It did not take as long as I expected but as of last week Microsoft determined its acquisition of the Nokia Mobile device business was a failure. Microsoft announced it was cutting 7,800 jobs and taking a $7.6 billion dollar charge related to its acquisition if Nokia. Most jobs being removed would be in the mobile device business. This comes after former Nokia CEO Stephen Elop stepped down from hos role as chief device guy at Microsoft. It has been along road to get to this point, a little over 8 years since the launch of the Apple iPhone, which started the downward tailspin of what once was an aspiring division at Microsoft. Sometimes a company’s culture gets in the way of doing what is right and what is needed, but that did not start to change until Satya Nadella took over the reigns of the company
I have to admit the litany of excuses I have heard from Microsoft executives over the years when it comes to mobile makes this move by Satay somewhat satisfying. Starting with the king himself, Steve Ballmer, the quotes are comical. I remember, regarding developers for mobile devices “There needs to be a third mobile ecosystem”. No there does not need to be. On the Apple iPad, “They will never sell those things”. Yes they will. On iPhone pricing, “Who wants to pay $500 for a phone?” Billions and billions of Apple dollars later. On the mobile strategy, “We just got the formula wrong”. You think, Mr 3% global market share.. All these quotes without ever having the courage to say I failed. As Bill Gates once said, “It is fine to celebrate success, but it is more important to heed the lessons of failure”.
Before Microsoft acquired Nokia, Microsoft exec Stephen Elop had left Microsoft to become CEO of Nokia. Early on in his tenure he wrote the now infamous “We are on a burning platform” email to Nokia employees.. After this Nokia was open for business, they needed a new platform as they needed to ditch the aging Symbian. There were only two contenders, Google’s Android Platform and the Microsoft Windows Mobile platform. The issue before Nokia was Google wanted Nokia, but they did not need them. Microsoft, on the other had, desperately needed Nokia. In the end two sinking ships got together and the Nokia Lumia brand would come to life. After the deal was announced Nokia VP and ex- Microsoft GM Vic Gudotra tweeted, “Two turkeys do not make an eagle”.
It was rumored at the time of Ballmer’s initial inkling’s to buy Nokia that Satya was not on board withe the idea. Then over time Satya was persuaded by Steve that it was the right thing to do. When I first heard this story my reaction was “Satya was not won over to this point of view”. I think it was more a case of Satya is a team player and since Steve seems hell-bent on doing this I might as well get on board. As would later come out Steve had wanted all of Nokia but the board restructured the deal and brought it down to a more streamlined acquisition (this effort was led by Bill Gates). When the deal was announced what I always found interesting is that Steve seemed to be buying into the Apple model. I always viewed the Google model much more in line with Microsoft’s DNA, perhaps it was the open source component of Google’s model that made Microsoft uneasy. It just seemed more consistent with Microsoft developer and partner story than doing proprietary hardware.
Following the deal there were some exciting announcements and glimmers of hope, they were just that glimmers. Global market share would go from 4% to 5%. The challenge with Microsoft was they were never able to sustain momentum. Thy never could get developers excited. Steve wanted a third ecosystem, but as former Microsoft executive Ray Ozzie said later after he had left Microsoft, “Developers only have so many calories they can burn”. With each release there was an uptick and then a drop. Time and time again we were told, “wait until Windows x”. It has become a “boy who cried wolf” kind of thing. The bottom line was and a big problem for Microsoft, people were happy with their Apple and Android phones.. To get people to move you have to change the playing field, something Microsoft was simply not able to do, with or without Nokia. It is hard to get satisfied customer to move.
Is Microsoft done? No there are plans to release more Windows Phones. At a reduced pace. I don’t think Microsoft will ever be a major force in the hardware segment, at least for mobile devices. However I think Satya is being smart and pragmatic. What has happened over the last 8 years has been a mobile nightmare for Microsoft. When you are sitting at 3% global market share that means 97% of the phones on the planet, most users have a near zero percent experience when it comes to having any Microsoft software at all on their device. Though some may say Steve started development on Microsoft Office for the iPad, which he did, he was slow and failed to pull the trigger. Satya on the other hand has quickly released these apps to market. When Microsoft talks about a Cloud First, Mobile first world, I think they understand that they don’t have it all. The bigger challenge here will be creating those experiences that mobile users have to use, both professionals and consumers.
Following the Nokia mistake the next several years will be critical for Microsoft in the mobile space as it tries a new strategy to make itself relevant. Granted given the big miss with trying to be the operating systems for mobile devices it was necessary. How Microsoft measure’s success will be important, so they have to win the hearts and minds of business users and consumers to be successful? Will just one suffice? Is this yet another attempt to tie the desktop to the device? Microsoft needs to be relevant in mobile, it’s life depends on it. In setting the course for this new strategy it also needs to be aware of shifts in the industry, it cannot have another iPhone moment. That would just breed Nokia 2.0.
Good Night and Good Luck
Hans Henrik Hoffmann July 13, 2015