Likely realizing the challenges ahead, the world's largest software maker announced on Wednesday an overhaul of its executive ranks. The most notable change was the departure of Stephen Elop, whose devices business -- which includes smartphones -- will be integrated into the operating systems group run by Terry Myerson.
"We are aligning our engineering efforts and capabilities to deliver on our strategy and, in particular, our three core ambitions," Microsoft CEO Satya Nadella said in an email to employees. "This change will enable us to deliver better products and services that our customers love at a more rapid pace."
The shake-up underscores what's at stake if Microsoft fails to bolster its mobile presence. With Microsoft pushing the idea of getting its Windows 10 operating system on as many devices as possible -- and having them work together -- it's critical that the company establish a bigger foothold in mobile. Without the smartphone, for many the single-most important device in their lives, the idea of a seamless Windows experience between devices breaks down.
"Microsoft's reorg shows that Microsoft is determined to be a part of the mobile mind shift, and that their mobile efforts will benefit from closer engineering alignment with Windows," said Forrester analyst Frank Gillett.
For most people, the idea of a Windows phone remains foreign. Smartphones running on Microsoft's Windows Phone operating system (which will be rebranded to Windows 10 Mobile) made up only 2.5 percent of the global market in the first quarter -- a fraction down from a year ago, according to Gartner. In comparison, Android controlled nearly 80 percent of the market, with iPhones making up 18 percent.
That task is now up to Myerson, who will lead the newly created Windows and Devices Group and will focus on "enabling more personal computing experiences powered by the Windows ecosystem."
Microsoft didn't make Myerson available for interviews.
For Elop, the departure marks the end of his four-year quest to get consumers to buy a Windows Phone, first as the CEO of Nokia, when, in 2011, he controversially shifted the Finnish phone giant's strategy toward Microsoft's mobile operating system. Elop, who originally left Microsoft to join Nokia, returned after the software giant acquired Nokia's devices business in 2014.
His unit, however, released only a handful of cheaper, lower profile devices under Microsoft, and Elop was absent from the company's Build developer conference keynote presentation in April.
Better together
One of the challenges Elop faced -- and Microsoft still faces -- has been the lack of popular apps available when compared with Android and Apple's iOS operating system. Whether it's new games like Fallout Shelter or social networks like Snapchat, there remains a lot missing from the Windows App Store. Even if a popular app like Spotify shows up, it's often much later in the game.
Microsoft's pitch has been that the common foundation behind Windows 10, which will power PCs, tablets and smartphones, allows developers to write an app for one device and easily have it run on the others. The hope is that more apps pop up for all Windows users.
It's a story that's been told before by Microsoft, even back when Windows 8 was making its debut with the idea of the common tile-based user interface across PCs, phones and tablets. But back then, there were still fundamental differences between the guts of the mobile and PC platforms, something they've worked on for Windows 10.
Microsoft's move to create a new group under Myerson also underscores the importance of tying together parts of the business that have largely run separate from each other.
"When you talk about integration between software and devices, you need to integrate on the staff level," said Chris Hazelton, an analyst at 451 Research. "This will give you the full integration that Microsoft wants."
Progress with Surface
Microsoft has already made strides in one aspect of the mobile business: tablets. Its Surface Pro 3 has proved to be a hit with consumers, particularly business-minded ones.
In January, Microsoft declared that Surface represented a billion-dollar business, led by the high-end version of the tablet. Its rise comes as Apple's own iPad business has struggled with declining revenue.
"It's stealing share from competitors and slowed the growth of the iPad," Hazelton said.
The Surface Pro 3 is an important ingredient in Microsoft's software-anywhere recipe, but Myerson needs to parlay that success into broader interest in its Windows smartphones.
Surface Pro 3 was successful enough that Elop hinted that the next Microsoft flagship smartphone could find inspiration in the tablet.
"There are a few clues on a device like this," he said in an interview in March as he grabbed a Surface Pro 3.
So where is that flagship smartphone?
All the software improvements and integration in the world won't get consumers excited about Windows 10 Mobile without a sexy flagship product to rally behind. One of Myerson's biggest priorities in his new role is to ensure that Microsoft has an exciting product (or products) to push when the new Windows Phone platform, Windows Mobile 10, makes its debut.
"The lack of a halo device is a major gap in their portfolio," Hazelton said.
The older Windows Phone platform has clung to its market share by offering affordable smartphones in the emerging markets. In the US, it has similarly won a small following through attractively priced devices. On Wednesday, AT&T said it would sell its large Lumia 640 XL smartphone for $8.34 a month for 30 months, or roughly $250.
These devices, however, tend to get overshadowed by higher profile -- and more expensive -- products such as Apple's iPhone 6 or Samsung's Galaxy S6, which benefit from significant advertising and retail support.
Getting that high-profile device in the hands of consumers is vital to showing off the new Microsoft, one in which all of its software and experiences can flow from device to device.
Microsoft has already made progress with the Surface Pro 3. It's a virtual certainty that the PC and laptop makers will heavily push Windows 10-powered devices when they become available. The missing link is the smartphone.
"If I can move seamlessly between devices, I can see the value in having a Windows smartphone," Hazelton said.
