Forbes – Microsoft-Nokia: No Surprise, No Knockout, No Kidding
By Raj Sabhlok
September 6, 2013
Was anybody really surprised by Microsoft’s acquisition of Nokia’s Devices & Services business earlier this week? After all, Microsoft CEO Steve Ballmer basically telegraphed the deal when he announced his company’s new “device + services” strategy, which replicates the vertical integration approach Apple uses to control the software and the hardware.
In some sense, both Microsoft and Nokia had to make a deal. Nokia was bleeding cash and getting little traction with the Windows Phone-based Lumia. Microsoft, meanwhile, had missed both the cloud and the mobile sea changes that took place during its lost decade under Ballmer. Vertical integration promises to deliver a compelling alternative and get the company back in the game.
But the technology game moves very quickly, and Microsoft has failed miserably when trying to capitalize on the latest strategic trends. To compete with popular SaaS applications and subscription-based models, Microsoft gave us Office 365. Great idea. Too bad the company tied Office 365 to its on-premise Office Suite, completely missing the point of the cloud.
Two and a half years after the release of the initial iPad, Microsoft released the Surface with much fanfare but limited sales. In July, Microsoft announced that it would write off $900 million to account for unsold Surface inventory. Most recently — and probably the final straw for Ballmer — estimates reveal that Windows Phone commands a paltry 4 percent of the smartphone market.
Wrong Time to Copy Apple
Now that Microsoft finally finds itself in position to have mobile hardware and software under its control — just like Apple — what happens? Apple’s market share has hit a new low of 14 percent.
Apparently, the market is favoring the more open and extensive Android mobile operating system, which now accounts for 80 percent of the mobile smartphone market. As Microsoft moves to more tightly control its mobile platform, the fates of technology move the goal posts again on Microsoft.
What To Do, What To Do
I don’t have a roadmap for Microsoft, but I do see a few lessons the company could learn, including:
Favor innovation. Technology companies are at their best when they are innovating, not following. Sure, there is always a chance to get the “second mover” advantage, but as Microsoft has seen in cloud, mobile, search and social, being second (or third) to market is no simple task.
Microsoft is by no means dead. It’s hugely profitable and has a war chest bigger than most countries. But the billions spent playing “catch-up” have not helped to date. The company simply hasn’t innovated and has missed the target or the timing when it finally has decided to jump in.
Respect the spots. No doubt, the new, vertical integration strategy will be difficult to execute. The Microsoft leopard can’t change its spots easily. It’s been a channel company for a long time, selling its products to end users through distributors, resellers, and most significantly, original equipment manufacturers (OEMs) that pre-installed Microsoft’s wares on their PCs.
Taking a mobile product to market on its own is a different animal altogether. And making such a move will pit Microsoft against many of its OEM partners.
Net-Net on the Nokia Deal
The Nokia purchase does not make Microsoft’s mobile strategy a slam-dunk. From a financial perspective, the decision was easy. The company is paying just 0.37 times revenue for Nokia’s mobile phone business.
Actually, the operational risk of adding 32,000 employees is greater than the $7.2 billion that Microsoft is paying. But the biggest risk is that Microsoft finds itself out of step with the market yet again.
There’s more than one way to succeed in mobile — vertical integration or open platform. A closer look at the market dynamics suggests that Apple was successful because they were first to market with sleek new innovative products like the iPhone and the iPad.
Of course, the Apple hardware and software played magically together. But as Samsung and other vendors delivered their own cool, fully-featured phones at competitive prices, they collectively stopped Apple in its tracks. Not only did Samsung have compelling hardware, it leveraged Android and the roughly 700,000 apps available on the platform.
To succeed going forward, Microsoft must have all of those ingredients — exciting hardware, a great operating system and a plethora of apps. Currently, they can’t check any of those boxes. No surprise there. But maybe that’s just me. What do you think of the Microsoft-Nokia deal? Is it the game changer Microsoft needs? Or simply the beginning of another Redmond failure?
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