Microsoft Finally Gets That It Won’t Win the Smartphone War

MICROSOFT CEO Satya Nadella emailed staffers to update them on a series of executive changes at the company—changes that seem to have been a long time coming.

The announcement included a number of senior departures, as well as a reorganization of existing executives, but the most telling of these changes is, perhaps, the departure of Stephen Elop, Nokia’s ex-CEO. After Microsoft acquired Nokia’s handset business for more than $7 billion in 2013, Elop became head of Microsoft’s devices unit, a move that led to speculation he would shore up the company’s ailing effort to make its own smartphone—and possibly succeed Steve Ballmer as CEO. Neither of those things happened, and his exit from the company seems to be as strong a sign as any that Microsoft is—at least in spirit—seceding from a crowded smartphone market that has become increasingly difficult to penetrate.

This is not the first sign of these changes under Nadella. Last July, the CEO also issued a lengthy memo explaining that the company would be honing its focus, shifting from a “devices and services company” to one that prioritizes productivity and cloud computing. “At our core, Microsoft is the productivity and Platform Company for the mobile-first and cloud-first world,” Nadella wrote at the time. Days later, he announced that the company would be cutting 18,000 employees, the majority of which included members of the Nokia team.

And so, it’s not entirely surprising that, nearly a year later, Elop would also be saying his goodbyes. “Stephen and I have agreed that now is the right time for him to retire from Microsoft,” Nadella wrote in his typically stultified prose. “I regret the loss of leadership that this represents, and look forward to seeing where his next destination will be.”
Elop is not the only casualty of this new direction for Microsoft. Nadella also announced the departures of Kiril Tatarinov, head of Microsoft’s business solutions group; Eric Rudder, a 25-year Microsoft veteran who led its advanced technology and education initiatives; and Mark Penn, the advertising executive behind some of Microsoft’s most memorable—and questionable—ad campaigns.

In addition to these exits, Nadella is also shuffling existing staff, reorganizing the engineering team into three core groups: one that will focus on cloud and enterprise products, another that will concentrate on applications and services, and a third that will work on the Windows platform and devices, including Lumia phones, Surface tablets, Xbox, and Microsoft’s augmented reality device, HoloLens.
But while devices will continue to be part of Microsoft’s future, the CEO made it clear that they are, in part, a way to showcase the Windows platform, which is now so core to the company’s mission. As Nadella wrote, the Windows and devices team “brings together all the engineering capability required to drive breakthrough innovations that will propel the Windows ecosystem forward.”