When he became CEO of Microsoft, Satya Nadella proclaimed he would turn Microsoft into a "mobile-first, cloud-first" company. Redmond's most recent financial results show he's doing brilliantly at making Microsoft into a cloud powerhouse, which might solve its more obvious problems in mobile.
Microsoft's shares shot up yesterday as the company revealed its cloud services group, which includes Windows Server and its Azure datacenter services, grew 13 percent year over year when corrected for currency fluctuations. Office 365 revenue grew by 70 percent. Xbox Live monthly active users grew 28 percent. Minecraft makes money. Dynamics CRM is booming. Even Bing is profitable now.
What do all of these things have in common? They're primarily Internet-based services, and more and more, they're cross-platform. Other than Xbox Live, they don't rely on specific consumer hardware purchase choices in an increasingly mobile-centric, competitive consumer world.
Microsoft has plenty of software and service presence on mobile platforms. Major mobile sites are served by Azure. The company's mobile Office suite gets glowing reviews. Everyone can Bing.
But everything at Microsoft that involves consumers buying Windows-powered hardware is down. Even with Windows 10 launching, Microsoft's revenues selling Windows on new PCs declined by 6 percent ("performing better than the overall PC market," the company said, which is depressing.) Xbox sales were down. And Microsoft's phone revenue plummeted by 54 percent, "reflecting updated strategy."
Apparently, Microsoft's "updated strategy" is to sell hardly any phones. I've written before about how Microsoft appears to be shooting itself in the foot with the Lumia 950 and 950XL, with devices chief Panos Panay appearing less than pumped about the new phones as he presumably prepares his notional Surface Phone for somewhere in the vague future.
Maybe Microsoft Doesn't Need Phones
I got some flack on Twitter for implying that Windows head Joe Belfiore's upcoming nine-month vacation is in some way tied to the five years of futility he's suffered leading first Windows Phone 7, then WP8, and now Windows 10 Mobile. Let us note than in 2012, IDC said Windows Phone would have a 19.2 pecent market share by 2016. It currently languishes at 2.6 percent.
Pointing out that he's in charge of all of Windows 10, even the successful parts, Belfiore retorted that "I just put the Start menu back, got Cortana on the PC, helped ship Continuum so devices flex ... Not feeling futile AT ALL!?"
Fair enough. But nothing can hide that Microsoft's mobile hardware strategy is doing abysmally, and the Lumia 950 and 950XL—one of which will only be sold by one carrier in the U.S., and the other one of which will have no carrier support at all—will do nothing to change this. No matter how good these phones are, Microsoft has signaled that the phones will hardly be marketed, and will hardly be sold.
Windows 10 hardware will probably do much better, just as Windows 10 is doing better. Great reviews for the Surface Pro 4 and Surface Book will have Microsoft's premium products flying off the shelves and potentially drive a halo effect for other, less expensive Windows laptops and tablets.
Microsoft's floundering Windows Phone business has been boosted for years by its more successful enterprise businesses. It doesn't look like that strategy is going to change any time soon. Satya Nadella's vision of Microsoft as a leader in cloud services, and in switching productivity to the cloud, is a winner. He's shown that even in a "mobile-first" era, the company doesn't need a successful hardware business to be a success.