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Is Microsoft Giving Up on Windows Phone?

By Daniel B. Kline - Apr 5, 2016 at 3:00PM

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The future of the struggling product line became clear at the company's Build developers' conference.

During its annual Build developer's conference, Microsoft (MSFT 3.20%) attempted to get attendees excited about a vast array of its products.

From Hololens to Windows 10, the company went through seemingly its entire product line during the event's keynote speech without mentioning what was once a cornerstone product: Windows Phone, the company's struggling attempt to compete with Apple's (AAPL 4.01%) iPhone and devices running Alphabet's (GOOG 2.15%) (GOOGL 2.37%) Android operating system.

Was that an oversight? Perhaps the company had big plans for its handset business that would be shared later during the multi-day event?

That does not seem to be the case, as remarks made by Windows boss Terry Myerson, who was one of the speakers during the keynote, made it clear that the company's phone is not a major focus in 2016.

What did he say?
After both Myerson and CEO Satya Nadella spoke without mentioning Windows Phone, The Verge reporter Tom Warren caught up with the Windows executive, and Myerson painted a somewhat bleak, but realistic picture for the once-promising line:

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 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.

Essentially, Myerson is saying that because the company has such a small share of the smartphone market, it won't be able to get developers to care about the platform. Instead, it wants to try to excite its developer base to work on more promising products with larger user bases.

"If you wanted to reach a lot of phone customers, Windows Phone isn't the way to do it," he told Warren. "If you want to reach a lot of Windows customers, then this is the largest install base of 9 to 30-inch screens. If you wanted to do new and exciting things, then the Xbox and HoloLens is the place to have a discussion."

Myerson spoke about a lot of things, but not Windows Phone during Build. Image source: Microsoft. 

It's an admission that the efforts to compete with Apple's iPhone and the various Android phones has failed. Myerson and Microsoft are acknowledging that phones are important, but they are clearly not willing to waste resources on them until the company has a way to win more customers.

How bad is it?
Despite the reset offered by the launch of Windows 10, Windows Phone had only 2.54% market share as of March, according to NetMarketShare. That's well below Android's nearly 61% market-leading share, and well below the 31.76% claimed by Apple. It's also virtually unchanged from the 2.57% where Windows Phone sat in March 2015.

What happens next?
Microsoft has already cut its lineup of Windows Phones and has generally stopped focusing on them in favor of pushing PCs, Office, Xbox, and tablets, including its growing-in-popularity Surface line. The company has not killed its phones, but Myerson's comments suggest the line has been put on life support.

That's bad news for fans of the devices (which are actually pretty good, especially for people already in the Windows ecosystem), but it's a realistic attitude. Apple and Alphabet have won the smartphone battle. Microsoft has tried a number of times to break that duopoly, but continuing to try to rally a developer base to work on a product with very few users makes no sense.

By not killing Windows Phone, Microsoft leaves a door open for a future radical reinvention. Perhaps that will mean a Surface Phone, or maybe it will be something else entirely, but until that happens, the company's smartphone efforts are essentially being put on hold.

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