Microsoft and the duo user Part I: Microsoft is building a "phone" for consumers

As Android and iPhone fans have eagerly indulged in yearly upgrades to finely crafted, powerful, broadly distributed, high-end smartphones many Windows phone fans have observed from the sidelines. Some have watched with patience, envy, and even anger as Android phone and iPhone users have had their pick of new devices — sometimes even satisfying their lust by replacing a perfectly fine year-old device that didn't need replacing.

Conversely, the last first-party high-end smartphones released to Windows phone "consumers", or the fans as the company's retrenchment strategy frames the phone's target demographic, were the expensive and not widely distributed Lumia's 950 and 950XL. Moreover, with no marketing (understandably) to the masses and what we are currently observing to be an undeniable effort to reach the business sector, Microsoft is seemingly enamored with the enterprise. So if Redmond really is targeting consumers, why does their business look like, well, all business?

Getting their business straight

Let's first revisit what looks to be the decline of Microsoft's consumer-focused mobile efforts. The limited distribution of the Windows fan-focused Lumia 950 didn't get a good response from consumers, nor did the "immature" OS powering the devices. It is probably an understatement to say that Windows phone enthusiasts, industry watchers and Microsoft themselves have endured a roller coaster ride of emotional ups and downs as Redmond's mobile platform has struggled for relevance.

Moreover, after several waves of layoffs, Microsoft has virtually shed all of the valuable human capital of what seemed to be a perpetually unprofitable investment in the Nokia mobile phone division purchase. This reduction in its mobile division has been compounded by withdrawals from emerging markets like India and Brazil (markets seen as the next billion).

It is worth noting that emerging markets as a target for its first-party smartphones had been previously acknowledged as a strategic investment for the company. Moreover, the sale of the company's feature phone division to Foxconn, also a product of the ill-fated Nokia purchase, provoked further doubts regarding the company's commitment to phone consumers.

If that were not enough, the release of the next high-end first-party "phone", or "Surface Phone" as it is popularly called, is not expected until around the first quarter of 2017. In addition to the months-long wait for the device the Surface Phone, like the incredible HP Elite x3, will be targeted at business customers.

The combination of all of these factors may indeed make it appear as if Microsoft has left Windows phone consumers flapping in the wind as the company has retreated to the familiar and secure bastion of the enterprise. In a superficial sense, this is true. But as is usually the case, the picture is a bit more complicated than what it appears to be on the surface.

End of the low-end

Microsoft's mobile strategy is in a state of retrenchment. This retrenchment is in fact a strategic move by the company. It allows them to continue to develop a unified platform across form factors while keeping the most vulnerable component of that platform, phone, safe from the devouring jaws of dominant smartphone rivals.

This retreat, as it were, positions the company to hone the cohesion within, and enhance the breadth and depth of the Windows ecosystem. It also allowed the firm to target three specific markets while excluding the company from the competitive rigors it would continue to face as a major underdog in the general consumer space. Nadella summed it up this way in a July 8, 2015, memo:

"I am committed to our first-party devices including phones. However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family....We plan to narrow our focus to three customer segments where we can make unique contributions and… differentiate through the combination of our hardware and software. We'll bring business customers the best management, security and productivity experiences they need; value phone buyers the communications services they want; and Windows fans the flagship devices they'll love.

It is interesting to note that a mere two months after Nadella's statement, Microsoft's Chief Marketing Officer and Senior Leadership Team member, Chris Capossela, omitted the value segment from the listed targeted demographics in his statements about Microsoft's retrenchment strategy. On September 8th, 2015 Capossela had this to say:

Yeah, we've definitely retrenched...we've massively retrenched...For us in the next couple of years we're really going to focus on building phones that obviously showcase Windows 10, but we're going to try to build phones for two audiences. We're going to build phones for our Windows fans.We're also going to build phones for businesses. We know business customers want a very, very secure phone that's incredibly good at calendar management, at e-mail, at productivity, and Skype for Business, et cetera.And so we think those two segments are segments we can focus on and build a much, much better solution and much better business than we have today.

Focusing mobile like a boss

I believe Capossela's references to those two targets (Windows fans and enterprise) was indeed reflective of a decision the company had made by Q3 2015, to forego targeting the value segment, a decision which wasn't officially communicated until several months later. I believe this point was further reinforced by Panos Panay one month after Capossela's statements during Microsoft's October 6, 2015 Windows 10 Devices event.

Panay tacked a 68 second, lackluster introduction of the low-end Lumia 550 onto the tail end of an 18 minute and 46-second push of the Lumia's 950 and 950 XL and Windows Mobile's key differentiator: Continuum.

By the end of 2015 Microsoft had already shifted to targeting only the enterprise and Windows fans.

Yes, even after Roper presented Lumia and Continuum "like a boss", that Microsoft's making way for OEM partners by pulling back from the low-end was evident. This withdrawal, of course, left Microsoft with the identified target audiences of the enterprise and "Windows fans".

Those of you watching closely may have noticed that those audiences are the same targets of Microsoft's category-creating, industry-inspiring Surface personal and professional line of personal computers.

The surfacing of the Surface Phone strategy

Based upon Nadella's and Capossela's 2015 statements, it is clear that Microsoft's focus on the enterprise with a commitment to security, management and productivity is something that they had been firmly devoted to long before this year's recent layoffs and increased focus. As a matter of fact Terry Myerson's recent email which officially communicated a more focused phone hardware strategy reiterated that point:

Yet our phone success has been limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same. Thus, we need to be more focused in our phone hardware efforts… I used the words "be more focused" above. This, in fact, describes what we are doing (we're scaling back, but we're not out!)

This more focused phone hardware effort is borne out primarily in the companies withdrawal of first-party Lumias from emerging markets like India and Brazil, which is a reflection of the firm's departure from the low-end.

Microsoft's "more focused" phone hardware efforts are reflected in their withdrawal from the low-end.

Of course, Microsoft's mobile partners, as we've talked about in the past are part of Redmond's strategy to bring a range of Windows 10 Mobile phones to regions and price points where first-party devices are not offered.

Rather than a major shift in strategy, this pulling out of the low-end and trusting OEMs to fill the gap is actually Microsoft bringing it's phone strategy in line with its Surface strategy as Nadella communicated was the goal back in 2014{.nofollow}:

"We will do everything we have to do to make sure we're making progress on phones...We are committed...Our first-party devices will light up digital work and life. Surface Pro 3 is a great example – it is the world's best productivity tablet… we will build first-party hardware to stimulate more demand for the entire Windows ecosystem… we will responsibly make the market for Windows Phone..."

This strategy is of course in line with Terry's deliberate wording "thus we need to be more focused in our phone hardware efforts".

Microsoft leaving the low-end brings phones in line with the Surface strategy per Nadella's stated goal in 2014.

The Surface, as a hardware component of Microsoft's personal computing strategy, has limited but intentionally focused reach in comparison to what inspired OEM partners have achieved with 2-in-1s in the industry. Microsoft's "phone" strategy, will clearly follow the same pattern.

To further this point, it is important to note that nowhere does Microsoft intimate that their phone software efforts will be more focused. As a matter of fact, Windows 10 is for everyone.

Microsoft is targeting Windows fans not Windows phone fans

It is worth noting that Microsoft is not betting the success of its mobile efforts on a single, breakout flagship hardware device, but rather the unified weight of the Windows ecosystem and the combined force of a cohesive family of Windows 10 first-party and OEM devices.

Believe it or not consumers are part of Microsoft's strategy for mobile phones.

This vast and cohesive ecosystem is being wielded by Redmond as a synergistic unified front of services and first- and third-party hardware devices that serve both enterprise and consumers. Believe it or not consumers are part of Microsoft's strategy for mobile phones.

As a matter of fact Nadella's and Caposella's exact words regarding Microsoft's target demographic for Windows 10 phones was not "Windows phone fans", but "Windows fans". Capossela expounded on that target audience this way:

We're going to build phones for our Windows fans. If you love Windows 10, if you love your Windows 10 tablet, or Surface, or laptop, we want to have a beautiful phone for you, something you'd be incredibly proud of that's going to have the same experience across your devices, the same apps will run on the phone as run on your Windows 10 laptop or tablet. And it's going to feel incredibly natural. And we really think the Windows fans really want a wonderful Windows Phone that will be a premium flagship phone.

Nadella summed up the phones target audience like this:

We'll bring…Windows fans the flagship devices they'll love."

One thing is made clear by these statements from Microsoft's CEO and marketing head: Redmond's duo user investments in the more popular aspects of the Windows 10 ecosystem will be strategically leveraged to target enterprise and consumer users of Windows 10 devices with a phone that fits seamlessly within the ecosystem that they use and love. This strategy fits in line with the notoriously misinterpreted words Terry Myerson spoke earlier this year:

"We're fully committed to that 4-inch screen, there will be a time for it to be our focus, but right now it's part of the family, but it's not the core of where I hope to generate developer interest [or encourage developers to invest in Windows] over the next year…There's no lack of recognition to realize how important that form factor is, but for Microsoft with Windows and for our platform it's the wrong place for us to lead.""We're going to do some cool things with phones, but this year phones are an important part of our family but not the tip of the spear."

When we look at these statements in conjunction with Redmond's expressed retrenched focus on business users and Windows fans we can see a path being forged to phone consumers from the broader Windows ecosystem and enterprise targets of Windows phones.

Microsoft's personal computing efforts have always transcended the boundaries between the enterprise and personal user environments. Popular tools such as Windows and Office, as well as hardware such as PC's and now Surface-inspired 2-in-1s have easily served a user at work and at home equally well. Microsoft's phone strategy is no different as seen in this excerpt from an email Microsoft sent to partners in May of this year:

We'll continue to adapt Windows 10 for small screens. We'll continue to invest in key areas – security, management, and Continuum capabilities – that we know are important to commercial accounts and to consumers who want greater productivity. And we'll help drive demand for Lumia devices.

More than one way to skin a cat, or reach the consumer

Due to a failure to garner meaningful market share via the traditional strategy of a head-to-head battle with entrenched rivals, Microsoft's phone strategy required an adjustment. These shifts were communicated by Nadella and began back in 2014{.nofollow}.

Microsoft is targeting the duo user in all of us.

Via the strength of a duo user strategy, a core business philosophy that permeates the firm's range of software, services and devices Microsoft has a valid and viable, though very difficult path, back to the phone consumer.

In essence, Microsoft is strategically forging a methodic, indirect path back to the phone consumer by targeting the duo user in all of us. With a Continuum powered category-defining Windows device that will likely be positioned more like a Windows PC with telephony rather than a phone, Microsoft aims to showcase Windows 10 on the small screen and target professional and personal productivity.

Will this "differentiation through the combination of our hardware and software", as Nadella put it, work? It will be a challenging, slow and fragile trek through the enterprise, the appeal of the broader Windows 10 ecosystem and partnerships rather than a strictly direct route to the consumer. Still, I'm optimistic. But time will tell.

While we wait, what are your thoughts? Sound off in comments and on Twitter, and meet us back here in part two as we delve deeper into Microsoft's duo-user strategy!

Jason Ward

Jason L Ward is a columnist at Windows Central. He provides unique big picture analysis of the complex world of Microsoft. Jason takes the small clues and gives you an insightful big picture perspective through storytelling that you won't find *anywhere* else. Seriously, this dude thinks outside the box. Follow him on Twitter at @JLTechWord. He's doing the "write" thing!