Elop: a canary in a coal mine?

Microsoft announced a reorganization on 17th June that will see Stephen Elop depart the company. The devices business that he was running will be combined into a new team, Windows and Devices Group (WDG). The new group will be headed by Terry Myerson — Elop will leave the business. The new group is tasked with enabling Microsoft’s vision of a more personal computing experience powered by the Window’s ecosystem. Engineering resources will be combined to drive ‘breakthrough innovations’ that will propel the Windows ecosystem forward. Microsoft goes on to say that WDG will drive Windows as a service across devices of all types, enabling Microsoft to create new categories while generating enthusiasm and demand for Windows.

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The way we read this is that Satya Nadella — never a fan of the Nokia devices acquisition — will seek to morph the current Lumia business into a similar mould to the Surface business. In this way Microsoft will drive innovation in how to integrate Windows but limit its ambition to be a major player in the device business. We have always struggled to understand how Microsoft was able to reconcile the competing aims of driving adoption of Windows on mobile devices while competing aggressively in the market. In this new role we expect Microsoft to major on being a market maker instead of a direct competitor to existing and potential Windows licensees. This is an reasonable approach and one that is consistent with its strategy of driving Microsoft software assets to as many users as possible. It will likely mean considerable pain for the old Nokia devices business however — which was already faced with a further round of substantial personnel cuts.

We continue to believe that Microsoft has one of the most powerful ecosystems for the next phase of development in the broad technology space. The reorganisation does nothing to undermine our belief. But it likely means that the current positive direction of the Lumia devices business will shift into a negative direction over coming months. Windows devices overall though may start to become more widely available from other handset vendors as the move to Windows 10 starts to gain traction — unlikely before 1H16 in our view.