Microsoft’s acquisition of Nokia

Will it help to beat Android and iOS?

September 2010. Stephen Elop former business division head of Microsoft joined as CEO of world’s

most trusted mobile phone vendor Nokia. Months after that he sent ‘Burning Platform Memo’ to

Nokia staff with an exposed urge for playing a different game. He described story of a man working

on an oil platform in the North Sea who woke up one night hearing loud explosion that set that

platform on fire leaving him adverse choices; consumed by either fire or plunge 30 meters into the

freezing water. The man jumped. The story ends with the rescued man expressing how that burning

platform caused essential change in his behavior. According to Elop, Nokia was the man on burning

platform that needed a rescue team. Surprising the world, he chose Windows OS to do that not

ubiquitous Android: a free, vigorous, open source operating system for handheld mobile devices.

3 years later...

September 2013. Microsoft

swallowed Nokia’s phone business

for 7.2 billion dollars. Company that

owned 40 percent share of handset

market now left with only 15

percent! World could witness a

different story if Elop chose Android.

The disgruntled Finnish media

named him ‘Trojan Horse’ who

willingly destroyed that company so

Microsoft can snap it. It is only

natural reaction from Finland

because Nokia used to account for 20

percent of Finland’s GDP. Therefore,

Bloomberg wrote, “As goes Nokia, so

goes Finland?”

Figure: Nokia smart phones shipment

and sales from quarter one of 2011 to

quarter two of 2013 shows continuous

decline. Source: Tech-thoughts

Acquisition has made this company more like Apple; own hardware, software and service facility. Will it

help? Let us go back to some historical episodes when HP took over Palm and Google did the same to

Motorola… none of that turned out well except for Apple’s acquisition of NeXT from legendary Steve

Jobs. Exception cannot be an example, can it? In addition, weak companies merging were not successful

in the past. Then why Microsoft is playing this insane gamble? May be it was the only choice. According

to International Data Corporation (IDC) PC sales globally declined at 7.6% year over year in the third

quarter of 2013 that will continue shrinking and preferred mobile operating systems in the enterprise

also shifting unfavorably. These are the reason Microsoft tried to go handheld with its shield Nokia.

Microsoft needs obscene amount of money to hold the fight against Android and iOS. But right after

Nokia deal stock price shockingly dropped 5%. Investors panicked and left cold due to the lack of

confidence. Considering this, Microsoft has a big war to face. Now Microsoft itself is becoming a burning

platform.

Figure: Mobile operating systems in the enterprise

Undoubtedly, Microsoft wants to whack and shake Android and iOS. Here I am placing some critical

deterrents in customer adoption of Windows phone that can make their mission nothing but a

daydream followed by a place in oblivion:

At first Microsoft must find efficient successor after the retirement of CEO Steve Ballmer to sail

through storm it never faced before. If rumor becomes true that Stephen Elop is the one then God

knows what will happen. Moreover, we hear many big investors and part of board preferring Alan

Mulally; CEO of Ford. Decision is tough.

Figure: Mobile operating system browsing statistics on

Net Applications, 2013 (source: Wikipedia)

Figure: Worldwide smart phone sales to end users

by operating system, 2013 (source: Wikipedia)

0

10

20

30

40

50

60 55.39

30.58

6.473.58 2.55 0.78 0.5 0.15

iOS

Android

Java ME

Symbian

Blackberry

Fire OS

Windows

Other

0

10

20

30

40

50

60

70

8079

14.2

3.3 2.7 0.9

Android

iOS

Windows

Blackberry

Other

Which generic strategies Microsoft will follow to deal with this competitive force enabled by IT:

low cost leadership, product differentiation, focuses on market niche or strengthening customer

and supplier intimacy? Some specialists say Microsoft should prioritize either device (like Apple) or

service (like Google). If they look for both, then it is going to be a hard nut to crack.

Windows phones are neither user friendly or cheap. Users mostly complained about not having

proper notification centre, start screen folder, proper mapping app, required personalization, file

manager, synchronized browsing, control toggle, app feature parity and extensive browser sharing.

Lack of app in windows store and late release of apps were marked red. On top of that, Windows

lacks official support for the majority of Google’s ecosystem of online apps. On the other hand,

Android or iOS users are highly satisfied with cheap yet efficient products.

Figure: Customer-developer dissatisfaction cycle

All these deterrents lead to customer dissatisfaction in windows mobile. Number of customer

declines. Less customers access Windows store and it gets less lucrative to the developers because

they cannot make enough money by putting their apps first at windows store. That results in lack of

software and late arrival of apps in the store. That ultimately leads again to critical deterrents in

customer adoption. ‘Windows Phone is an afterthought for most developers because with only 5%

market share worldwide, there isn’t a very strong profit potential in the Windows Store’- The Verge.

Critical deterrents

in customer adoption

Customers dissatisfied (customer declines)

Windows Store gets

less lucrative for developers

Lack and late arrival of

apps in store

In the midst of lurking fear, there remains ‘Hope’.

Nobel laureate in economics Ronald Coase said that the biggest advantage Microsoft is going to get

is minimum transaction cost; cost of not owning the supplier. Sometimes transaction cost can be

more than the operating cost. That is a big plus-point. Due to this combined synergy, Microsoft will

get on an average 40 dollars per device against previous income of less than 10 dollars. Survey

found that many new smart phone buyers prefer Nokia with Windows operating system (that may

be because of their limited knowledge regarding that product; future transition is more likely) and

certain age group 16-24 and 35-49 who look for balanced price and functionality prefer the same.

Now Microsoft is emphasizing on helping, funding and if necessary creating app joining the

developers. Developing apps for Windows 8 requires visual studio express 2012 which is freely

downloadable.

Windows is competing with parties that are far ahead in this race. To cope with it they need to catch

the new smart phone users and retain them by developing Windows store and providing them with

dynamic innovative tools using cutting edge technology thus convincing other to switch product.

We saw how one decision almost destroyed Nokia, now we wait for another that can protect both

Microsoft and Nokia’s future. They must have a trump to win over other. If not, they just stepped

into ‘an unwinnable war’-Forbes.

Author: Istiak Ahmed Raihan

Tourism and Hospitality Management

Faculty of Business Studies

University of Dhaka