Microsoft swallows Nokia…an energy boost or an indigestion?

For a behemoth seemingly stuck in its Windows PC roots, Microsoft is sure moving a lot these last few weeks. The purchase of Nokia’s device unit is another big move for the company set on reinventing itself after years of sluggish growth. Here is my take on the purchase of Nokia:

What is good about it?

– Microsoft is taking action to be much more serious about Mobile. To date the company has seemed to be a reluctant follower in the Mobile space, continuing to privilege businesses closer to its Windows PC and traditional console empires. For Msft Mobile was a business unit, not a fundamental pillar. The July reorg memo from Steve Ballmer was alarmingly not enough mobile-focused (in my opinion). Now the pendulum may have shifted towards Mobile, with an enormous influx of Mobile product, talent and thinking coming from Nokia, as well as a full bench of management executives. Microsoft may become a Mobile company after all.

– Nokia gets to survive by getting direct access to the Msft cash reserves.

What’s so-so about it?

– it may be a purchase made out of defensive necessity rather than pure business value-add. Nokia is the Windows Phone champion for Msft. Nokia’s finances and low market share put it its business at risk, with Android being a possible market share solution for Nokia (as I have written about in a previous post). Obviously Msft could not see its main smartphone delivery engine go down in bankruptcy or secede to Android.

– the deal fundamentally does nothing in the short-term to improve Nokia’s smartphones low market share. The marketing challenges remain the same, there is no brand/design/technology/distribution/marketing synergy gained by the purchase (except the opportunity cost for Msft to have Nokia adopt Android). Time will tell how Nokia’s Mobile culture is able to permeate and refresh the development of the Redmond fortress.

– Msft recovers Elop, a contender for Ballmer’s CEO job. It is true that he never strayed too far from the mothership (given that Nokia and Msft were joined at the hip as soon as Elop became Nokia’s CEO) and was not truly successful in building market share for Nokia. But Elop was recognized for his business acumen at Msft, and now has the CEO experience of running a large global tech company, with more deep Mobile management experience than most internal CEO contenders.

What’s bad about it?

– 32,000 employees more. Wow. We must be talking massive redundancies in product development, marketing, sales, support, world-wide. Expect thousands of layoffs where the two businesses overlap.

– it makes it a difficult business proposition for other manufacturers to invest in Windows Phone. As seen with Surface, and reinforced by the July Ballmer Strategic reorg, Msft priorities are clear – to be the uncontested best possible provider of device-driven experiences. That will come first and foremost before the well-being of HW partners and their interest to license technology from Msft. Partners will still be welcome in the many areas where Msft is only the provider of the software piece of the user experience (traditional PCs, servers, etc).But iIn the critical areas of Smartphones and Tablets, Msft should focus on being number one at the expense of all others device manufacturers.

All in all, this deal may be more the result of defensive business necessity rather than a pro-active growth investment. And as such there are lots of unwanted complexities that will have to be resolved to free up the value-add potential of the acquisition.

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