Microsoft is planning a big round of layoffs centered on its struggling mobile phone business.Microsoft
Microsoft is cutting more employees and restructuring its mobile phone business, in a costly maneuver as it continues to struggle in the smartphone market.
The software giant announced Wednesday that it will lay off 7,800 workers, most of them in its moribund smartphone unit, which it bought from Nokia last year to the tune of slightly more than $7.2 billion. That number represents about 6.5 percent of the 118,584 employees Microsoft had as of March 31.
The company also said that as a result of the layoffs and restructuring, it will record a charge of around $7.6 billion related to assets it took aboard through its acquisition of the Nokia Devices and Services business, along with restructuring expenses of approximately $750 million to $850 million. In a nutshell, that means Microsoft paid too much for Nokia's phone business based on how the unit is performing now, and the company wants to write off some of the now "worthless" assets.
Microsoft isn't giving up on mobile phones, but rather is still finding its way.
"I am committed to our first-party devices including phones," Microsoft CEO Satya Nadella said in a statement Wednesday. "However, we need to focus our phone efforts in the near term while driving reinvention. We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family."
Last month, Microsoft announced that Stephen Elop, the former CEO of Nokia who headed Microsoft's devices group, was leaving the company. Joining him on the exit line was former Nokia executive Jo Harlow, who reported to Elop.
Microsoft has long been trying to make a greater dent in the smartphone market, one of the reasons it acquired Nokia's handset unit. But it is mired in a distant third place in the smartphone market, with a 2.5 percent share that's going nowhere, far behind Apple and Android.
The company meanwhile is looking to Windows 10 as a white knight that will run apps across all manner of devices and bring new features and a new look to PCs, tablets and mobile phones. The operating system, set to launch July 29, is designed to offer a more unifying experience among computers and mobile devices. So Microsoft is hoping that consumers who like Windows 10 on their PCs or tablets may be more drawn to mobile phones with the same software.
But even if Windows 10 is a stunning success, carving out a greater chunk of the mobile market is a huge challenge. Although Microsoft remains a significant software maker, with one version or another of Windows running on more than 90 percent of the world's computers, it has stumbled for years in the mobile phone market and has yet to find a spark as developers and consumers alike remain fixated on Apple's iPhone and on Android phones from Samsung and others.
The new layoffs are in addition to the 18,000 employees that Microsoft said it planned to lay off a year ago, according to sources who spoke to the New York Times, which earlier reported on the impending layoffs. Most of those cuts were targeted to the struggling Nokia division as well.
This round of layoffs had been expected. In an email distributed to employees last month, Nadellamentioned the need to make some "tough choices," a phrase that often implies upcoming job cuts.
With Nadella at the helm, Microsoft has been trying to transform itself from a traditional software company into one that focuses on cloud-based services. Nadella's mantra has been "mobile-first, cloud-first," and he has been keen on empowering Microsoft's mobile operations. But the Nokia purchase may have been more than the company could handle. Microsoft added around 25,000 employees to its ranks when it took over Nokia's mobile phone business. And now with mobile phone sales still in the dumps, more of those employees may be looking for other jobs.
Microsoft said it expects that the layoffs will take place over the next several months and that the writeoffs announced Wednesday will be completed by the end of its fiscal year in June 2016.
One (of many) app in the Windows Store lets users illegally stream pirated copies of popular films and television shows, including a few like "Furious 7," which still haven't been officially released on DVD or online.Screenshot by Dan Ackerman/CNET
Open up Microsoft's Windows Phone Store and search for Super Mario, the classic Nintendo game series notoriously absent on mobile phones, and you'll find games using Nintendo's images, Nintendo's trademarks and perhaps an entire copy of the original video game.
There's just one problem: None of those apps is made or sanctioned by Nintendo.
Microsoft has a copyright issue, and it's not a new one. Its software storefronts have long been plagued by scams in the form of misleading apps and products that blatantly steal from well-known, popular and copyrighted TV shows, movies, music and games.
In April, CNET contacted Microsoft about this issue after finding a $5.99 app in the Windows Store that will illegally stream the hit HBO show "Game of Thrones." Microsoft, which said at the time that it takes intellectual property infringement seriously, removed the problematic Game of Thrones app. Othersstill exist.
Microsoft reiterated its position on intellectual property infringement when we contacted it for this story.
With Windows 10, Microsoft promises apps that will work across multiple devices, all downloadable from a single store.Microsoft
The world's largest software maker has said it's increasing enforcement of its app stores to to cull scammy apps that trick users into thinking they're downloading the real Spotify streaming music player, for example; knockoffs that take free services like Facebook's Messenger and slap price tags on them; and outright copyright infringers like the "Game of Thrones" program. But its enforcement efforts seem to be lagging behind the scammers', creating an embarrassing situation for Microsoft and undermining the credibility of its stores.
The situation comes at one of the most important moments in the software giant's history.
Microsoft's app stores will be a key part of its planned rollout for a new version of Windows, expected to be released sometime this summer. Windows 10, the first major Windows release under CEO Satya Nadella, is being touted as an overhaul of the operating system that promises better ways to perform tasks across various devices, a sleeker and more secure Web browser and a back-to-basics look and feel that marries the popular Windows 7 OS with more modern design.
To woo developers who may already be devoting most of their effort on apps for Apple's iOS software or Google's Android platform, Microsoft says apps built for Windows 10 can be modified to work on a smartphone, tablet or computer with relatively minimal effort. As part of its Windows revamp, Microsoft is combining two of the app stores it runs, one for smartphones and the other for PCs and tablets. That way, developers -- and consumers -- can view the Windows Store as a one-stop-shop for software that works everywhere.
But copyright-infringing apps could undermine the stores' integrity and create a confusing and sometimes predatory experience for users. To be sure, Microsoft isn't the only company to struggle with piracy and copyright issues. Apple, in its App Store, and Google, with its Google Play store, have also let software slip by that infringes on copyrights, violates their or another company's terms of service or otherwise makes finding app more difficult.
But the problem appears worse on the Windows Phone Store and on the general Windows Store for tablets and PCs. It's easy to find programs in Microsoft's app stores that illegally display hit shows like "Game of Thrones," "Breaking Bad" and "The Simpsons."
Another app called Freeflix helps users watch thousands of movies. The ad-supported app is free and borrows shamelessly from streaming service Netflix, paraphrasing its name and copying the red accent colors of its service and the look of its logo. The app offers pirated versions of films, including "Furious 7" and "Chappie," that hit theaters just two months ago. Excited fans can preorder the movies from retailers like Amazon.com or Apple's iTunes, or they can illegally watch right now using Freeflix to stream a copy from their PCs or mobile devices.
Freeflix's streaming mechanism remains unclear, but it advertises both older films and those that have yet to be released legally on DVD or competing online platforms like Apple's iTunes.Screenshot by Dan Ackerman/CNET
The free version of Freeflix has more than 1,000 reviews and a five-star rating on Microsoft's store. An $8.99 version of the app, called Freeflix Pro, removes ads in the software.
Microsoft receives a 30 percent cut on all proceeds generated through apps downloaded from its Windows app stores.
The creator of Freeflix, a developer by the name of Tony Bits, can't be contacted through Microsoft's storefront. But Bits has created a dedicated website advertising Freeflix, which isn't available on Apple's App Store or the Google Play store. Attempts to speak with the owner of the website were unsuccessful at the time of publication.
The quest for developers
Microsoft's universal app store is key to its ambitious efforts for the next version of Windows. By 2018, the company hopes to have 1 billion devices running its software, and will rely on that single app store for downloading Windows programs.
Microsoft hopes its one-software-that-runs-on-many devices approach will also help make its software for smartphones more popular. Android and iOS are the most popular mobile operating systems in the world, thanks to top top-selling smartphones and tablets from Samsung and Apple.
Microsoft's Windows Phone software is soon to named Windows 10 Mobile, but a name change is unlikley to help the platform's paltry 2.7 percent global market share. The big problem? Not enough apps.Andrew Hoyle/CNET
Though Windows runs on more than 90 percent of PCs in the world, Microsoft's Windows Phone software powers less than 3 percent of smartphones.
To help boost its market standing, Microsoft launched a campaign in March of 2013 that paid developers from $100, up to $2,000, for each app made for its platform. Though the campaign has since ended, the company continues to court app makers. At its annual Build developer conference last month, Microsoft announced tools for iOS and Android developers to more easily move their apps to the Windows platform, another incentive.
But Microsoft has had trouble convincing some top-tier app makers to offer their programs on Windows. Photo-sharing app Instagram wasn't available on Windows Phone until November 2013, three years after its release on Apple's iPhone. Meanwhile, Snapchat, a popular messaging service, has yet to release its app for Windows devices.
In its place, developers have created apps that plug into Snapchat's programming to replicate portions of its software. Microsoft has removed some copies at Snapchat's request.
Meanwhile, Google continues to withhold its Google Apps for Windows-powered devices after the two companies publicly fought two years ago over the use of ads and other features in the official Windows Phone app. Google Apps apps include the official YouTube video app and Google Maps.
Where does that leave Microsoft? Struggling to keep away bad apps that are taking advantage of the lack of policing from the company and a dearth of official software from popular companies.
"I have to think they're going to attempt to right the situation," said Brian Blau, an analyst with research firm Gartner. "I suspect Microsoft would rather have high quality apps than lots of them."
A slow fix
Microsoft began the cleanup process in August 2014 following a How-To Geek article calling its stores a "cesspool of scams."
Two weeks later, the company pledged to do a better job cracking down on misleading apps, or software that piggybacks off popular search terms such as "Firefox," the name of Mozilla's Web browser, and "VLC," the popular cross-platform video and music player. When people downloaded software with those labels, sometimes for as much as $10 each, what they got was apps that either weren't made by the companies -- or apps that didn't work.
Microsoft announced rules to cut down on copycats that established restrictions on naming and categorizing apps and detailing the type of logo developers can use to advertise their software. The company also removed more than 1,500 apps that didn't comply with the changes.
"The Store review is ongoing and we recognize that we have more work to do, but we're on it," said Todd Brix, Microsoft's general manager for Windows apps and stores, at the time. "We're applying additional resources to speed up the review process and identify more problem apps faster. No approach is perfect, so we encourage people to report any issues they may encounter with Windows Store."
Nine months later, the Windows Phone Store and standard Window Store look noticeably cleaner, with popular apps like Facebook, Netflix, Evernote and King.com's Candy Crush Saga puzzle game featured first on a search result page that's no longer filled with rows of knockoffs.
But a closer examination of the two app stores reveals that, while scams and knockoffs may be in decline, copyright-infringing apps remain easy to find. CNET started noticing the influx of these apps while reviewing Windows 8.1 computers such as the Microsoft Surface 3 and Acer Revo One. These lower-power PCs can benefit from applications optimized for Windows 8.1, which gives users more incentive to download software from Microsoft's store and not simply over the Internet.
Microsoft hasn't provided thorough details regarding how it approves apps for its stores. The company has said it has a team, not simply algorithms, who test and oversee apps. Microsoft also says it enforces its trademark and copyright guidelines, and that its certification process has a so-called content compliance period. That means Microsoft will withhold an app from being published for varying lengths of time "depending on how complex your app is, how much visual content it has, and how many apps have been submitted recently."
"We also conduct spot checks of apps after they've been published so we can identify potential problems. If we find any, you'll be notified about the issue and how to fix it," Microsoft advises in its guidelines.
Gaming apps: the worst offenders
Video games are an especially thorny area when it comes to copyright. It's impossible to protect certain game ideas from being ripped off by competitors, leading to clones, or closely copied reproductions of a game wrapped up in slightly different art.
In the case of Super Mario, a search for the phrase on Apple's App Store turns up apps like World 1-1, a clear reference to the way Nintendo names the playing levels in the game. The game itself has players control a pizza delivery boy running from aliens. Google fares worse, with a sprinkling of games using the Mario trademark in their name and some inventive titles like "Super Jario," but few if any contain anything resembling stolen art or other in-game material.
Whether using Nintendo art, Nintendo's trademarks or full versions of Nintendo games, these apps are easy to find in the Windows Phone Store.Screenshot by Nick Statt/CNET
The app's publisher is listed as "Mine-craft," but attempts to get contact information for the company proved unsuccessful through any of Microsoft's channels. (The publisher is not be confused with Minecraft, the official pixel-art building game published by Swedish developer Mojang, which Microsoft purchased last fall.)
Other games can be found using similar naming schemes from the same developer, including "Despicable Me: Super Mario Surfers Pocket Edition," which contains copies of official Mario games that can be played from within the app. Other apps either use Mario in its title, use Nintendo art or are advertised directly as if they were the originals. One example: Super Mario RPG.
Nintendo has resisted releasing official versions of its games on mobile phones, choosing instead to partner with Japanese social gaming company DeNA to release titles based on its popular franchises in the coming years.
Nintendo did not immediately respond to requests for comment.
While these apps hurt the intellectual property of large corporations, smaller game developers are also suffering from Microsoft's lack of oversight. In February, independent developer Red Hook Studios used Twitter to inform fans that its latest game, Kickstarter-funded Darkest Dungeons, had been illegally copied and uploaded to the Windows Store.
The purported creator, listed as Balaji Chowdary, didn't include Red Hook Studios' name in the app description and asked $3.99 for the game. Red Hook Studios charges $20 to access its official version through a competing online marketplace run by Valve. It's unclear if customers who purchased Chowdary's knockoff were given access to the full version of the game or were simply victims of a scam.
Redhook filed a copyright infringement ticket through Microsoft, which reportedly began addressingthe knockoff app immediately. It's no longer in the app store, nor is any other piece of software from Chowdary.
Though it was resolved fast, the incident is emblematic of the hurdles Microsoft may face as it strives to convince developers -- as small as Red Hook Studios and as large as Snapchat -- to prioritize for its platform. And if copyright holders can't rely on Microsoft to protect intellectual property, the universal Windows store won't ever come close to Apple's or Google's stores in market share or reputation.
If or when Microsoft begins a more widespread crackdown, it won't have to look hard for offenders.
The coolest things about video games is how they can vary in terms of visuals and complexity. One day you're playing complex, visually breathtaking games like Grand Theft Auto V that marry slick gameplay and fantastic storytelling, and others, much like today, you can find yourself mulling over something as trivial as Solitaire that was bundled with every copy of Windows since 1990. Why you might ask? The game turns 25 this year. And Microsoft, the company behind it, plans to celebrate this milestone with style and flair befitting one of the older games around.
"It was 25 years ago that Microsoft Solitaire debuted on Windows, and to honour the decades of fun it's given us all, we're celebrating with two big competitions. First, an internal competition among Microsoft employees kicks off [Monday] to determine who leads the leaderboards here. Then, in early June, the same challenges used in the tournament will be released in the game for the world to play," a post on the company's blog stated.
You can download the Microsoft Solitaire Collection for Windows and Windows Phoneto hone your skills.
Before Farmville and Candy Crush became the de facto choice for passing time at work, Solitaire was what most made do with. It would be no surprise that there would be more than a few highly skilled players of the game given that it's been around for over a quarter of a century.
And on the topic of Candy Crush, the game will join Solitaire as one of the preloadedgames with Windows 10 when it hits later this year.
The hacking group reportedly exploited security holes in Adobe's Flash and Microsoft's Windows.Getty Images/Ikon Images
A group of Russian hackers has been using flaws in two popular pieces of software -- Adobe's Flash and Microsoft's Windows operating system -- to try to get information about other governments, according to a report published by FireEye, a well-known United States security firm.
FireEye in October said the group, called APT28, is after information about governments, militaries and security organizations -- including the US and other diplomatic targets -- that would "likely benefit the Russian government."
One of the ways it has been doing that has been to exploit security holes in Windows, the top operating system for desktop computers, and Adobe's Flash, which lets you see animations and designs on the Web. Reuters earlier wrote about the FireEye report.
Adobe has already issued a fix and Microsoft is currently working on one, according to FireEye. The Microsoft problem is reportedly less dangerous because it involves "enhanced powers" on a computer that an ordinary user would not have, according to Reuters.
Adobe and Microsoft did not immediately return requests for comment.
Cybersecurity has become a top of mind issue not only in Silicon Valley but across all other industries. Part of that is thanks to high-profile attacks in recent years against governments, newspapers and big companies. A devastating hack of Sony Entertainment in November revealed embarrassing secrets about the company, including financial data, information about its executives and plans for upcoming projects. Some, including the FBI, blamed the hack on the North Korean government.
The report comes a day before the beginning of the RSA conference in San Francisco, the US's largest confab of companies and experts from the cyber security industry.
APT28 has been at it since 2007 and allegedly has a government sponsor based in Moscow, said FireEye. Other security firms have tied the group to a breach in the US State Department, seeking information about President Barack Obama's travel schedule.
Windows 10 is closed for now, but an open-source version apparently isn't out of the question.Screenshot by CNET
The impossible is actually possible at Microsoft, one of the company's engineers claims.
Speaking at the open-source-focused ChefCon this week, Microsoft engineer and Technical Fellow Mark Russinovich said something unheard of: "it's definitely possible" that Windows could eventually go open source.
"It's a new Microsoft," Russinovich said, according to Wired, which was in attendance at the event.
In the world of operating systems, there are two main types: closed source and open source. Closed operating systems include Windows and Apple's OS X and they're categorized as such because the code that's used to drive the software is not made available to the public. Open source, on other hand, means the technology community has access to all the underlying code that drives a piece of software, allowing coders to tinker with it, modify it and ultimately create unique distributions of the operating system. The chief open-source OS on the desktop side is Linux.
The debate over open-source applications has been a long and heated one. Those who support the open-source community argue that by allowing code to be available to users, the prevailing wisdom of those who access the code will create a stronger, more-appealing platform. In the case of Microsoft, however, controlling the code and not making it public is a competitive advantage that has generated billions of dollars for the software giant.
Microsoft making Windows open source would mean a seismic shift at the company. Windows code has been hallowed ground since Bill Gates and Steve Ballmer were running the company and had no interest in anyone fiddling around beneath the operating system's hood. Having a closed platform meant controlling releases, controlling user experiences and ultimately controlling the revenue cycle generated from Windows.
But during the last year, since Microsoft's Satya Nadella has taken over as chief executive, Microsoft has started to slowly but surely change its tack. The company is no longer just a software firm, and Nadella, in a long manifesto last year, said Microsoft would focus on cloud services and mobile and become more platform-agnostic. His goal is to drive revenue and success through services like Office 365, the company's cloud-based suite of applications, including Word and Excel, and target people through services, regardless of the operating system they're on.
Later this year, Microsoft plans to launch Windows 10, the latest update to its long-dominant operating system. For the first time, the company is offering a major update for free to all customers runningWindows 7 and Windows 8. The company has even gone so far as to offer a free upgrade to anyone that has pirated a previous copy of Windows. The move was a not-so-subtle attempt by Microsoft to prove it's a changed company that doesn't believe its future hinges on the success or failure of Windows.
Despite Microsoft's potential change in tone toward Windows, the company has not officially made any stance on going open source, and according to Wired, Russinovich said that any move to the open side shouldn't be expected anytime soon. Russinovich conceded, however, that the conversations have occurred and continue to occur.
Such conversations might have gotten people removed from Microsoft a decade ago. Indeed, in the heyday of the reigns of both Gates and Ballmer, merely suggesting that open source was a viable option would have put the person in direct conflict with the fabric of Microsoft's corporate culture.
''Open source is an intellectual-property destroyer,'' former Windows chief Jim Allchin famouslyquipped in 2001. ''I can't imagine something that could be worse than this for the software business and the intellectual-property business.''
"Linux is a cancer that attaches itself in an intellectual-property sense to everything it touches," former Microsoft CEO Steve Ballmer told the Chicago Sun-Times a few months later. "That's the way that the license works."
But times, they are a-changing. Microsoft last year made its .Net framework open source. The .Net framework was built by the company to allow developers to build apps for Windows. Now they can use it for developing apps on other platforms. Microsoft's Azure, a cloud-computing platform that includes everything from a service that will run Web apps to virtual machines running on the Web, also supports Linux. According to a report last year, at least 20 percent of those machines are running Linux and not Windows.
"We have not made any open-source policy or business model changes for Windows," a Microsoft spokeswoman said in a statement.
Though XP's grip on the market continues to loosen, it remains the No. 2 most-used operating system based on Net Application's Web stats, beating Windows 8 and 8.1 and their collective share of 14 percent. Windows 8.1 took the third spot with a 10.5 percent share, leaving Windows 8 in fifth place with just 3.5 percent.
Windows 7 holds the top spot, with a share of 58 percent.
The enduring hold of the 13-year-old Windows XP on PC users underscores the challenges Microsoft has faced as it tries to move ahead with new versions of its flagship operating system, which the company says has more than 1.5 billion users around the world. The staying power has even proven resistant to Microsoft's end of support for XP a year ago, which put an end to bug fixes and and other patches, leaving users more vulnerable to security threats.
There are ripple effects as well. Last month, chipmaker Intel slashed nearly $1 billion off its quarterly revenue outlook, in large part because small and midsize businesses have been reluctant to upgrade from Windows XP -- a popular but now 13-year-old operating system. PC makers, such as Hewlett-Packard, Lenovo and Acer, would also feel a pinch from slower refreshes from Windows XP.
The next leap forward comes this summer when Microsoft plans to release Windows 10, which among other things aims to avoid the missteps of Windows 8 and to provide a consistent software experience across devices including desktops, laptops, smartphones and even Internet of Things gear including ATMs and ultrasound machines.
With Windows 10 arriving soon, what choices are available to those who want to upgrade?
For users of Windows 7 and Windows 8.1, Microsoft is offering free upgrades to Windows 10 for the first year. That means you can download and install Windows 10 for free and directly upgrade your existing PC. But users still running Windows XP or Vista won't be able to ugprade their PCs directly to Windows 10, according to Microsoft. That leaves them the choice of upgrading to Windows 8.1 and then to Windows 10 or simply buying a new PC this summer already equipped with Windows 10.
Currently available as a technical preview, Windows 10 has been showing up as a blip on Net Applications' radar. For March, the new OS took home a share of just under 0.1 percent.
Windows machines are also vulnerable to a decade-old encryption flaw.
Computers running all supported releases of Microsoft Windows are vulnerable to "FREAK," a decade-old encryption flaw that leaves device users vulnerable to having their electronic communications intercepted when visiting any of hundreds of thousands of websites, including Whitehouse.gov, NSA.gov and FBI.gov.
The flaw was previously thought to be limited to Apple's Safari and Google's Android browsers. But Microsoft warned that the encryption protocols used in Windows -- Secure Sockets Layer and its successor Transport Layer Security -- were also vulnerable to the flaw.
"Our investigation has verified that the vulnerability could allow an attacker to force the downgrading of the cipher suites used in an SSL/TLS connection on a Windows client system," Microsoft said in itsadvisory. "The vulnerability facilitates exploitation of the publicly disclosed FREAK technique, which is an industrywide issue that is not specific to Windows operating systems."
Microsoft said it will likely address the flaw in its regularly scheduled Patch Tuesday update or with an out-of-cycle patch. In the meantime, Microsoft suggested disabling the RSA export ciphers.
The FREAK (Factoring RSA Export Keys) flaw surfaced a few weeks ago when a group of researchers discovered they could force websites to use intentionally weakened encryption, which they were able to break within a few hours. Once a site's encryption was cracked, hackers could then steal data such as passwords, and hijack elements on the page.
Researchers said there was no evidence hackers had exploited the vulnerability, which they blamed on a former US policy that banned US companies from exporting the strongest encryption standards available. The restrictions were lifted in the late 1990s, but the weaker standards were already part of software used widely around the world, including Windows and the web browsers.
"The export-grade RSA ciphers are the remains of a 1980s-vintage effort to weaken cryptography so that intelligence agencies would be able to monitor," Matthew Green, a Johns Hopkins cryptographer who helped investigate the encryption flaw, wrote in a blog post explaining the flaw's origins and effects. "This was done badly. So badly, that while the policies were ultimately scrapped, they're still hurting us today."
Satya Nadella, a 23-year veteran of Microsoft, celebrates his one-year anniversary as the third-ever chief executive of the company on Wednesday.Getty Images
If former Microsft CEO Steve Ballmer saw Windows as a cash cow that just needed to be milked, Satya Nadella seems to view the software as a workhorse straining to pull the company out of its rut.
Nadella, who celebrates his one-year anniversary Wednesday as Microsoft's third-ever chief executive, has been working quietly and steadily to convince developers and consumers that the world's biggest software company -- and its Windows operating system for computers, tablets and smartphones -- is once again relevant.
He's got a tough sell.
Nadella, who's spent the last 23 years at Microsoft, knows that the company's days as master of the tech industry are long gone. Now he's trying to make it relevant by pushing Microsoft into the age of mobile computing. For Nadella, it's a question of "renew" or die.Sure, almost 90 percent of all personal computers run some version of Windows. But by 2016, over 2 billion people -- or more than a quarter of the world's population -- will have a smartphone, according to eMarketer. And where does Microsoft stand in one of the fast-growing technology arenas in the world? In the shadows, with its Windows software for mobile devices holding a paltry 2.7 percent share of the market, well behind Google's Android and Apple's iOS offerings.
"You renew yourself every day. Sometimes you're successful, sometimes you're not. But it's the average that counts," Nadella said at the LeWeb conference in Paris, one month before being named CEO. "If you deal with scale where you stop innovating, then that's death .... We've had great successes with Windows, we've had great successes with Office. But it's just a question of what we do next."
What Microsoft did next was take a page out of Apple's and Google's playbooks -- emphasizing apps, not operating systems. But while those companies focus on making it easy for users to share information across devices, Apple and Google still force app developers to write one set of code for computers and another for mobile devices.
With Windows 10, the next version of Microsoft's operating system, due this year, developers are being promised the ability to write to a single code base. That could be the lure Microsoft needs to convince developers who want to write just once and create the apps that look and feel the same across computers, tablets and smartphones, regardless of what software powers the device.
"The best possible repeat of history for [Microsoft] would...be a place developers go to," said Gartner analyst Merv Adrian. Microsoft also needs to be "a company whose developer tools are perceived as being useful to everyone, not just on their own platforms."
The workhorse is plodding steadily forward.
Microsoft has begun offering pieces of its flagship Office software suite on competitors' devices, as in the case of Outlook for iOS. The company hopes that the more people use Microsoft products, the more willing they may be to pay for access to them everywhere.Josh Miller/CNET
To see the plan in action, just look at the pricing shakeups since Nadella took over. Microsoft last month announced that Windows 10, due later this year, will be a free upgrade for a majority of PC users. And Microsoft made its flagship Office software available at no cost to every iOS and Android user while also extending free licensing of its Windows Phone software to any manufacturer of Android devices with a screen smaller than nine inches.
If you don't want to use OneCloud, Microsoft's cloud storage service, you can use rival storage service Dropbox. Just last week, Microsoft made its Outlook email application available -- again, for free -- on iOS.
It sounds like craziness has taken hold in Redmond, Wash. But there's a method to the madness of offering all that free stuff. Microsoft hopes people will pay the annual subscription fee for Office 365 so they can use the cloud versions of Outlook, Word and PowerPoint on their Macs or PCs. That's become especially attractive as employees shift their activity between corporate and personal devices.
"The one attribute that characterizes Nadella's first year on the job is a steady hand," said Roger Kay, an analyst at and founder of market intelligence firm Endpoint Technologies Associates. Kay believes Nadella has exhibited an ability to strongly communicate Microsoft's roadmap.
That includes his take on the video game business. Instead of jettisoning the Xbox business as some investors have demanded for years, Nadella put more weight behind it.
One of Nadella's first organization shakeups last year was to make Phil Spencer, former head of Microsoft's game development arm, in charge of the entire Xbox unit. The result has been a huge boon to Xbox sales as Spencer steered the division toward more serious gamers and away from mass-market consumers in what was a botched attempt to take over the living room. Last fall, Microsoft extended its gaming commitment by buying Mojang, maker of the popular Minecraft game, for $2.5 billion.
Under Nadella, Microsoft is accelerating some of its more outlandish technology, like its HoloLens holographic headset.Microsoft
Mobile hardware also is key to Microsoft's turnaround. After acquiring Nokia's handset division in April 2014 for $7.2 billion, Microsoft now takes in around $2 billion in revenue each quarter from sales of Lumia smartphones. Last quarter, Microsoft shipped more than 10 million units. And while that's paltry compared to the 74.5 million iPhones Apple shipped in the holiday quarter, the relatively stable business does more good than harm for the company as a whole, analysts say.
"Microsoft is going to stay in the phone business as long they're not cratering," Gartner's Adrian said. "Not because they want to get to No. 1 or No. 2 in the phone business, but because as a market participant they learn a lot that extends to the rest of the company." Microsoft, for instance, can apply what it learns in the consumer market to the enterprise space -- and vice versa.
A Microsoft comeback is not a given. Such turnarounds are rare in the tech industry. "Change won't happen overnight" has become a common refrain among both Microsoft fans and skeptics. That's because the company's business has long relied on a small set of core sales drivers -- namely, the software and services it sells to businesses. That enterprise focus earned Microsoft more than half of the company's $86 billion in sales last year. Now it's the buffer Nadella needs for his turnaround efforts.
"Microsoft has a little bit of time. Yahoo had Alibaba financing all of [CEO Marissa] Mayer's experimentation while she figured out what she wanted to do with the company," Kay said. "Microsoft has their own built-in Alibaba, which is the commercial side."
But time is running out. Microsoft stock has dropped 15 percent since the company's not-so-stellar earnings report last week, erasing almost $40 billion in shareholder value. Longtime Microsoft analyst Rick Sherlund, of Nomura Securities, downgraded the company's stock, forecasting tougher times ahead for the company.
"We reduced estimates to reflect a significantly more challenging transition ahead, with difficult comparisons ahead for traditional Office and Windows," Sherlund told investors on January 27. "Our bigger concern is that with more difficult year-to-year comparison still ahead over the next two to three quarters and the stock near its high, there is little room in the shares for disappointment."
Disappointment could become the norm if Nadella can't change a company known for its inability to capitalize on industry-defining trends. Just look at smartphones, tablets, subscription music and TV services, social networking, mobile messaging ... the list goes on.
"Ballmer didn't have a sense of where Microsoft should go," said Kay. Nadella, with his steadier hand than the famously bombastic Ballmer, might have a better chance of changing the software behemoth's course.
Nadella knows the outcome for Microsoft if he can't renew the business.
