Microsoft CEO Satya Nadella has spoken to journalist Mary Jo Foley about the future of Windows Phone and Windows Mobile. What you read there does, I suspect, reflect heated discussions on Microsoft’s board about Windows strategy. I am guessing of course; but given the departure of Stephen Elop in June, and the cuts announced by Nadella last week, including the departure of 7,800 employees mostly from the phone business and the write-off of the value of the assets acquired from Nokia, it is likely that Elop disagreed with the new strategy.

So what is the future of Windows Phone? I suggest you read the transcript carefully because it is not clear, deliberately so. Nadella says:

We will do everything we have to do to make sure we’re making progress on phones. We have them. Even today Terry (Myerson, the head of Windows and Devices) reinforced, again, yes, we will have premium Lumias coming this year.

When then was the meaning of last week’s announcement? Mainly, it seems to me, that having acquired a phone business from Nokia, Microsoft is now dismantling it and drawing back from the phone business. Nadella tells Foley she is right to conclude that “Your phones are going to be more of like showcase devices for what Windows mobile can look like on a phone.”

He also makes a couple of other remarks. Curiously, he says that “If no OEM stands up to build Windows devices we’ll build them. There will be Lumia devices.” What if we turn that round. Let’s say OEMs do continue to build Windows phones. You get the impression that in that case, Nadella would be happy to scrap Lumia. But what constitutes building a Windows Phone? The lacklustre efforts that appeared at the launch of Windows Phone 7, slightly adapted Android phones? Or beautiful Nokia devices like the 1020 with a 40MP camera, or the elegantly crafted Lumia 830?

Nadella views Windows Mobile through a PC lens. In fact, he says that the best thing about Windows Phone is its ability to be a PC:

So when I think about our Windows Phone, I want it to stand for something like Continuum. When I say, wow, that’s an interesting approach where you can have a phone and that same phone, because of our universal platform with Continuum, and can, in fact, be a desktop.

Like most things in IT, this has been tried before. The Asus Padfone has been around for several years in various guises, the idea being that you dock your phone into the back of a tablet to give it a big screen.

It is a great gimmick but the Padfone has had limited success; most people, it seems, use phones as phones, tablets as tablets, PCs as PCs. That could change, but I doubt Continuum will rescue Windows Phone.

This also betrays a PC-centric view of Windows Phone. Hey, it looks like a phone, but it has the brains of a PC. I can certainly see uses for this kind of device, but nobody goes into a phone shop and says, “I am looking for a phone that works like my PC”.

I recapped the history of Windows Phone here. Many things need to come together to make a successful phone, including not only the OS but the hardware design, the apps, the marketing, the sales channel and the operator partnerships. Microsoft proved incapable of doing this until Nokia adopted the platform.

There are now hints that Microsoft will outsource future Lumia (if it makes them) to OEMs to build. Here is what Nadella says:

I want people to evaluate us on the phones that we produce, but not the inside baseball — what are we doing to produce — because that should not be relevant to our broad consumers.

Don’t look too closely, Nadella seems to be saying, because Microsoft might not be as closely involved in the phones it makes as it first appears.

Financially, of course, the cost involved in paying the likes of Asus or Acer to make some phones running Windows is tiny compared to the cost of operating a phone business. The results though will not be the same at all.

All about the apps

The big puzzle here is about the apps. The single biggest factor holding back Windows Phone has been lack of apps, or the inferior quality of available apps. Thus, the Nokia acquisition combined with Windows 10 universal apps seemed to based on the idea that by providing a single developer platform across Windows and Phone, Microsoft could fix the app problem and make a success of the phone by combining it with Nokia’s hardware and design expertise.

Nadella now seems to be removing the Nokia element before the app strategy has had a chance to succeed, though he re-iterates the notion of Windows 10 being beneficial to the phone:

All of this comes down to how are you going to get developers to come to Windows. If you come to Windows, you are going to be on the phone, too. Even if you want to come to Windows because of HoloLens, you want to come to it because of Xbox, you want to come to the desktop, all those get you to the phone.

Note that in reality it is not that simple. Universal Apps will run on the phone and PC, but the user interface may require considerable effort before it makes sense on both form factors. There is still a cost, for developers, in supporting both phone and PC. In fact, there is a cost even in cases where the code runs untouched, just because of the additional testing and support required.

In practice though, Nadella does not think Windows Phone makes much difference to developers:

Universal Windows apps are going to be written because you want to have those apps used on the desktop. The reason why anybody would want to write universal apps is not because of our three percent share in phones.

This shows, I think, the extent to which Nadella has given up on Windows Phone. This too is where Nadella’s leadership has diverged from that of his predecessor, Steve Ballmer. Ballmer acquired Nokia because he believed that Microsoft needed to continue bashing away at Windows Phone until it worked, because the PC is in decline and mobile is the future. Nadella has abandoned that plan because he does not think Windows Phone can ever succeed, and thinks instead that Microsoft can prosper as a device-neutral company:

We want to be in every device, not only have our application endpoints on every device. I want the identity management. It’s not MSA [Microsoft Account] alone, it’s Azure Active Directory. It is managing those devices, securing those devices in terms of data protection. These are all core capabilities that we have. … one big mistake we made in our past was to think of the PC as the hub for everything for all time to come. And today, of course, the high volume device is the six-inch phone. I acknowledge that. But to think that that’s what the future is for all time to come would be to make the same mistake we made in the past without even having the share position of the past. So that would be madness.

Microsoft then is also hoping that some future thing comes up which makes its Windows Phone failure unimportant.

I am not so sure. I think Nadella should have given the Nokia acquisition a chance to work, and the destruction of value from this acquisition saddens me. The other side of this argument is that it is better to kill something that is not working earlier rather than later. Whichever is right, Microsoft has taken the most expensive route possible, making the Nokia acquisition and then changing course.