Last month, Microsoft published its latest earnings report, revealing that quarterly revenue from its phone hardware business had dropped to just $300 million, down from $2.6 billion two years earlier. A few days later, Microsoft CEO Satya Nadella acknowledged that the company had unquestionably "missed the mobile boom", but added: "Our goal now is to make sure we grow new categories."
In an interview this week, Nadella reiterated the company's commitment to the mobile market, and said that it is now focused on offering something truly unique, rather than trying to compete with more popular rivals on their terms.
Speaking with the Australian Financial Review, he said that Microsoft is not afraid to take risks in its efforts to enter new market segments, and perhaps even 'redefine' old ones. "The key in any momentum we have is that you have to have some amount of boldness in taking risk, and knowing that you are not always going to get it right," he said.
He referred to Surface to illustrate this point. "Three years ago, the two-in-one as a form factor was questioned. 'Does anybody need one?'", he said. "And now, guess what, even our competition has decided that it's not a refrigerator and a toaster but it's actually a two-in-one."
Given the seemingly endless rumors that Microsoft is working on a 'Surface phone', the company's conviction in creating convergent devices seems particularly relevant - and even more so with partners like HP releasing '3-in-1' devices running its Windows 10 Mobile smartphone OS.
Indeed, Nadella referred to HP's Elite x3 flagship phone as an example of the "structural innovation" that Microsoft has brought to the mobile space. High-end Windows 10 Mobile handsets like the Elite x3 include support for Continuum, which allows owners to use a mouse and keyboard with the phone when connected to a larger display, including a desktop-style interface and Start menu. Acer, another partner in this field, promotes its Windows 10 Mobile flagship as a 'pocket PC' for this very reason.
Nadella said that this kind of feature differentiation will be the hallmark of Microsoft's future efforts in the mobile space. According to Gartner, Windows' share of the global smartphone market dropped to just 0.6% this summer, and Microsoft evidently recognizes that it needs to change its approach.
"We will continue to be in the phone market, not as defined by today's market leaders," Nadella explained, "but by what it is that we can uniquely do in what is the most ultimate mobile device." He added:
Therefore, we stopped doing things that were me-too and started doing things, even if they are today very sub-scale, to be very focused on a specific set of customers who need a specific set of capabilities that are differentiated and that we can do a good job of.
One defining feature on the way to Windows 10 Mobile - and perhaps for the mythical Surface phone - may be the ability to run full desktop applications on handsets. Microsoft is expected to introduce x86 app emulation for Windows 10 Mobile phones in its Redstone 3 update in late 2017.