Microsoft and Nokia just merged and while we should have anticipated this, it comes at a time when neither is at the top of their game and many seem to be already branding the effort a failure. While it is easy to jump to this conclusion, I also think it is premature.
In the U.S., it is easy to think of Nokia as being a relatively unimportant company, they’ve never been the power here that they were in Europe and parts of Asia - but for most of the last two decades, they were the most powerful cell phone company in the world. What is interesting is that they have always been strongest where Apple is weakest outside of the U.S.
While they have clearly struggled with smartphones, this was largely due to their own historic lack of commitment on a platform and their need to go it alone.
They came to smartphones a bit late and largely after Apple had redefined the market. Unlike Samsung/Google, who effectively copied the iPhone, Nokia/Microsoft initially tried to carve their own path.
It worked, but not as well as they’d hoped and something had to change.
Let’s talk about that this week.
Microsoft/Nokia Children of the ‘90s
In many ways the two companies were created and matured in the nineties along with their respective markets during that time.
Microsoft defined the PC era where companies outsourced software largely to them and that created a critical mass of apps and developers to support the platform. Phones weren’t that smart and they didn’t need that critical mass of developers.
Nokia’s unique capability was to create phones that could easily be customized, skinned if you will, and folks reveled in having phones that were unique.
Smartphones evolved much like the PC did, initially companies like RIM and Palm had their own platforms and a set of applications that had to be created uniquely for them targeted at business users. Apple, like they did with the Mac, uniquely targeted users but with a closed system and broke the market open.
Microsoft, having been in the market first, appeared to repeat IBM’s mistake by focusing on business initially as well and attempted to repeat their success by almost ignoring users.
Google, on the other hand, took a page from Microsoft’s book, and largely copied Apple and then looked for OEMs to carry their platform.
They did one thing different though, because they had a substantial ad income, they decided to offer their OS for free but with little support.
Samsung, using a strategy similar to what they’d used to displace Sony on TVs, jumped in this with both feet and outspending Apple on marketing, surprised both Apple and Google (who didn’t want any one OEM to be dominant) to take the market.
The irony here is had both Microsoft and Nokia studied how DOS then Windows PCs initially became dominant, they would have been in a better position to take advantage and the outcome might have been substantially different.
Mistakes of the 2000s
Eventually the two firms did get together but execution was problematic. Initially Nokia’s phones weren’t designed to work with the Windows Phone platform and it took a generation to get that fixed. Some of their most advanced designs just couldn’t be supported and even after they had been working together for some time it was clear that neither company was supporting the other very well.
The most noticeable was Microsoft’s inability to support the advanced cameras that Nokia wanted to bring to market as differentiators delaying their move to advanced camera phones until this decade.
The Smartphone market was simply moving too quickly and even the PC market was starting to badly drag because of the inefficiencies of having hardware and software separate. For instance Windows 8 launched nearly a year before the hardware side was truly ready to receive it badly stalling the PC market as well.
The inefficiencies of separating hardware and software were overwhelming the advantages and both the PC and Smartphone markets were in flux with both Nokia and Microsoft at risk.
What was clear was that there needed to be far higher integration between software, hardware, and online services if companies wanted to compete with integrated firms in a fast moving market. You can see Samsung taking more and more responsibility away from Google and they are even moving to build their own platform now to ensure they stay ahead of Apple.
Microsoft and Nokia had to merge because they have to be even faster, since they are running behind, and if this merger is successful and PCs continue to fall off, I’d expect Microsoft to eventually make similar moves in the PC space - they already make their own tablet PCs.
But, the lesson that shouldn’t be forgotten, is that focusing on the user for any tool is the winning strategy and sometimes emulating someone else who has better targeting is the fastest way to success.
Microsoft was built on a strategy of embrace, extend, extinguish. It just amazes me that Google and Samsung executed it better this round.
Microsoft/Nokia, if they are successful, will at some point have to rediscover that strategy. I believe together they now can. Microsoft and Nokia were once the most powerful in their segments and both have the DNA to be so again, that makes the potential for this merger much greater than folks realize.
What I find fascinating is that Apple, with the iPhone, basically repeated the same strategy they had executed with the Mac, a strategy they had forgotten before Jobs brought it back to the company personally and first reapplied to the iPod.
It makes me wonder if what Microsoft/Nokia need is some of the old talent that created Windows 95, Microsoft’s most successful consumer product, back to help them find their old successful strategies and maybe some of the old Nokia folks that understood personalization.
If both firms can recapture what they once did so well the result would be unstoppable and far bigger than most now anticipate.
Maybe the answer to massive success for the new combined entity lies with the people who first made the companies nearly unstoppable.
That was the case with Apple after all.
President and Principal Analyst, Enderle Group
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