What a Leaner Microsoft Will Look Like After the Layoffs

by Don Reisinger

When Microsoft acquired Nokia’s Devices business for more than $7 billion, the company also took on approximately 25,000 employees. By announcing plans to reduce Nokia’s payroll by 12,500 people, Microsoft is effectively cutting in half the company it bought, and it will try to make what’s left as efficient and profitable as possible. It suggests, as another slide will show, that devices, while important, are not at the core of Microsoft’s business plan.

Believe it or not, Microsoft was tolerating offering devices running Android. Those devices, known as the Nokia X line, used a heavily modified version of Android to appeal to budget-conscious consumers. While Stephen Elop said that Microsoft would continue to market handsets that appeal to customers on budgets, he said that Nokia X will be folded into Windows Phone and the days of Microsoft offering Android devices are numbered.

It’s clear from the statements released both by Satya Nadella and Stephen Elop that mobile platforms need to matter more at Microsoft. In a 3,000-word manifesto released recently by Nadella, he said that Microsoft must be a “mobile-first” company and think of itself as providing a platform for productivity to consumers and enterprise users in the mobile space. That was echoed yet again on July 17 in the layoff announcements, with both Nadella and Elop saying Windows Phone is vital to Microsoft’s future.

Anyone working in cloud divisions at Microsoft should rest easy tonight. The company made no indication of slashing jobs in its cloud computing business and instead said that cloud solutions and platforms will be important in a post-layoff world for Microsoft. Look for Nadella to keep building up Microsoft’s cloud business.

In his memo to employees, Nadella said that the Xbox division won’t be sold and actually will be an important component in his company’s productivity strategy in the coming years. On July 17, Elop also said that the Xbox division, which he controls through the hardware segment, will be untouched and continue to live on in its current capacity. In other words, Xbox will be staying in Redmond.

Although Microsoft has stayed away from saying that it’s a hardware company, Elop said in his letter to employees that the Surface tablets will remain as an important factor in its business plans. Microsoft is likely going to use the Surface as a proof-of-concept for other device makers and try to get Windows into the mobile space more quickly.

If the layoffs and Nadella’s earlier letter say anything, it’s that the Steve Ballmer era is now just a fading memory in Redmond. In fact, Nadella pointed out that Ballmer’s old refrain of becoming a “Devices and Services” business isn’t enough anymore and the company needs to move beyond that. By eliminating half of Nokia and turning Microsoft’s focus to the cloud and mobile software and services, Nadella is making it clear that Microsoft is moving in new directions.

All of this talk about hardware shows something very important for Microsoft: Devices are of a secondary concern for the company. While Elop is heading up Microsoft’s devices business, he acknowledged that Microsoft’s mission is to become a place where people find value in its platforms first. Software remains Microsoft’s main business, and hardware is mainly a platform for the company’s software and services.

In his letter to employees, Satya Nadella said that his goal with the layoffs is to make Microsoft a more agile company. The company’s lack of agility has been a recurring complaint inside and outside of corporate headquarters. Nadella wants to flatten the corporate structure to make decisions more quickly. He also wants to give certain project managers more responsibility to improve and grow their respective businesses. Nadella believes that a more nimble, smarter Microsoft will emerge. We shall see.

Microsoft’s board of directors has given Nadella the reins to lead the company along a new path to growth. There’s no more blaming Ballmer for past mistakes or saying that Bill Gates might get in the way in his new, more hands-on role at Microsoft. Nadella is in charge. Now it’s up to him to prove he knows what he’s doing.