in 2006 just one year before iPhone the company that dominated the smartphone market was Microsoft with their Windows mobile platform so naturally when iPhone was revealed many expected Microsoft to compete with apple aggressively and protect their Market position but what turned out to happen was one of the biggest missteps in modern tech [Music] history when iPhone was originally revealed many people were impressed by its new technologies but there was also a substantial amount of what you might call haters I remember a couple of my friends in high school saying no one will want an iPhone since it'll get fingerprints all over the screen and as silly as that sounds today many companies were equally as skeptical about iPhone's potential success in fact listen to what then Microsoft CEO Steve Balmer had to say Steve let me ask you about uh the iPhone and the zoom if if I may The Zo uh was getting some traction then Steve Jobs goes to macor and he he pulls out this iPhone what was your first reaction when you saw that $500 fully subsidized with a plan I said that is the most expensive phone in the world and it doesn't appeal to business customers because it doesn't have a keyboard which makes it not a very good email machine now it may sell very well or not I you know we have our strategy we've got great Windows mobile devices in the market today we you can get uh a Motorola Q phone now for $99 it's a very capable machine it'll do music it'll do uh internet it'll do email it'll do instant messaging so I I kind of look at that and I say well I like our strategy I like it a lot that denial was Microsoft's first big mistake although it's much easier for us to recognize it looking back at the time not having a physical keyboard on a smartphone seemed as silly as not having a keyboard on a laptop and the price of iPhone was much higher than usual at $4.99 or about $756 today with inflation it was 2 and 1 half times more than the average $200 smartphone that alone was enough to question the product's success since no company had ever charged that much for a phone no one was sure how many people could afford it Not only was iPhone more expensive but it essentially had the same functionality of other smartphones if you just looked at a spec sheet iPhone appeared to be a ripoff one button One camera no keyboard same email phone messaging music and internet features at more than double the price it's no wonder that people like Balmer dismissed it but what companies like Microsoft and blackberry failed to consider was convenience and user experience two things that have proven to be Priceless to customers when done correctly with computers we went from command lines and keyo keyboard arrows to graphical interfaces in the mouse something that companies at the time found childish to include on a sophisticated computer until Apple proved customers not only preferred it but would actually pay more for it and do you know which company was late to the graphical interface and mouse revolution of the80s IBM who in 1990 6 years after Macintosh finally introduced a personal computer with a mouse this delay gave competitors like apple HP and Dell time to establish themselves and steal market share away from IBM ultimately leading to the company's Decline and exit from the PC market with smartphones Microsoft saw a similar fate they were understandably confident about their Windows mobile platform and the devices that ran it but they were in for a shocking surprise because when Steve Jobs introduced iPhone he shared a graph that showed unit sales in 2006 of various Industries game consoles were at the bottom at 26 million units while mobile phones which included basic feature phones were far in away the top seller at 957 million and he set a goal for Apple to capture 1% of worldwide market share in 2008 which meant selling 10 million iPhones this was actually pretty ambitious considering it took Apple 22 years to reach just 5 million Mac sales in a single Year Steve balmer's reaction to Apple app's sales goal was again denial saying there was quote no chance that the iPhone's going to get any significant market share no chance so how did Apple do well at their worldwide developer conference in June 2008 jobs announced that apple had sold 6 million iPhones putting them on track to surpass that 1% worldwide mobile phone market share by the end of the year more impressive was iPhone's worldwide smartphone market share which stood at 6.5% by the fourth quarter of 2007 Ty Motorola for fourth place but the most shocking statistic of all was iPhone's us smartphone market share which at 28% put Apple ahead of palm and Microsoft unfortunately Balmer never issued an updated response about iPhone 6s but talk is cheap anyway what Microsoft really needed to do was respond with a strategy shift so that they could compete with what appeared to be the future of [Music] smartphones in November 2007 about 10 months after iPhone's reveal Google introduced Android a mobile operating system designed for touchscreen smartphones the project was conceived after Google's CEO Eric Schmidt saw the iPhone and instantly realized the industry would move in that direction there was an opportunity for new companies to to enter the space and compete and that's what Google did they aggressively developed Android with a goal to reveal a nearly finished product by the end of 2007 that way Google could begin providing the operating system to smartphone manufacturers in 2008 but Microsoft didn't think smartphones without a physical keyboard was the future because at the time they were mainly used by business customers who Microsoft felt needed keyboards for email so they continued to develop the Windows Phone OS for these devices then 2008 arrived which turned out to be a defining year for the smartphone industry Apple introduced iPhone 3G which was the first Model to be released internationally and it was much more affordable than the original iPhone starting at just $199 the first smartphone running Android also shipped in 2008 the HTC dream which was exclusively sold through T-Mobile in the US and that's an important concept to understand because today things are much different you can buy any phone you want and pretty much use it on any network you choose but in the 2000s network carriers had a huge amount of control over manufacturers and one aspect of that control was selling Network exclusive phones that's why if you bought an iPhone in 2008 you automatically entered into a 2-year contract with AT&T this was obviously beneficial for networks but it was also good for manufacturers since the carrier would subsidize or partially cover The Upfront cost of a phone making it easier for customers to afford so manufacturers could sell more phones and carriers could acquire more users but carriers don't just choose any phone to exclusively support they want one that's likely to be a best seller so when iPhone started gaining momentum Verizon and T-Mobile scrambled for a horse in the touchscreen smartphone race hoping to achieve the increased user base that AT&T was enjoying from iPhone so T-Mobile partnered with HTC since they'd be bringing the first Android device to Market in 2008 and Verizon partnered with Blackberry since they'd already established themselves as a market leader and were about to release their answer to the iPhone the Blackberry Storm a touchcreen device that delivered haptic feedback when you touched a button but Microsoft wasn't part of the conversation since they hadn't even released their own phones yet instead their Windows mobile OS was still being licensed to third- party manufacturers in 2008 and those devices were looking more dated with each passing month by 2009 the smartphone landscape had changed even more the Blackberry Storm had been a catastrophic failure costing the company $500 million so Verizon was in need of a new partner and seeing as how T-Mobile had sold over 1 million HTC Android phones accounting for 2/3 of the devices on their 3G network Verizon went all in on Android with the platform capturing 3% worldwide market share up from zero the year before meanwhile AT&T was beefing up their cellular towers to accommodate the millions of new users joining their networks with iPhone worldwide Apple had sold over 20 million iPhone 3G units boosting their smartphone market share to 14% up from 9% by the end of 200 2008 but they wanted to boost sales even more by introducing iPhone 3GS and disc counting the previous iPhone 3G from $200 to just $100 making the device accessible to millions of new customers Windows mobile on the other hand had shrunk for the first time from 14% in 2008 to 9% in 2009 that was a 36% decline in a single year Microsoft was finally getting the message bomber himself admitted they'd quote screwed up with Windows Mobile smartphone users whether they typed lots of emails or not wanted a big touchscreen without a physical keyboard so they finally got to work on an operating system to compete with IOS and Android that would be released the following year in October [Music] 2010 now it's important to consider just how fast the smartphone industry was moving during this time four years worth of changes today is less significant than 4 years years of changes in the 2000s by 2010 Apple was introducing iPhone 4 a device that was dramatically different from the original model in 2007 so for Microsoft to be introducing their first generation modern smartphone OS 4 years after apple and 3 years after Google was a huge disadvantage so how did they do well their release was called Windows Phone 7 which replaced Windows mobile 6.5 and users response to the new software was mostly positive reviewers enjoyed the new Metro interface which delivered a fresh clean look and an original take on what a smartphone home screen could look like the virtual keyboard was praised for its touch precision and accurate auto correct while the overall responsiveness of gestures like pinch to zoom and scrolling were quick and smooth but there was criticism mainly about Microsoft's Focus shifting from business customers to Everyday consumers for example the industry deleting security features of previous Windows mobile operating systems was missing a crucial oversight that prevented many companies from adopting Theos plus Microsoft Office implementation on the phone was severely lacking with thirdparty office apps delivering a better experience these issues made Microsoft's user base which mainly consisted of business customers feeling left out it was clear that Windows Phone 7 prioritized everyday smartphone users who mainly use their device devices to socialize and consume content and that was a good strategy since there were a lot more of those customers than business users but there was one glaring issue many everyday users had already chosen between Android or iOS and convincing them to jump ship for a new operating system that hadn't yet proven itself was a big ask but it wasn't just customers that needed to be convinced carriers and manufacturers needed persuading too AT&T was focused on selling iPhone while T-Mobile and Verizon were selling Android devices and unlike Apple Microsoft only had six retail stores at the time that meant they'd be relying heavily on carriers to sell Windows phones to retail customers smartphone manufacturers like Samsung LG and Motorola had already begun using Android on their devices adding a second operating system to their product lines only complicated things Plus android could be used with no licensing fee whereas Microsoft charged $15 for every device sold running Windows Phone 7 discouraging manufacturers from including it on too many of their products and this is where Microsoft's plans started to fall apart despite 20 phones running Windows Phone 7 at launch carriers weren't sure what made them better than existing Android devices and iPhones and customers weren't sure either and fact when you looked past the shiny surface of Windows Phone 7 there wasn't much substance underneath developers had hardly prioritized the platform with only about 2,000 apps available at launch compared to Android which offered 200,000 and iOS which offered 300,000 in fact some of the most popular apps weren't even available games like Angry Birds and social media apps like Instagram and YouTube were missing from Windows Phone 7 this came as a surprise to many customers who bought the phone through their carrier only to find out they couldn't use their favorite apps this resulted in higher return rates than Androids or iPhones at carrier stores whose employees were then incentivized to discourage customers from buying a Windows Phone 7 device in order to minimize their storees return rate not to mention there were problems with certain device Hardware that Microsoft had no control over like the Samsung Focus which was widely considered the best Windows phone available at launch but suffered from issues with its micro SD card slot not only could users only only insert cards with specific read and write speeds but the device had to be reset to factory settings after inserting a new SD card which deleted everything on the phone needless to say customers weren't happy about complications like these and Microsoft began to realize something Apple understood long ago that they needed to control not only the software but also the hardware so Microsoft began to formulate a new strategy that could turn around their Fortunes in the smartphone market and reestablish their dominant [Music] position creating a hardware division from scratch takes time and Microsoft had no time to waste they were about to enter 2011 without a formative product to challenge Android and iPhone so to FastTrack the process Microsoft decided to partner with the hardware company instead and they were eyeing one in Finland called Nokia that fit the bill perfectly not only did they create the Nokia N9 which in gadget called possibly the most beautiful phone ever made but one of Microsoft's Executives had just been brought on as their new CEO giving the two companies a unique opportunity at collaboration the partnership was also beneficial for Nokia who were having struggles themselves with software you see the operating system that ran on most Nokia phones was called Symbian and it didn't have the advanced functionality and smooth user experience that iPhone and Android delivered with help from Microsoft they'd have access to a modern operating system so in August 2011 the two companies announced their strategic partnership aiming to quote combine assets and develop Innovative mobile products on an unprecedented scale this meant Nokia would use Windows Phone 7 as its primary operating system while Services between both companies would also be merged like Microsoft's Bing search engine for search services on Nokia devices Microsoft ad Center for search advertising Services Nokia maps integration with the Bing search engine and the merging of Nokia's content store with Microsoft Marketplace the corporate structure of Nokia also Changed by separating its mobile phone Division and reorganizing its leadership to more closely align with Microsoft's so the two companies got to work developing a new smartphone strategy that could finally take on iPhone and Android who by this point in 200 11 had achieved 19% and 48% worldwide market share with Microsoft dropping to just 1.4% so they needed to release a new product fast and in November 2011 they did it was called the Nokia Lumia 800 which was essentially a Nokia N9 running Windows Phone 7 Nokia's CEO called it the first real Windows phone unfortunately it wasn't very real for customers in the US since theice Dev was never available there the reason why it had to do with their partnership with AT&T the carrier demanded the phone have 4G LTE but Microsoft didn't think it was a priority so they released the product they had ready the Lumia 800 in markets like Europe and Canada then fast-tracked 4G support to be included on the Lumia 900 3 months later in January 2012 but by that time their phone was being released into a smartphone market that had already matured Samsung with their Galaxy S2 and apple with the iPhone 4S a month earlier smartphone customers had spent the last 5 years choosing sides between iPhone and Android so Microsoft would have to provide a very compelling product to win over entrenched customers so how did they do well the Nokia Lumia 900 was pretty well received at one cnet's best of CES award while Forbes called it the best Windows handset yet Digital Trends said if you're looking for a good phone for a reasonable price this is it Gizmodo said the Lumia might save Windows phone that it's so quick and elegant and that the screen absolutely sings many customers were also happy with the device it was one of the most affordable modern Smartphones at just $99 with a 2-year contract its live tiles offered a practical benefit over competitor's Frozen home screen icons and its am OED display measured 4.3 in much larger than iPhone 3.5 in screen they also loved having a choice of vibrant colors which matched the live tiles on the home screen a concept Apple adopted more than a year later with the iPhone 5c so the Lumia 900 was pretty impressive especially considering how quickly Microsoft and Nokia brought it to Market but it was undeniable that certain aspects of the product were flawed which would eventually lead to its demise [Music] while the hardware of the Lumia 900 and eventually Lumia 920 were very competitive its operating system was not customers who'd purchased a device running Windows Phone 7 were shocked to find out they wouldn't be able to upgrade to the next operating system Windows Phone 8 this was due to a lack of foresight at Microsoft when designing the initial OS they built it on the Windows C kernel which was never optimized for modern smartphones it was bad at memory management letting apps run in the background instead of automatically suspending them eating up valuable CPU cycles and battery power installing and writing apps was also cumbersome and complex making it a difficult platform for developers to create apps that's why Windows Phone 7 still didn't have Instagram or YouTube after 2 years and reviewers were quick to point this out with wired saying it's not like the store is empty there's more than 120,000 apps available they just aren't the apps you want and with apps being one of the top reasons people buy smartphones Microsoft wasn't giving customers what they wanted to remedy this they wrote Windows Phone 8 on an updated Windows NT kernel which dramatically improved multitasking and allowed developers to easily Port apps from Windows 8 but again the drawback was existing Windows Phone 7 users wouldn't be able to upgrade and this wasn't the first time Microsoft made this this mistake back in 2010 existing Windows mobile 6 users were not able to upgrade to Windows Phone 7 now keep in mind Windows Phone 6 came out in 2007 Windows Phone 7 came out in 2010 and Windows Phone 8 came out in 2012 that meant you had to buy three different phones in a 5year span just to run Microsoft's latest operating system this was a slap in the face to customers who took a chance on a Windows phone and it created Bad Blood between Microsoft and their most loyal users who were then more likely to choose iPhone or Android in the future there was also still serious issues with carriers discouraging customers in their retail stores from buying a Windows phone still by 2013 Microsoft had actually recovered some worldwide smartphone market share jumping from 1.6 to 3% although still far off from Android's 78% so in September 2013 Microsoft made one final push purchasing Nokia's smartphone business outright for $7.2 billion marking the end of Nokia's involvement in the mobile phone market at the time from then on it was up to Microsoft to make it work and as you might expect they didn't the first phone Microsoft developed after purchasing Nokia was the Microsoft Lumia 950 released in 2015 it was their first to run Windows 10 mobile which replaced Windows Phone 8 and while the device did deliver some good features many felt its design was a downgrade it felt less premium than other Flagship smartphones and it didn't have the same colorful charm as previous Lumia models reviewers criticized its underdeveloped app ecosystem and buggy operating system The Verge said Windows 10 mobile felt unfinished and that its user interface was inconsistent Microsoft received so many complaints about the operating system that they eventually allowed users to downgrade from Windows 10 mobile back to Windows Phone 8 by 2016 Microsoft's worldwide smartphone market share had plummeted by 79% making up 0.4% of the market in just 10 years they'd fallen from the top spot with 34% of the market to virtually zero the writing was on the wall as it became clear to everyone that Microsoft simply had no future in the smartphone market in October 2017 Microsoft announced that they' no longer sell or manufacture new Windows 10 mobile devices with the Lumia 950 being their last Flagship smartphone looking back Balmer admitted that Microsoft quote would have a stronger position in the phone market today if I could redo for example the last 10 years the thing I regret is that we didn't put the hardware and software together soon enough so that is why the Windows Phone f failed I'm Greg with apple explained thanks for watching and I'll see you in the next video [Music]