Microsoft acquires Nokia’s device business at a time when Windows Phone is starting to show some progress in the market, largely because of some eye-catching device launches like the Nokia Lumia 1020 with its 41-megapixel camera. Microsoft is clearly hoping that flashy hardware will drive software uptake, but it has huge challenges ahead.
The company has said the acquisition should boost its revenues by 10% in 2014 though it will not deliver profits until 2016, when net income generated by the deal is expected to offset the costs of acquisition and integration.
There is a long road to that point. It is taking on a hardware business which, although it has been in decline, is still a major management task in terms of logistics and supply chain. It has not just brought the main Windows Phone products inhouse ‘ making it simpler, if it has any sense, to converge that OS with Windows RT to underpin a unified ARM-based Surface line-up ‘ but has also taken on the unfamiliar Asha smart featurephone platform. It would be unwise to ditch this, as it reaches a price base that Windows cannot, and one that appeals to a rapidly growing emerging economy user community. However, it is another new potential distraction from the overall business of improving on Windows’ desperate track record so far in becoming a non-PC platform.
Success in that respect may perhaps be helped by control of the hardware, though only Xbox gives any reason to suppose this is realistic for Microsoft. The Redmond giant sounded more convincing about its non-PC future when it temporarily placed Xbox at the heart of its mobile and media strategy a few years ago, but it then pulled back and started down the Surface road, as well as splitting client-side Windows in three. If all the Windows variants, and Xbox, are to be unified, at least in terms of a common user experience layer, the key will lie in cross-platform tools ‘ already showing signs of progress ‘ and in key web services. Here, Bing is critical, and some of the underplayed aspects of Microsoft’s Nokia alliance may come into play. The original tie-up, when the handset maker agreed to adopt Windows Phone, also included efforts to converge their respective mobile and web software platforms, and while that never bore the fruit it could have done, Microsoft does have the seeds of a new-generation web offering centered around Nokia Here (which it has licensed) and its own Bing.
Its opportunity, tough as it will be to grasp it, lies in leapfrogging Apple, Google and Samsung in some critical areas of the web experience, especially as users move towards greater reliance on cloud services and streaming rather than native capabilities, and as new approaches to search emerge, driven by voice and gesture rather than fingertips. This is why recent reports that Microsoft might sell off the Bing unit must be false ‘ or if they are not, they truly would show a company gone mad, capable of buying the devices to support a web experience, and then selling off some of the key software to go with it.
Microsoft will be able to tap into the smarts of Here (though not exclusively) and, despite the cynicism around Bing, recent presentations indicate it is thinking very seriously about how to evolve that to enhance its platform. For instance, distinguished technical engineer James Whittaker spoke at the Business Insider Ignition conference in New York last week about the knowledge and artificial intelligence engines Microsoft is developing, which could support a new breed of search just as Google’s similar effort is doing for Google Now (and Siri for Apple). The real world applications of Siri and Now may be modest so far, but they highlight the way that search, the basis of so many internet revenue streams, is being transformed by rich, context-aware response and new interactions. Microsoft’s job is to grasp the leadership in this critical area and so redefine its user experience.
Whittaker talked about some increasingly common themes, including full integration of the web with apps (which Google has started to address with its in-app searching in Android KitKat); the convergence of search and browsing; sophisticated AI and machine learning to support improved search; and full context awareness for apps. “We have knowledge from decades of searching’, but ‘certain things are still the task of a browser or the task of a search engine,’ he told attendees, adding: “Why are apps a noun? Why are apps something we have to possess? Why don’t apps and the web work together to help users perform research?’
Just as Google’s in-app searching is a step down this road, so is Microsoft’s plan to integrate Bing ‘smart search’ into Windows 8.1. However, the company’s technology ‘evangelists’, including Whittaker (who also worked at Google for a while before returning to Redmond) are starting to look far beyond that, to what they actually call the ‘Bingification of apps’. Whittaker showed, as examples, some add-ins for Outlook which he developed with some interns from MIT, which allow users to see entity information like venues or nearby cafes within their emails, in the same way they currently see misspellings highlighted. Bing search supports entity cards, but they appear in the browser or search engine, not the app. The next step might be ‘super-apps’, which can intelligently understand the user’s intentions and trigger a range of activities (searching for a holiday might lead to the creation of a temporary marketplace, specific to that user and that search, where suppliers of flights, hotels and so on could negotiate and be compared, without the consumer having to open multiple sites). To achieve this uncanny intuition, the apps would be tapping into all kinds of sources to gain a sense of context and user intention ‘ these would include sensors on wearables.
That may be some years away, but some results of Microsoft’s Bing-centric R&D are already coming to the market. For instance, its deep learning models are powering natural language voice search on the new Xbox One console, a technology which could be extended to Windows and give Siri a run for its money.
In a corporate blog post, Stefan Weitz, senior director at Bing, wrote: ‘Over the past few years, we’ve focused on overcoming limitations of previous voice experiences. To achieve speed and accuracy improvements, we focused on an advanced approach called Deep Neural Networks (DNNs). DNN is a technology that is inspired by the functioning of neurons in the human brain. In a similar way, DNN technology can detect patterns akin to the way biological systems recognize patterns allowing us to better understand natural language. With Xbox One, you can search using natural phrases.’ He added: ‘With an arsenal of over 300,000 servers powering the back end of Xbox One, the system is learning and adapting every day so as the vast expanse of the digital entertainment and services continues to morph at record speeds, the experience will continue to get better.’
This is an instance of how Microsoft will incorporate search processes, and often the Bing engine itself, across its broader portfolio, harnessing its huge R&D resources in areas like machine learning. The web giants are increasingly looking at ways to leverage their vast amount of data to deliver search processes and results that really mirror human behavior ‘ that is seen in natural language search, real time language-to-language translation, image recognition for visual search, rich text analysis and so on.
Such breakthroughs will power new applications, many of them not for consumers at all but for more profitable verticals like medicine and energy ‘ and as such, they will be driven by the expansion of the internet of things with connectivity and sensors everywhere from formerly dumb gadgets to human bodies themselves. But while those markets evolve, Microsoft can tap into this kind of research to try to place itself, for the first time, in the vanguard in the mobile and web experience.
‘
‘ Nokia continues to enhance the software and services that go with Lumia, and so will provide Microsoft with more assets than just a revamped hardware range. The Finnish firm has recently ‘ wisely but belatedly ‘ stopped trying to be a Galaxy copycat and has instead placed heavy R&D and marketing focus on what it does really well, namely imaging/camera, maps and music.
It has often stumbled on the last of these, but has always seen it as strategic. Pre-Windows efforts like Comes With Music prefigured new music models which offered alternatives to iTunes, but they were poorly executed. Nokia has continued to enhance its service and, more importantly, the hardware to turn a phone into a full-blown media player. Its latest effort is MixRadio, a Pandora-style music streaming and personalized radio station offering, which will be available in 31 countries. The emphasis is on heavy personalization and, to reflect that, Nokia MixRadio now replaces Nokia Music as the overall brand for all music services on the Lumia, accompanied by a new logo and branding. There will also be a premium, paid-for option at $3.99 a month which will include unlimited downloads for offline use, unlimited skips, Lyric streaming and multi-device support.
Windows Phone makes small gains on iOS:
Windows Phone is making gradual but steady progress in building its market share, and actually broke double figures in Italy in the third quarter, according to Kantar WorldTech estimates ‘ on 13.7% of smartphone sales, the first market where the Microsoft OS has risen about 10% and beaten iOS.
Now a second set of figures, from Gartner, also offered some glimmers of light for Microsoft, as it prepares to acquire Nokia’s handset business and drive new momentum behind its mobile operating systems. In Q3, Windows Phone gained 3.6% global market share, up from 2.3% a year earlier, on shipments that rose 123% from 3.9m to 8.9m in the same period.
These are hardly stunning figures, especially when set against those for Android, whose share continued to grow to top 80%, suggesting that WP8’s modest gains are at the expense of BlackBerry and perhaps iOS, and from cannibalizing Nokia’s legacy Symbian base.
Gartner is positive about Microsoft’s decision to buy Nokia’s handset division, believing it will ‘unify effort and help drive appeal of Windows ecosystem’, as principal research analyst Anshul Gupta put it.
According to the Gartner calculations, Android’s smartphone share by unit shipments was up from 72.6% in Q312 to 81.9% in Q313, on volumes which rose by almost 65% year-on-year to 205m. iOS saw its share decline from 14.3% to 12.1% in the same period, and its shipments were up a modest 23% to 30.3m . Gartner believes part of the Apple problem arose from supply shortages rather than lack of demand.
Of course, these were all from one vendor, while Android sales are divided among an increasingly large number of suppliers, especially with the rise of localized vendors in China, India and Indonesia. Recent analyst reports from Gartner and IDC indicate that, while Samsung continues to grow its overall smartphone share and its volumes, its share of the Android segment has been squeezed by smaller players in emerging economies. The star of the quarter in vendor terms was Lenovo, which won the hotly fought third place in the rankings, at least by Gartner’s calculations, with shipments of 12.8m, amounting to 5.1% share and putting it ahead of LG, HTC, Motorola Mobility and fellow Chinese players Huawei and ZTE.
Windows Phone is, to some extent, a one-vendor platform too, though there are some sales by HTC, Huawei and others to add to Nokia’s. The OS’s growth put it in third place, overtaking BlackBerry, whose share plummeted further, from 5.2% to just 1.8%, on units that halved to 4.4m. Among the minor players, two legacy OSs ‘ Samsung’s bada, now converged into Tizen, and Nokia’s Symbian, accounted for 0.3% and 0.2% respectively, both recording precipitous declines ‘ from about 4.5m units apiece a year ago, to 633,000 for bada and 457,000 for Symbian.
Meanwhile, Nokia is reported to be working on two new smartphones which will run the next version of Windows Phone, release 8.1 or Blue. These will, if all goes to plan, be launched by Microsoft after the takeover takes place. After that, there is speculation that the software giant might converge WP8 with its other ARM-based OS, Windows RT, to create a unified platform for large- and small-screened mobile devices. Apparently the two Blue devices being developed at Nokia are codenamed with James Bond references, Goldfinger and Moneypenny.
In another study, Strategy Analytics found that the number of developers willing to support Windows Phone in the coming year has doubled, though the total is still only 32% looking to target it in 2014 (up from 16% questioned a year ago about their 2013 plans). Android scored 84% and iOS 68%, with the number one reason being the huge installed base that could be targeted. The third most popular platform was HTML5 with 43% expecting to support this in 2014, compared to 33% using it now. However, David MacQueen, executive director of apps research, commented: ‘One-third of those developers use HTML5 as a tool to develop for other platforms. Therefore, it seems that Windows Phone looks set to become the third ecosystem.’ Firefox is also gathering support and enjoyed the biggest percentage rise, trebling its supporters ‘ only 3% created an app for the immature platform this year, but 10% expect to do so in 2014 following the launch of actual handsets. Tizen was up from 2% to 5%, while BlackBerry clung on to fifth place and legacy Symbian and Bada were down below 2% each.