC industry hasn’t transferred to any success at all in mobile computing devices, and that the result is inevitable: Windows will be the smallest of the three big personal computing platforms, behind Android and iOS. It’s only a matter of time.
You can see this shift in market share numbers. While the PC market has nosedived since 2012—when Windows 8 was inauspiciously launched at perhaps the worst possible time—the market for smart phones has exploded. And while PCs will never see “the next billion users,” smart phone makers are starting to talk about “the next five billion users.”
(The market for tablets has slowed and even fallen recently, but as the newest of the personal computing markets, we’re still struggling the understand the upgrade cycle—which is closer to that of PCs than smart phones—and the upper limits of the market size.)
Numbers don’t lie. Device makers sold over 340 million smart phones in Q2 2015 alone,according to IDC, a year-over-year jump of 13 percent. But hardware makers will sell well under 300 million PCs in all of 2015, and just 66 million units in that same quarter, when the PC market experienced yet another drop, this time of 12 percent YOY. In fact, if it wasn’t for Chromebooks, another issue facing Microsoft’s dominance, PC sales would have fallen even harder.
Tablet sales were 44.7 million units in Q2 2015, IDC says. So PCs accounted for under 15 percent of the entire market for personal computing devices at mid-year. Exactly the figure indicated by Mr. Evans’ chart. Which means he’s being generous since Microsoft doesn’t own 100 percent of the PC market.
Which brings us to today’s event and the impetus for Microsoft’s mobile devices. As you may know, Microsoft has been pushing a “mobile first, cloud first” strategy under CEO Satya Nadella which involves, among other things, ensuring that the software giant’s best and newest apps show up on dominant mobile platforms like Android and iOS. But it has also developed what many describe as the final version of Windows, Windows 10, which is designed for PCs, but also phones, tablets, the Xbox, and other devices.
The idea behind Windows 10 is solid, and if the plan works out—with developers and customers embracing the platform on multiple device types, and not just PCs—then Microsoft could at least continue as a platform force of sorts. The bad news? Even if it meets its goal of Windows 10 on over one billion devices within a few years, it’s still in third place behind Android and iOS.
To help meet this goal, Microsoft makes its own hardware while licensing Windows 10 to others, a strange “coopetition” model in which it is competing with its own partners.
Microsoft makes first-party Lumia smart phones out of necessity: Nokia was reeling towards insolvency and would have taken Windows Phone down with it had Microsoft not bailed out the firm, taking a massive $7.6 billion write-down in the process. But Microsoft’s plans for Windows phones are still greatly diminished. Today, the firm only plans to make a small mark in niche markets and basically hope for the best.
Its Surface tablets are more controversial, and Microsoft’s decision to make first-party PCs led to all of its biggest PC maker partners shipping Chromebook designs since then. Microsoft has mostly patched these relationships since then, and many PC makers are now selling what can only be described as Surface knock-offs of their own. But Surface is now arguably somewhat successful, with the Surface Pro 3 in particular, and Surface 3, seeing some traction with customers. (These devices deliver only a tiny fraction of, say, iPad sales, however.)
On the wearables/Internet of Things (IoT) front, Microsoft sort of sells a Microsoft Band fitness tracker today, but distribution is limited and the device itself, while powerful, is bulky and unattractive. Microsoft hasn’t made a dent in this market at all.
Facing the future, Microsoft has mostly failed at mobile hardware, with the possible exception of Surface. And the successors to these products are the very devices Microsoft will be announcing today.
There will be knee-jerk reactions, both positive and negative. But talk is just that, talk. The real impact of these new products will play out in the marketplace over the next year, as we gain an understanding of Microsoft’s evolving role in our industry. The question is only whether the software giant can reverse the trends of the past year. Or not. We will see.
In the meantime, I’m excited to see what Microsoft will offer. This is a huge company full of smart people, and it now has the leadership it needs to make the right decisions.
It’s going be an interesting day either way.