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Microsoft CEO Satya Nadella and former Nokia CEO Stephen Elop when the deal was completed in 2014. (Microsoft File Photo)

It’s hard to believe that it was only three years ago today that Microsoft officially completed its purchase of Nokia’s devices and services business for more than $7 billion. The deal was supposed to propel Microsoft into the fast lane of the smartphone business, but instead Microsoft’s share of the US smartphone operating system market has fallen from 3.8 percent in April of 2014 to 1.7 percent today, according to the latest figures from the Kantar Worldpanel Comtech research group.

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New worldwide market share numbers from International Data Corporation (IDC) are even more stark. IDC’s Worldwide Quarterly Mobile Phone Tracker forecast last month estimated that Microsoft’s Windows Phone market share will be 0.1 percent worldwide for 2017. The research firm suggested that the decline in market share is partially due to the lack of original equipment manufacturers signed on to make phones using Microsoft’s Windows 10 Mobile platform.

“It is unclear at this time if Microsoft has a clear plan to persuade OEMs to get back on board with the platform, or if it plans to release a device itself like it did with Surface devices,” said the IDC report. “Until this production question is addressed, IDC doesn’t see a clear path to turning around the platform.”

Microsoft’s acquisition of Nokia was announced under then-Microsoft CEO Steve Ballmer’s tenure, and completed under current CEO Satya Nadella, who later narrowed the company’s smartphone focus. Since completing the Nokia acquisition, the company has shed many thousands of jobs — many related to consolidation and an $8 billion restructuring a year after the Nokia deal.

In a statement to Geekwire this week, Microsoft reiterated its commitment to mobile devices. “We will continue to develop Windows 10 Mobile and support Lumia phones such as the Lumia 650, Lumia 950, and Lumia 950 XL, and phones from OEM partners like Acer, Alcatel, HP, Trinity and VAIO,” said Microsoft in its statement.

Answering a shareholder’s question last fall, Nadella said Microsoft is “not stepping away or back from our focus on our mobile devices.” He explained, “What we are going to do is focus that effort on places where we have differentiation. If you take Windows Phone, where we are differentiated on Windows Phone is on manageability. It’s security, it’s Continuum capability — that is, the ability to have a phone that can act like a PC. So we’re going to double-down on those points of differentiation.”

A difficult challenge

A Nokia Lumia 1020 phone with battery-charging, camera-enhancing case. (GeekWire Photo / Geof Wheelwright)

Microsoft was never going to have any easy time making a success of its Nokia deal, said Ranjit Atwal, research director at Gartner, Inc.. “Microsoft never really had any share when it closed,” he said in an interview. “The phone market continued to be dominated by iOS at the high end and Android players are able to differentiate themselves better in the mid-tier.”

The other major issue — and the one that dominated much of the coverage of Microsoft’s mobile phone initiatives over the last three years — was the lack of great apps that would turn Windows phones from interesting, well-designed curiosities into must-have devices. This turned into a major stumbling block, said William Stofega, IDC program director for mobile phones.

“The quality of the apps in the store was inferior – not every one of them – but a lot compared to Apple or Android,” Stofega said. “So you would start to see a lot of companies moving over to Android.” Since many app developers only had limited resources to develop their often very cheaply-priced products, they typically limited their work to “the two platforms that paid” in terms of sales volume, he said.

Gartner’s Atwal concurred. “The issue was always developers and apps,” he said. “They never gained any traction and needed to invest more in that area to make it happen.”

Microsoft has, however, invested in making its flagship apps – such as Skype and particularly Microsoft Office – available on competitor mobile platforms. But IDC’s William Stofega says that he doesn’t think that move harmed sales of Windows mobile phones and was instead just a recognition of market reality. “It wasn’t doing much for sales (of Office), just keeping it in the Windows community,” he said.

Where next?

The “Continuum” capability of Windows 10 Mobile phones allows the devices to double as PCs as a way to make them more useful — an example of Microsoft’s ability to leverage its traditional strength in PCs for mobile features. But Gartner analyst Ranjit Atwal, for one, does not appear convinced that this will make a huge difference to customers.

“Continuum is limited to PCs converting to tablets in the 2-1 segment,” he said. “With regards to phones, it has not caught on.”

He also dismisses the chances of success for the “Surface Phone” that has often been speculated about by commentators but never confirmed by Microsoft. “(It would) only be to keep mobile alive within Microsoft,” he said, suggesting that Microsoft should instead focus on the needs of its loyal and well-established business and enterprise customers – particularly on securing mobile devices. “Where there may be possibilities is around security on phones,” Atwal added. “More dedicated security at the operating system and hardware level would be appealing to users.”

Ultimately, it’s up to Microsoft to answer this question. Nadella was pragmatic in his statements last fall.

“We will keep looking at different forms and different functions that we can bring to mobile devices, while also supporting our software across a variety of devices,” the Microsoft CEO said at the time. “So that’s the approach you will see us take. We are not stepping away from supporting our Windows Phone users. But at the same time we are recognizing that there are other platforms in mobile that have higher share, and we want to make sure that our software is available to them.”

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