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