Doesn't Smell Right: Microsoft kills the Kin

Something isn't quite kosher about this bombshell bit of news in the smartphone wars. Yes, I said its a bloodbath, and yes, I just remarked last week that Microsoft is pretty confused, but I didn't see this coming. Microsoft has just announced that they will stop the roll-out of Kin phones, cancelling their European launches and terminate the project. They will supply Kin phones to their US carriers but the staff has already been assigned to the Phone 7 smartphone operating system project.

It is less than 6 weeks from when the two Kin phones were launched in the USA. We have heard rumors that their initial sales were lousy, but how bad does it have to be, that the world's biggest software company pulls the plug on its inaugral smartphone handsets in only 6 weeks? This is a huge disaster for Microsoft and at the very least signals major problems in professional management. And to me, this news does not smell right. There has to be more to the story.

To be clear - the normal development cycle from a fresh piece of paper to first phones sold to customers, in mobile phones, is about 18 months. Microsoft bought Danger (makers of the popular youth phone 'Sidekick' with a QWERTY keypad) some time ago to make their big move into the phones handset business. And Microsoft has been heavily involved in smartphones from the Windows Mobile operating system for most of the past decade. Its been the second most popular smartphone operating system, and about four years ago was in roughly one out of every four smartphones sold. Microsoft 'should' have known what they were doing.

The QWERTY phone market is bigger than the touch screen phone market, and decidedly so in the home market for Microsoft, the USA. The recent transition for most buyers of QWERTY phones has shifted from business oriented phones to youth phones. The two models of the decidely youth-oriented Microsoft Kin phones seemed to arrive perfectly at the right time in the right place. Just earlier this year we learned that a third of American youth send 100 SMS per day - and 42% of US youth can send SMS text messages blindly. These are the perfect customer segment for the Kin phones, and what should have been an added bonus, every month that Apple delays its own QWERTY phones, gives more of this market segment to those phone makers who do. If you send so many SMS that you can text blindly, you won't consider an iPhone as your primary phone, no matter how great the iPhone 5 or 6 may be haha (unless a version is released with QWERTY). And as one of the world's biggest QWERTY phone makers is Nokia, and its US market share is in a tailspin - all signs pointed to a rosy reception of the Kin.

But it obviously wasn't. The rumors said the sales of Kin were dismal. Which brings me to the first problem. Its pricing. If the target was youth, what was that dumb pricing strategy that Microsoft and its US carriers offered? That was going to hurt sales badly. But if it was just price - that should have been an easy 'fix'. In fact we have already heard that Kin prices are being cut in the USA.

So - problem number 1. How incompetent were the managers of the Kin project to launch it with clearly faulty pricing? But Microsoft, why not try to fix this? It could not come down to only price, else the Kin phones would still be alive.

Then there has to be far worse news. Is it that the youth who tried the phones not just disliked them, but hated them? Is that it? That the Kin phones were totally unpalatable to the youth, at any price? If so, where was the market research before the launch? Is it really true, that the world's most profitable tech company didn't do any targeted market research of its prototype phones before launching it to such big global media attention? Is it really true, that these phones were ultimate dogs, utterly beyond achieving any sales success?

Or is it something else? Was there some internal politics at Microsoft at play? Was there some contractual obligation to Danger employees that Microsoft had to release 2 phones so they cannot resign? I have no idea. But like I said, this does not smell right. To terminate the project within 6 weeks from launch, and without even attempting a newer lower price strategy with the European launch (the European phone market is far bigger than the US market...)

Could it be that the Microsoft Phone 7 project is so desperately behind, and the only viable competent internal staff to help in some emergency help to it, is the Danger ie Kin ie Project Pink team? Remember its just a little while since CEO Steve Ballmer took the whole Microsoft Mobile project to his personal supervision and effectively married his own reputation to the success of Phone 7's launch. But even that doesn't make sense, they could have 'borrowed' the Kin team to Phone 7 for the rest of the year, frozen Kin phone development - but allowed the European phones to be launched.

No, this does not smell right. I hope at some point we'll learn what happened. Maybe one day some retired Microsoft manager will write a kiss-and-tell book haha..

PS did I say it is a bloodbath in smartphones?

Comments

[AC]

One story circulating is that the relationship with verizon soured as the delays rolled on. As such the ultra low pricing they had planned evaporated along with Verizon's interest. (but Nokia is coming back in the US, TMO Mode/nuron ;)

I cant imagine operators care about the OS either as much as they did 2-3 years ago. Their own "app stores" are not doing well, so if the manufacturer supplies one, who cares - no app story for operators, means no tie in to OS.

[Tim]

It wasn't the upfront device price that was the problem, but the on-going US$70.00 per month for mobile voice + data service. This target market is extremely price sensitive to monthly price and want to control it, hence the overwhelming success of PrePay outside of the US for this demographic.

[Michael]

Have to agree that the partnership with Verizon was a big part of the problem...
1. Should have launched on T-Mobile, home of the Danger Sidekick here in the US. The KIN was the logical successor to the Sidekick. Note that T-Mobile has dropped selling the Sidekick as of tomorrow. The Danger team is now being folded into the Win Phone 7 team. All that cash down the drain.
2. $30 smart phone data plan for the KIN PLUS a $15 Zune pass for music plus expensive voice plans just don't work on a feature phone. Should have been a $20 data plus music plan and a $35 voice plan.

Microsoft's problem was that they did too much integration with existing social networks. They should have created a KIN specific version of BBM. That would have been huge!

[Injury Attorney]

Good try..but just too expensive for teenagers as a social networking phone.

[Frank Daley]

The reason is very similar to the reason for the axing of the Courier.

Equipment manufacturers are telling Steve Ballmer some facts about the new world order, e.g. Microsoft now has real competition. If Microsoft chooses to compete with them on end equipment, don't be surprised when they release products that don't use Microsoft software.

Bottom line - Microsoft no longer has the upper hand to bully the OEMs as it was able to do for the previous two decades.

[alex]

Tomi, looking for behind-the-scenes reasons: maybe this is related to the departure of key executives in May (Robbie Bach, J. Allard), who were influential in Microsoft's mobile strategy.

[Ged Carroll]

Interestingly the KIN lacked features that the Hiptop | Sidekick had including instant messaging (Sidekick supported Yahoo! and AIM in US version), calendar. Then there was the Microsoft cloud disaster of f2009 to give existing Danger | Microsoft customers a bad taste in their mouths. "Hey we screwed your address book, want a Kin to replace your Sidekick?"

Most of the Danger team had walked a good while before the KIN launch.

[kevin]

Tomi,
As I've written before, in the US market, all smartphones (iPhone, Blackberry, Android-based phones, WebOs-based phones) AND the two Kins were being sold by carriers with mandatory data plans of approx $30-35. In the consumers' eyes, all these phones are the "same", as the plans are the same price, and the phone pricing only varies by $200. And as I've written before, that's why iPhone and Android are rapidly taking share from the rest of them. (The recent AT&T change to $15 and $25 data plans looks to change this trend going forward.)

Engadget reported that Microsoft delayed the launch of Kin by as much as 18 months to change the underlying OS from Danger-based to Windows-based. These delays annoyed Verizon (who was looking for phones to compete against iPhone), so Verizon killed any lower priced plans for Kin. (The success of the Droid probably also reduced any Verizon desire for the Kin.)

Microsoft should've killed the Kin launch once Verizon decided not to have cheaper mandatory Kin data plans. But Microsoft's misreading of the market (again) that made them proceed. You keep asserting that Apple doesn't know what it's doing in mobile, but the real dope is Microsoft. It misread the iPhone's success, it misread the need for (and thus delayed work on) a better mobile OS, and now it's misread what the competition is and what consumers are willing to pay for.

By the way, the Kin might have more success outside the US, in countries without subsidies, and with more variety of data plans, but Microsoft is too blind to see that as well.

[Lina Inverse]

Given the massive well known mismanagement of the Kin project from the very beginning (one thing not mentioned here is how MS tried to cancel all further Sidekick development, but Danger hadn't signed a MS style "head we win, tails you lose" contract with T-Mobile, requiring MS to design one last Sidekick), one of the things I'm assuming is that Verizon was forced to offer it with an expensive data plan because Microsoft didn't do a good enough job minimizing the Kin's load on the network.

We KNOW from the end result that the engineering was messed up, for example the major in theory pretty simple yet missing features (then again, maybe the Kin team wasn't allowed to IM with non-Microsoft companies).

[Tobin]

I worked for Microsoft for 3 1/2 years and personally know people that worked on the Kin including a project manager. I'll confirm a few things:
1) There ARE internal politics at play - most of it having to do with Ballmer (if you want to know what is wrong with Microsoft - that is the number one problem - fire him and things would improve)
2) The whole windows mobile division is in disarray which isn't a good sign for Windows Mobile 7 (and yes, they should fire their marketing guys that come up with these names - alot of this is Ballmer's fault too - he's an idiot when it comes to marketing and he insists on branding things with Windows names)
3) The Danger and Microsoft folks did not play well together after they merged. The Danger folks didn't work very hard since they are mostly just waiting for their contract terms to time-out. And the Microsoft folks are just trying to get a good review (I'll explain in a bit).
4) Verizon was pissed at Microsoft over the delay and so they killed them with the plan pricing (that was the nail in the coffin and even the guys at Microsoft realized this after a while).
5) Sales were less than 5000. I tried to get an exact figure from someone close that knows, but I couldn't. He did confirm that it was extremely low and under 5000. He disputed the 500 figure, but even in the low 1000's, that is EXTREMELY bad.
5) Microsoft's culture is broken.

Let me explain about the culture thing. They have 6 month reviews (a mid-year and final-year review in the may-june timeframe where they get bonuses in August). It makes everyone at Microsoft very short-term focused. They don't think about anything outside of 6 months and making their reviews look good. This leads to alot of the bad stuff we see at Microsoft - like poor service, crappy products, and the "I don't care about the customer" attitude throughout Microsoft. This was especially true in the Kin group where there were highly paid people that did very little except make their reviews look good. They could have cared less about the actual product at the end. So long as they got top bonuses and reviews and more $$$$$$. At Microsoft, the people that actually do stuff are eventually driven out of the company or don't get promoted because they are working and not politicing and getting drunk every night with the guys in charge. This is especially true of the Danger folks they acquired. The way you get rich at Microsoft now is don't go to work for them, instead you GET bought by them. They have you sign a contract that you have to work for them for so long (usually around 2-3 years), but you are VERY richly compensated and don't have to do a thing for the most part except make your review look good.

[M. Edward (Ed) Borasky]

If you can't be number one or number two in the market, get the hell out! The Kin couldn't be number one or number two in the market for mobile devices, so Microsoft got the hell out. You can second-guess their decision, and you can speculate all you want about internal Microsoft politics, but from a strategic perspective, it looks like the correct decision to me.

Microsoft can't compete with the iPhone / iPad and the Android. Neither, for that matter, can Nokia or HP/Palm. Look at the *numbers* - at what people are actually *buying* by the *millions* - iPads, iPhones and Androids!

[Teemu Kurppa]

According to inside story published by Engadget and further discussed in ArsTechnica, the main reason was internal politics. Both posts are good read.

ArsTechinca: A post-mortem of Kins Tragic Demise:
http://arstechnica.com/microsoft/news/2010/07/a-post-mortem-of-kins-tragic-demise.ars

Engadget: Life and Death of Microsoft Kin - the Inside story
http://www.engadget.com/2010/07/02/life-and-death-of-microsoft-kin-the-inside-story?icid=sphere_blogsmith_inpage_engadget

[PabloRoca]

Hi Tomi,

This is your first article I'm agree with. I was to say some things but they are very close that Tobin said (the former MS employee). So I fully support Tobin comments, The main cancer at Microsoft is the management that lives there.

I also agree that Ballmer must leave Microsoft with some other managers. I said this here:

http://pabloroca.wordpress.com/2010/05/31/mr-ballmer-do-you-love-microsoft-so-leave

It's time for techies at Microsoft.

[Tomi T Ahonen]

Hi everybody.

Thanks for the comments. Before I start to reply to individuals, please see the two links in Teemu Kurppa's comment, the story at Ars Technica and the one at Engadget. They are very revealing (also my great thanks to the personal testimony by Tobin, consistent with those two published articles).

Now, let me do this in sets. First 6 comments.

Hi AC, Tim, Michael, Injury, Frank and alex

Thank you all for your comments. Will respond to each individually.

AC - yes that seems to be the jist of the launch mess-up, that it was supposed to be with Verizon about a year and a half ago, but MS kept falling behind on promises, and VZ got fed up with the concept. Originally VZ was very willing to offer attractive prices for Kin and now seemed just willing to 'punish' Microsoft for this mess.

On the OS's and app stores, I think we are still in the early stages. There are still more brands getting into the app store game (LG just announced their app store - for Windows Mobile haha, not for Android, strange?) and as I've explored the math of the app stores - very bad for developers and separately the 'bloodbath' in the smartphone wars, we can expect the market to shake itself out over the next few years. Certainly there is no room for 24 or 22 smartphone manufacturers among the Fortune Global 500 biggest corporations and also there is no rooom for over 30 app stores. Some will vanish or merge or be bought out etc.

Tim - totally agree, I didn't mean the upfront price was the problem, yes the monthly fees were hideous (for this segment) which is what killed it. Totally agree.

Michael - very good points and especially agree with the one about abandoning the established brand on T-Mobile and loyal customers. Bad move.

Injury - agreed, too expensive for this target segment

Frank - also totally agree with you, and yes its a (strange) new world order for Microsoft, which I believe is also seeing a lot of its decades long treatment of its 'distributors' of Windows ie its hardware manufacturers like Dell, HP, Toshiba, Acer,. Lenovo etc all now flocking to 'non Microsoft' smartphone OS's. If Microsoft had treated its distributor chain with love and care over the years and not bullied them every time they could, they would have a loyal cadre of major PC makers all releasing Windows Mobile and Phone 7 based smartphones now rather than Androids (or buying their own OS in the case of HP)

alex - Yes, that does 'smell' that some long-standing Microsoft mobile strategy bosses have departed and Ballmer comes in and smashes all their toys haha..

Thank you guys for very good comments, I will return with more and will respond to all. Please do keep on the discussion.

Tomi Ahonen :-)

[jandi]

Yea...umm the iPad is not a phone, so that doesnt go in this category...secondly, most of the dopes that bought and iPad, were already apple drone who had iPhones, so no real loss there..

lets not forget that the smartphone king is and has been for awhile now..RIM a.k.a Blackberry, not Apple. MS needs to take a lesson from that book and realize that QWERTY is still the input method of choice, "apps" for some reason seem to be all people care about now, and that they need to learn how to integrate everything into a nice little package that leaves them wanting more and when you get that golden recipe, hold on to it and dont let it go..

i know this is going to sound crazy, but the iPhone is really inconsequential since the majority of the people that keep buying the stupid things are the same people who have been buying it since day one, so there aren't really very many new customers coming to that front. Apple cant keep claiming to sell this many million, but dont really make the correlation that its the same customers buying it over and over...

MS needs the same dedication on this as it has on its OS and get with the program..unlike Apple, they can afford little snafus like this, but they really need to get with the program already..

[Tomi T Ahonen]

Now to do the rest of the comments so far

Hi Ged, kevin, Lina, Tobin, Ed, Teemu, Pablo and jandi

Ged - great point yes, that was a nasty marketing move, mess up the current experience, ask customers to buy the Kin..

kevin - totally TOTALLY agree with you. Yes, Microsoft is clueless in this space clearly. Like you say, the US pricing is critical, when Verizon decided not to make the monthly plan cheap and subsidise the phone well, that killed Kin. Microsoft should have changed its US plan. But far more so, yes you are totally right, the world market is far bigger and Kin was eagerly awaited in Europe and with different policies with subsidies and monthly plans (most customers on prepaid plans) the market opportunity was there to snatch victory from the jaws of defeat, by succeeding abroad. But MS again didn't understand. Totally agree with you kevin. Totally!

Lina - excellent insights, thank you so much

Tobin - I really appreciate your lengthy comment here explaining the view from the inside. It squares very well with whats in the public domain, and the buzz I hear from time to time. I really appreciate it that you gave us that very detailed view to what was going on. It helps greatly understand why so many errors were made in this project, which on the surface (at the announcement of Kin) seemed very promising..

Ed - I hear you and to some degree I agree with you. Actually in a high volume very diverse technology space like mobile phones (they are far more complex than rocket science) which is experiencing the greatest amount of innovation of any industry ever in mankind's economic history - there is room for plenty of makers beyond being just number 1 or number 2. In the far less hectic space of automobiles (the only other aspirational technology apart from mobile phones) there are many giant companies that can be consistently profitable, from Toyota at the mass market top end, to BMW at the luxury niche end. But yes, with over 40 manufacturers of phones in over a dozen countries, there is too much competition in phones and MS did make a smart move to quit the business. The dumb part is, that they had all the elements to make this a big success.

Look at RIM, on a QWERTY phone format, totally different from the iPhone or Androids with their touch screens, RIM has been selling more than Apple ever since the iPhone launched, and only this Q2 did an army of 30 Android manufacturers combined, manage to pass RIM as the only Blackberry maker. RIM still sells more than twice the number of smartphones than the biggest Android maker, HTC. So you can be successful even if you are not global number 1 (Nokia) or global number 2 (Samsung). By your analysis, by the way, Apple and all Android makers (except Samsung), HTC, Motorola, Lenovo, Acer, SonyEricsson, ZTE, Huawei, LG, Dell etc should quit the phones business, because none of them are anywhere near number 1 or number 2 haha.. (Apple only sells 2% of the world's mobile phones, its not even in the top 4 in its best market, the USA)

Teemu - thanks, yes excellent articles, thanks for the links - all readers here, please go read those two articles. And yes, they are totally in line with what Tobin wrote here.

Pablo - Wonderful! Thanks really for saying that. I know you and I have disagreed in the past and will no doubt disagree in the future too, haha, but am happy you agreed with me on this - and said so here. I really appreciate that, and am looking forward to our next DIS-agreement haha..

jandi - thanks, we somewhat agree haha. The RIM is king point is only partially true, as that applies to the North American market for smartphones obviously. In the rest of the world, half of all smartphones sold are Nokias (where Nokia 'Blackberry clones' on their E-series etc QWERTY phones outsell Blackberries too). But yes, good points, primarily from a North American view.

Thank you all for writing

Tomi Ahonen :-)

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