September 04, 2013

Ballmer: Android is Just a Press Release...So is the Nokia-Microsoft Deal, Unless...


We have a prediction in the works as an answer to “Unless…” – and a somewhat different take on why Nokia-Microsoft is a very important deal for the mobile world. But hang on, we’ll come to it.

We find it to be more than a little interesting that just as Google announces that it has now officially hit one billion activations, Microsoft announces that it has finally pulled the trigger on acquiring Nokia’s smartphone business for $5 billion. Microsoft also announced that it will send an additional $2.2 billion to Nokia in exchange for patent licenses and a deal to use Nokia’s mapping technology. It is worth noting that Microsoft is funding the deal with its overseas cash resources.

The deal has already been dissected in a number of different ways – we recommend Rich Tehrani’s take on it – which does a great job of covering and reflecting on the major issues and deal details. But the event that immediately comes to mind for us to frame the deal is a press conference Microsoft CEO Steve Ballmer once took part in where he preached the virtues of the old Windows Mobile and literally stated that Android was nothing more than a press release. We’ve always been fond of that particular statement as it has always underscored exactly the kind of thinking that Microsoft and Ballmer have operated under within the mobile world since the iPhone emerged. There is a video of that press conference on YouTube, though we won’t dig it out this time around, but it really said it all about Microsoft’s mobile future.

Nokia itself is now left with not much of anything except for Nokia-Siemens, which is beginning to look like a bright spot on Nokia’s horizon. But no matter, today’s deal isn’t about Nokia; it is about Microsoft as a “devices and services” player. Ballmer famously announced that Microsoft was going to become exactly this, and there is little wonder about as to why Microsoft acquired Nokia’s entire “Devices and Services” business, as its press release noted. Stephen Elop, meanwhile, now steps aside as Nokia President and CEO to become Nokia Executive Vice President of Devices & Services.

Clearly the deal has been in the works for a very long time, though it is curious that it has now become an announced reality just as Ballmer is stepping down. One has to wonder if Nokia had reservations about Ballmer remaining in his CEO role – perhaps not, but surely Stephen Elop knows better than most people what kind of fate was likely in store for Nokia if Ballmer was going to remain at the helm.

Back in early 2010, we wrote an article that spoke about Nokia and Microsoft being two ships sadly passing each other by in the night. We had championed the idea of the two companies working closely together back then and we were not unhappy when Ballmer and Elop finally managed to put things straight and got their initial deal done - our colleague Paula Bernier has just penned an excellent article reflecting on those days.

Since then both companies have moved far too slowly to advance both the state of the mobile operating system art and on devices. Nokia’s Lumia 1020 needed to have been launched back when the Lumia 920 was launched – something we made clear at the time as we (and many others) expressed disappointment at what Nokia was putting on the table as a flagship device. Meanwhile, Microsoft followed up on its Windows Phone 8 release with…not a whole lot.

Today we have Google announcing that Android 4.4 will be code named KitKat (alas, not a particularly good choice – candy bars full of excessive sweetness that are ultimately bad for you don’t quite do it for us, though we do note that we like KitKat bars) and that has generated more excitement than anything Microsoft has been able to muster for whatever the next iteration of Windows Mobile will bring us. Nokia has noted that all of its smartphones will run the next “Amber” release of WP8, but, ho hum so far – no excitement has been generated that we are able to detect.

This is a key issue as far as we are concerned. No matter what and how close the ties are between big brother Windows 8, the soon to be released and supposedly greatly improved Windows 8.1, and what the next generations of Windows Phone 8 might be, if Microsoft/Nokia cannot break through to build a huge desire for WP8 devices or for WP8 itself, well…the acquisition will indeed remain nothing more than a press release. It would be a huge shame if in fact this was the end result, and sadly the odds greatly favor this outcome.

But We Have Hope!

We want – and the tech and enterprise worlds need – for Microsoft to be enormously successful with WP8 and whatever new Nokia devices – including a new range of tablets – are delivered over the next year. It is a sure indicator of the enormity of this task when one of our favorite mobile tech survey vendors – ChangeWave – delivers a report that ranks Windows Phone 8 dead last on the radar for most people who are likely to buy a smartphone over the next six months or so. ChangeWave has proven to be quite accurate in its findings over the years and we have no doubt it will continue to be so.

But the latest ChangeWave survey does not take into account what a combined Microsoft-Nokia might be able to deliver from a marketing perspective. It merely reflects the old Microsoft-Nokia partnership that we perceived to be much too slow on delivering new toys and keeping the pipeline imaginatively filled. As we noted earlier, the Lumia 1020 needed to arrive in early 2012, not in the second half of 2013. We view this as a huge failure on both Nokia’s and Microsoft’s part – they had a chance to step up the game in big ways when the rest of the world was working on “next generation? 8 megapixel camera sensors and they failed to meet the challenge of doing so.

Obviously a mantra of “Devices and Services” will help the combined overall companies to understand their new mission in life, and with Ballmer now set to step down we are quite hopeful that even the CEO’s office will come to quickly understand what the term actually means. Ballmer was never the guy to make this happen. Now that he is beginning to fade out of the picture, it becomes far more of a possibility that Microsoft can transcend its past and emerge as the nimble and innovative mobile player it needs to be. We will put an extra emphasis on “nimble” here.

Elop as Microsoft CEO?

We haven’t spent any time playing the guessing game as to who Microsoft’s next CEO will be, but Elop now certainly sits in a much better position to possibly be next in line to become Microsoft’s next CEO. In the end we may end up looking at the Nokia purchase not for the device technology, mapping capabilities and patents that Microsoft ends up owning, but perhaps instead we will look back on it for having put the right “mobile” leadership in place.

Does Elop have the chops to pull it off?

Well, Elop was an intimate Microsoft insider. He knows all of the old businesses Ballmer has spent a lifetime protecting. It has been four years since he moved to Nokia and that dovetails quite neatly with Ballmer’s own recent statement that he has been speaking to people about the CEO transition for about four years. We have to wonder if the Microsoft board saw the Nokia deal slipping because Ballmer was still at the helm and Elop wasn’t going to hang around for another 5 years as an EVP at Microsoft. Moving Ballmer out immediately may have been critical to closing the Nokia deal.

It is also quite interesting that Microsoft’s board continues to hint that they are well along the path to figuring out who Microsoft’s next CEO will be. The Nokia acquisition may simply be the last piece that had to fall in place for the board to position Elop as Ballmer’s successor.

We believe that Elop may in fact bring the right combination of elements to the Microsoft table. As Microsoft’s CEO he ends up owning the resources to build out the Devices and Services team at an enormous pace. Compared to the frugal resources he had available to deploy through an independent Nokia, Nokia-Microsoft is an entirely different arena now – and instantly becomes a hugely more effective player.

The other thing we like about Elop is that we believe he would be able to pull his many Microsoft generals (perhaps “warlords” is the better word) together into a cohesive whole. We know Elop is entirely able to deliver strong doses of reality – his “Nokia is a sinking ship” message to his Nokia troops early in his CEO career makes it clear to us he is able to do this. Can he pull it off at Microsoft? If the board delivers a powerful message of support, and given his extensive ties to the old Microsoft and the new Microsoft, we believe he can. In fact we hope this will prove to be the case.

As to the question of nimbleness, Elop’s problem at Nokia wasn’t a lack of desire or failure to understand Nokia needed to be far more nimble – Elop simply lacked the resources to move any faster than he was able to. With Microsoft, it may take a while to turn the massive ship around to a new course and heading, but once the ship is turned we anticipate that it will begin to move forward at an enormous rate. This is key.

Ballmer had no interest or understanding that the ship needed to be turned – so no matter how fast the Microsoft ship moved – and it moved at quite a clip - it made no difference. Elop absolutely understands that it is the big turn that has to happen – and of course it has to happen (to continue to ship metaphor) while avoiding turning into and falling into the wave’s trough and being completely overwhelmed by the next wave.

That next wave implies that there is much more to where Microsoft has to go than finally getting mobility right. It also has to catch the next several tech waves and truly lead. Elop will need to merge cloud computing, big data, mobility and wearable tech (in its many forms) into a cohesive whole. Microsoft has to weave together and deliver a coherent, compelling and enticing vision for the next five years and the next decade.

We would be quite happy to see Elop get the chance to do so. And this we believe is the most important thing that needs to come out of Microsoft’s Nokia acquisition.

It isn’t about the short term, and it certainly isn’t about the next WP8 device. Erik Linask, TMC’s group editorial director, strongly suggests that “the deal isn’t about the near term – it’s about where Microsoft needs to go in the long term with its next generation of WP8 users. We tend to focus too much on short term issues – it is in the longer term, I believe, the Nokia’s assets and IP will serve Microsoft well.”

We agree with Erik, but we also believe that it is up to the next Microsoft CEO to unlock all of the potential value here. We’ll go on record as saying that we believe Elop has the keys to do so already in his hand. This is what the Nokia-Microsoft deal is all about as far as we are concerned.




Edited by Ryan Sartor




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