Microsoft Layoffs Painful Requirement to Restore Efficiency

NEWS ANALYSIS: By reducing its head count by more than 10 percent, Microsoft will be able to focus on its most promising businesses in its effort to return to robust growth.

Microsoft Layoffs

A sure signal of the reasoning behind Microsoft's decision to lay off some 18,000 employees is to take a look at what's being dumped. The quick look will tell you that it's the low end of the business—cheap mobile phones, mostly.

The biggest share of the cutbacks came from Microsoft's devices business, much of which came from the Nokia handset division acquisition. First to go was software development for feature phones, followed closely by the nascent Android business. Also going away are things that aren't core to what Microsoft does, such as their production studio for television shows intended to run on the Xbox.

Of course, as is usually the case, Microsoft is getting rid of large portions of its long-suffering marketing team as well as a lot of middle managers. But two thirds of the layoffs involve Nokia unit employees, which makes one wonder who will be left to design and build phones. What's interesting is that Microsoft did not touch devices such as the Surface tablet, which is a prime focus for the company's enterprise plans.

So what does this all mean? Probably a lot less than some think. Feature phones, after all, do nothing for Microsoft's plans to return to robust growth. They don't help sell Microsoft products or services; they don't run Microsoft apps, and you can't use them to access OneDrive. What feature phones do is provide access to information in developing markets, especially markets where most people can't afford full-scale smartphones.

Likewise, killing off the new Android phones that Nokia was starting to offer gets rid of low-end smartphones that may have Microsoft apps and services such as OneDrive or Office 365, but which weren't based on Windows. Notably, these phones were also primarily sold in developing markets.

But this doesn't mean that Microsoft is necessarily deciding to ignore developing markets. What it means is that Microsoft is going to switch from the low-cost Nokia X devices to Lumia phones running Windows. To do this, Microsoft will, by necessity, have to reduce the cost of Windows Phones so that people in those markets can afford it.

Those frequently mentioned high licensing prices for Windows Phones don't need to be that high, after all. And even if they are, remember, this is Microsoft selling licenses to itself now that it owns Nokia, and that means that the licensing costs are simply passed around and accounted for within the company. Microsoft can, if it wishes, give those Lumia phones away and pay for any costs through internal transfers and accounting adjustments.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...