The Smartest Thing a Tech Company Can Do? Don't Make a Phone

Microsoft's days as a smartphone company are coming to an end. And that's a really smart move by Microsoft.
Microsoft Unveils New Devices Powered By Windows 10
The Microsoft Lumia 950 sits on display at a media event for new Microsoft products on October 6, 2015.Andrew Burton/Getty Images

Microsoft's days as a smartphone company are coming to an end. And that's a really smart move by Microsoft.

Last week, the company said it would sell the mobile phone business it acquired from Nokia in 2014 to manufacturing giant Foxconn. Now Microsoft is laying off 1,850 as it shrinks its mobile hardware division further.

Microsoft will still develop the Windows 10 Mobile operating system and hints that it will still sell phones to corporate customers. So it's not giving up on smartphones entirely. But it might as well be. The company was never able to get much of a foothold in the market—so much so that last year Microsoft took a $7.5 billion write-down on its Nokia acquisition. (It also laid off so many people in Nokia's home country of Finland that the government applied for economic assistance from the European Union.)

And yet, in giving up on smartphones, Microsoft is arguably a stronger mobile company than ever. But instead of pouring money into making phones, the company has figured out savvy ways to put more of its products on other companies' phones and mobile operating systems than ever. While it's obviously terrible for all the people who have been left jobless, it turns out that at the height of the mobile era the smartest thing most tech companies can do is not make phones.

Fire-able Offense

Maybe the idea started in 2011 when Google acquired Motorola Mobile. Or maybe it was earlier, when Google launched its line of Nexus-brand phones and tablets in 2010. Or maybe it started in 2007 when Apple announced the iPhone. After all, Apple's strategy of controlling every layer of the mobile experience, from the hardware to the operating system to the app store, seemed to inspire the notion that success in the mobile market meant building your own phone. Regardless of where it began, many of the biggest names in the tech industry decided in recent years that the best thing they could do was plunge into the phone-making business.

To wit: Facebook partnered with HTC in 2013 on the HTC First phone, which featured Facebook's custom Android interface Facebook Home. Microsoft's acquisition of Nokia Devices the next year brought the company's line of Windows Phone handsets in-house. Not to be left out, Amazon announced its Fire phone a few months later.

Meanwhile, if you didn't make your own phones, others thought it stood to reason that you should at least have your own mobile operating system. Mozilla, the makers of the popular Firefox browser, announced the Firefox OS, and Canonical announced a mobile version of its Linux-based operating system Ubuntu.

Needless to say, the results were rotten. Google sold Motorola to Lenovo in early 2014. The HTC First flopped, and Facebook quietly pulled Facebook Home from the Google Play Store. Earlier this year, Mozilla said it would try to repurpose Firefox OS as an Internet of Things operating system. Even Amazon CEO Jeff Bezos has been quite frank about the failure of the Fire phone.

"If you think that’s a big failure, we’re working on much bigger failures right now — and I am not kidding," he said in an interview with Washington Post executive editor Martin Baron last week. "Some of them are going to make the Fire Phone look like a tiny little blip."

On the Phone

Yet no one would accuse Amazon or Facebook of suddenly becoming less relevant just because their mobile phone ventures flopped. Facebook now controls three of the most widely used mobile apps in the world--Facebook Messenger, WhatsApp, and the standard Facebook app. Amazon is still an e-commerce and e-book giant; it also powers many of the apps used on smartphones every day through its wildly successful cloud services.

Today's most successful tech companies, excepting Apple and Google, have realized that the future lies not in controlling the underlying mobile platform but in being on everyone's phone, whether that phone runs Google's Android or Apple's iOS. Yes, those are the two most valuable tech companies of all, but the rivals closest behind have discovered more value in not trying to compete directly with the top two giants.

Facebook, for one, ultimately saw more value in owning WhatsApp, which was available on a mind-boggling array of different devices, than building its own mobile platform. Microsoft hasn't quite given up on Windows phones, but it's certainly headed in the same direction. When Satya Nadella took over from longtime CEO Steve Ballmer, he ditched his predecessor's “devices and services” tagline and rebranded Microsoft as a "productivity and platform company for the mobile-first and cloud-first world." That's a mouthful, but it gets at an idea that Microsoft isn't as interested in selling gadgets as it is in selling the tools that people use to get work done.

Under Nadella, Microsoft finally launched fully functional versions of Microsoft Office for iOS and Android. It snapped up well-designed mobile apps that already enjoyed cult followings on Android and the iPhone, such as Acompli (the basis of its much-praised iOS version of Outlook), Sunrise Calendar (now being integrated into Outlook), and the Wunderlist task manager. And it released acquired coding tools to make it easy for developers to create apps that run not just on Windows/a but every platform.

In short, Microsoft decided the best plan was not to make its own phones but to be on everybody's phones. Today it's the world's third-most valuable company, trailing only Apple and Google parent company Alphabet.

Not that tech giants aren't getting out of hardware entirely. Google sold Motorola but acquired Nest and still manages the Nexus line, among other hardware initiatives. Amazon still has the Echo, its Kindle e-readers,and its Dash buttons. Facebook has the Oculus Rift. Microsoft has the Xbox and its Surface tablets. But these are all ancillary products compared to the smartphone, still the hub of most people's digital lives.

In the meantime, makers of the latest generation of popular apps show little interest in hardware. There's not much talk of Snapchat phones, Pinterest headsets, or Tinder watches. They're not trying to create their own mobile operating systems to load with self-interested bloatware. Instead, they're just making apps that people just can't resist using, regardless of what type of phone or watch or tablet they happen to own.

This new generation of companies, in other words, realizes the smartphone wars are over. The winners are clear. Microsoft knows it, too. Now it's showing it understands where the real promise lies by deciding to move on.