Nokiasoft comes full circle: Microsoft's play for ultimate control will redefine the Windows ecosystem

The "soft" in Microsoft isn't what it used to be. A score ago, the company was certain the software-licensing business was the one it wanted to be in -- Apple decided to hold its cards a lot closer to the chest, and it cost the company dearly for years. Meanwhile, Microsoft made a lot of cash with Windows, and it still does. But the tide is turning. Two of the last three Windows operating systems haven't generated the kind of crazed mindshare that a company needs to remain relevant over the long haul, and at some point, one has to wonder if Microsoft will be able to inject a bit of life into its stodgy, outmoded self by grabbing the reins on the hardware side.

In fact, that's exactly what Microsoft wondered, as it casually announced a plan in June of 2012 to affront scores of OEM partners with its Surface initiative. In an instant, Microsoft dove headfirst into the hardware game, and regardless of how it wanted the public to perceive the move, the truth was impossible to hide: this was Microsoft telling Acer, ASUS, Dell, Lenovo and the rest that it could no longer trust their design chops to keep its revenue on the up and up.

In February of 2011, well before it transformed the Surface from a big-ass table into a slate that almost no one wants to buy (Microsoft's words, not mine), the company managed to procure a huge ally on the mobile front. The Nokia / Microsoft alliance was monumental. This was Nokia's formidable hardware being exclusively used to push Microsoft's fledgling Windows Phone OS. At once, Nokia loyalists found hope, and those praying for a coalition with Android were dismayed. Little did we know: that partnership marked the end of the original Microsoft, the end of the original Nokia and, in my estimation, a complete rerouting of the Windows roadmap. This week's acquisition simply makes it all the more official.

Metamorphosis

Transformations aren't irregular for technology companies that stand the test of time; Nokia itself was a paper-production plant in a former life. In the 1980s, it began developing some of the world's first portable telephones, and it also played a meaningful role in the implementation of GSM -- a communications technology that even stalwarts like AT&T and T-Mobile rely on today. The late 1980s and early 1990s brought about times that would make Nokia's present position seem rosy, but a decision by then-CEO Jorma Ollila to focus its efforts on communications (instead of television manufacturing, amongst other oddities) ended up being a wise one.

For all intents and purposes, Nokia's modern face was built in 1997 with the release of the 6110 -- the first phone with the renowned Snake game built right in. The 7110 changed the game once more in 1999 by including a WAP internet browser from the factory, and the 3310 -- released in 2000 with support for swappable faceplates -- is largely to thank for the $20 billion dollar mobile accessory business that thrives today. The world's first 3G phone is also credited to Nokia (that's the 6650 from 2003), and the barebones 1100 went on to sell more than 250 million units. Life was good, but the awakening was coming. Nokia managed to strike first as the world began to embrace cellular telephony, but it forgot to strike at all as the world shifted its gaze to smartphones.

If you've any doubt, listen to what Nokia's then-CEO Stephen Elop had to say just before hitching his company's wagon to Microsoft: "The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over two years ago, and this week they took our leadership position in smartphone volumes. Unbelievable."

What happened next was just barely more believable. The mobile company that held 40 percent of the global mobile market share in 2008 was down to 26 percent in mid-2011. It's down to 14.1 percent today. In 2007, Microsoft CEO Steve Ballmer laughed off the iPhone and confessed publicly that he could not envision any smartphone without a keyboard ever appealing to businesspeople. Meanwhile, Windows Mobile ran aground, and it took until 2010 for Ballmer to proclaim that he had missed a "whole generation of users" while waiting for the iPhone fad to pass. Almost as perfectly as two separate dejected lovers would find solace in each other's past failures, Nokia and Microsoft coalesced in 2011, somehow believing that two turkeys could indeed produce an eagle.

Windows Phone has languished for two primary reasons: it doesn't have the things people want, and the things it has, people no longer want. Trying to sell a phone on its Office access could've worked in 2004, but we've come a long way since then. Document-editing apps and web-based cloud editors are plentiful and, for the most part, they'll ingest Office files with poise. Being late to the party also meant being late to the developer land rush; by the time Windows Phone became a thing, the most accomplished devs had already found plenty of attention in Apple's App Store and Google Play.

Nokia's craftsmanship has been sterling; every Lumia that Engadget has touched has impressed from a hardware standpoint, and the 41-megapixel Lumia 1020 innovates on the camera front like no other smartphone on the market. But the harsh reality is that consumers today have heightened expectations of how their gadgets should operate. Companies no longer receive kudos for producing a touchpanel that's as responsive as the one on the iPod touch; that's simply a basic requirement. Moreover, neither hardware nor software alone is enough to sway prospective buyers en masse. We live in an ecosystem-driven world, where you either have it all, or you get zero attention. The fact that the world's leading PC software maker cannot get an app that adds weird colors to your photos says everything you need to know about the perception of Windows Phone.

Control freak

A slide from Microsoft's "Strategic Rationale" presentation.

In the 2.5 years since Nokia and Microsoft partnered up, almost nothing has gone right for Microsoft besides what was guaranteed to go right. The company's far-reaching Windows and Office contracts have largely continued to renew, enabling cash to pour in with next to no effort. But even Ballmer realizes that the proverbial gravy train will dry up at some point -- even if it's 20 years from now. Which, incidentally, brings us back to the Surface.

Like the Kin before it, Microsoft's attempt to control the hardware and software of the Surface has led to astonishingly bad results. Despite spending nearly $900 million on advertising alone for Windows 8 and Surface, it took an equally large inventory charge on the Surface RT tablet. From the get-go, the Surface RT launched with a hamstrung OS that no one could understand. It was Windows, but not really; it could run applications, but only from its own store. And, it was priced in line with Apple's iPad -- and let's face it, if the masses have $500 to drop on a tablet, they're (by and large) going home with a piece of fruit.

The decision to bring Nokia's devices division in-house may, at first blush, seem like a baffling one, particularly given the aforesaid track record with these types of things. After all, Microsoft enjoyed all of the spoils from an exclusive partnership with none of the overhead and internal headache. What could it possibly gain from taking its existing love affair to such new heights?

There's one singular message that Microsoft has been shouting for years: no compromise. Unlike Apple, which opted to stuff a hobbled-compared-to-OS X operating system onto its beloved iPad, Microsoft was hell-bent on making its own a tablet in form factor only. To this day, it still swears that Windows is the right operating system for a slate. One has to wonder if it secretly feels similarly about the phone.

It's not apt to happen with Windows 8, but vertically integrating software and hardware engineering on the mobile side will indeed enable Microsoft to try something that no other company in the world outside of Apple could even dream of attempting in the here and now. Though it may seem far-fetched today that Microsoft would ship its own mobile hardware with a future rendition of Windows running onboard, we need only look at how rapidly Napster upended the record business, Skype upended the telecom business, Apple upended the phone business and Microsoft itself upended the desktop OS business.

A phone called Windows

This is quite likely the beginning of the end for Windows Phone. Kevin Tofel brilliantly explains why no OEM in its right mind would want to continuing licensing Windows Phone in the long run, and Ben Thompson has accurately -- in my humble opinion, anyway -- asserted that the mobile OS war has already been won by iOS and Android. My best guess for what comes next will take a few years to play out, but I suspect it'll involve a Windows team building Windows 9 for things that look eerily like the Lumia 1020, with secondary testing to happen on what we presently view as a "computer." The notion of what the computer even looks like is changing expeditiously, and Microsoft likely views the form factors that Nokia can create as the vessels that will define the word half a decade from now, leveraging its strongest brand all the while.

Don't assume that the norms today mean anything. Apple changed the world by figuring out a way to put a web browser into your pocket. Microsoft now has the power to dictate its mobile fate by using Nokia to put a productivity-focused workhorse in there... just in time to capture a "whole generation of users" who aren't even expecting it.