Microsoft and Nokia: The Silver Lining

by Ben Bajarin   |   September 6th, 2013

It is easy to look at the Microsoft and Nokia deal and be pessimistic. There are no shortage of challenges facing Microsoft going forward as they battle their position of limited relevance in consumer markets and mobility in particular. It is this point of Microsoft’s irrelevance that I want to focus on. This point is at the foundation of the silver lining of this deal.

While Windows still has the lions share of the desktop and notebook market, consumers are not racing out of the house to buy Windows PCs or Windows based smartphones and tablets. This fact, that Windows is just an OS that runs on the notebook hardware/brand of choice from consumers, is the point that should concern Microsoft the most. Windows, the platform and the OS, is an insignificant part of the purchase in the minds of most mass market consumers because the OS is becoming less relevant while apps are what drives consumer purchasing demands.

This is simply the cycle we are in right now. If you have a preference of a specific OS over another, you are in the minority. For most the OS is insignificant in light of the experience that OS enables on hardware. It is the total experience that garners the demand and the desire is not to own the OS but to have access to as many apps possible that might meet their needs. This is especially true on Windows based PCs.

Now, of course, Office is relevant in work based environments. Yet when we do our ethnographic research and interviews with mass market consumers in the work place, I hear more often I HAVE to use Office, not I WANT to use Office.

While we can debate the relevance of Microsoft in the mind of consumers, their irrelevance in the mobile category is undeniable. This is obviously at the root of the Microsoft-Nokia deal.

Battle For the Consumer

My belief is that Microsoft is losing–badly–the battle for the consumer. There is a reason for this. Microsoft is fundamentally and institutionally inept to the needs of mass market consumers. This is one of the many roots of Microsoft’s problems. This is what needs to be fixed if Microsoft wants to be relevant in 10 years.

On the other hand, I believe Nokia does understand mass market consumers at a global level. Their hardships of late, in my opinion, are tied mostly to them choosing Windows Phone over Android. I believe Nokia would be in a very different and vastly more successful position with their smartphones today if they would have chosen Android. Yet Android alone would not have solved all of Nokia’s problems either in the same way it does not solve the long term problems for any hardware company that ships another companies OS.

When it comes to consumers, a demographic Microsoft does not understand, Nokia has been gathering data at a ground level globally about consumer smartphone usage. They have very good relationships with a long list of global carriers who value the Nokia brand and the job Nokia handsets do for them. And they are much closer to the needs of consumers in a mobile world than Microsoft has ever been.

With regards to Nokia’s non-smart devices they have also had their issues. They missed dual-sim in many regions and for several quarters had their lunch eaten by Mediatek. But Nokia responded quickly and didn’t just add dual-sim to the markets that wanted it but took the time to understand why certain consumers valued dual-sim phones and added software value to even further meet the needs of these customers.

Nokia possesses a quality I believe that Microsoft does not..an understanding of global consumers

Nokia possesses a quality I believe that Microsoft does not. A culture, philosophy, and understanding of global mass market consumers and a desire to create products to meet the needs of a diverse global personal computing demographic.

Microsoft has acquired this by bringing the core skill sets of Nokia in house. The question is will Microsoft utilize it correctly? The newly acquired skill sets and human equity Nokia brings to the table need to guide Microsoft’s forward thinking strategies related to hardware, software, and services. Perhaps, most importantly Microsoft needs to let Nokia’s culture spread throughout Microsoft like a virus. It would also be a good idea to set up and organize this new devices and services division and headquarter it in Silicon Valley.

This acquisition must be viewed as a decade long strategy or longer. Microsoft and Nokia may still have more acquisitions ahead necessary to fight the fight for global computing consumers. I am by no means saying this relationship is a guarantee of their success. Of course many things can go wrong, this is a fact of the human variable, but I remain optimistic on both Microsoft’s and Nokia’s future.

Yesterday I heard Marc Andreessen address this topic of Microsoft and Nokia. He made some important observations in my opinion. He reminded the audience that it was not that long ago that everyone was convinced that Apple was dead. It was not that long ago that everyone believed Apple’s model of hardware + software was the wrong approach and Microsoft’s model of software was the right approach. Today everyone believes Microsoft is dead. And that Apple’s approach is the right one and Microsoft’s is the wrong one. Most importantly he reminded the audience that the one thing that is certain about this industry is its unpredictability. “Whatever we think is impossible today” he said “is almost certainly not the case.”

I’m rooting for Microsoft. This industry does best when there is platform competition. Whenever I evaluate acquisition scenarios I always look for companies that would be better together than if they were separate. The Microsoft + Nokia deal is certainly one where they are better together than apart. But if they do turn this around we may look back and realize that it was not Microsoft that saved Nokia but Nokia that saved Microsoft.

Ben Bajarin

Ben Bajarin is a Principal Analyst at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Full Bio
  • Kenny

    Great Post Ben

    i love reading your Analyse

    i don’t understand Why do so many pundits delight in trashing Microsoft despite all their Success?” Part of it is probably history. Any company in business as long as Microsoft is going to have its ups and downs and Redmond has had its share of bad moves and predatory behavior.

    Unlike you many of the Folks who write about the technology business aren’t experts nor Analyst about technology or business, but gadget freaks and fanboys (and girls). They read the technology press, pick the facts they like and ignore the rest. which is not helpful for the average reader.

    • FalKirk

      “Why do so many pundits delight in trashing Microsoft despite all their Success?” – Kenny

      I my opinion, the Microsoft Windows Monopoly stifled innovation in the PC space for 15 years. When they got a lead, they took their foot off the gas pedal.

      I want to see Microsoft competitive. I never again want to see them dominant.

      • benbajarin

        I think it is safe to assume MSFT will never be dominant again.

      • Kenny

        I can understand that,
        but you are an analyst, not a Fan Boy
        your personal feelings about Microsoft should never be a part of your analysis of the company when writing your post or comment

        • TheEternalEmperor

          I don’t think he’s an analyst. Opinion and feeling(though astute) is why he’s here.

        • Defendor

          That isn’t a feeling. It is factual. Microsoft created stagnation whenever they were dominant.

          IE was a good example. IE was left to rot on the vine for years becoming a terrible joke.

          Windows XP – Vista was 6 freaking years!

          I don’t think anyone wants that kind of stagnation again.

  • http://www.BarnesFamily.com/ davebarnes

    Silver corrodes quite easily.
    To me, one of Microsoft’s larger problems is that they don’t how much people really don’t like Windows. The Windows brand is tainted.

    • David Olson

      “The Windows brand is tainted.”

      I think Microsoft, Google and Yahoo are in love with their brands. Every product becomes The Windows Something 2100JX-12 or Google Maps or Yahoo Weather. They seem to see the addition of their name as a means of success, a statement of value. And it must be for the fanboys of each company. But I find the repeated corporate name tiresome and even irksome.

      But worse than failing to find a good name for their various products, MS has an association of frustration, complexity and confusion with its Windows brand. The apology at a bank or store for their computers running slow includes the reason: Sorry, it’s Windows. Windows really is a tainted brand.

      • benbajarin

        I agree. That’s why I brought up that it was an insignificant part of the purchase decision. But whose to say they don’t scrap the whole thing and start over?

        My point is, taking the long view on Microsoft is the helpful part of this discussion. Perhaps Nokia folks can get them to think bigger.

      • qka

        The Microsoft brand is tainted from its association with Windows – and for so many other reasons.

  • FalKirk

    I think that Ben Thompson summed up Windows Phone problems succinctly:

    “Inferior product with same business model”.

    Windows 8 was trying to compete using Microsoft’s traditional business model: A) Microsoft makes the software; and B) partners make the hardware. Didn’t work.

    Now Microsoft is moving to the integrated model where they make both the hardware and the software. But they’re so, so very far behind both in time and in market share. It’s the arrogance of Microsoft that they think that they are so much better than everybody else that if they simply show up in the marketplace with a product, then everyone will switch to them.

    That’s not how it works. A product either must be FAR superior or FAR different in some important aspect for customer’s to switch. Windows 8 is neither.

    • benbajarin

      Yep. But 5 years from now they may have figured it out if they let the smart folks at Nokia influence their long term thinking.

      In my mind this can only be looked through the lens of a long view.

      • David Olson

        I wonder about this very point: is the way the smart folks at Nokia won the old phone market the way that MS can win or at least compete in the current smartphone market? There are a number of benefits Nokia brings to MS but I am not sure Nokia’s old strategy is one of them.

        • benbajarin

          Agreed. Without question a new strategy is key. One with a mobile first vision. This is of course not limited to hardware, in fact a mobile first vision around services is what Microsoft should start with. But Nokia is at least a mobile first / only company. MSFT has never had that kind of thinking in house.

      • Kenny

        I completely Agree
        as i said before Microsoft is a major player in the cloud and service, where i believe the mobile industry is heading

      • diddler

        I am rather inclined to think that the smartest folks at Nokia have already left and the smart ones are making plans to leave. The culture at Nokia will never infect Microsoft, it will be the other way round, at least this has been my experience of big mergers. The dominant company’s culture takes over. I am not sure many at Nokia will look forward to the kind of corporate warfare that Microsoft is famed for.

      • Herding_sheep

        Not to dog on Nokia, but I feel like you are being a little too kind to Nokia. Lets not blame Windows Phone entirely on their failure, because its not. And even if it WAS entirely Windows Phones fault, THEY made that decision, meaning their current situation can be placed entirely at their feet.

        But the point I’m making, is I think you are too kind by saying Nokia REALLY gets consumers. How quickly we forget things. How long did it take Nokia to genuinely recognize the profound revelation of the iPhone? How long did they scoff at the iPhone, and cite Symbian dominance and Apples wireless inexperience as a recipe for minimal success? The future was presented right in front and they failed to acknowledge the potential. That’s why Elop came in and replaced the former CEO.

        Nokia is in their current situation for the same reason Blackberry is. They buried their heads in the sand and tried to pretend the iPhone wasn’t revolutionary. That it would dramatically alter the entire computing world. They didn’t see it, and they didn’t WANT to see it.

        I wouldn’t consider a company like that as one who really understands consumers. And to top it off, they failed the test again by not realizing the disruptive power Android would have on the commodity OEM scene.

        • benbajarin

          I think we can point to a great many mishaps by many companies in this space, Apple included. Some obviously much more disastrous to others in this case.

          I think it is wise to recognize that no one saw what Apple was doing coming. It is easy to blame many companies for missing this boat but what I am more interested in is what did companies do once this realization happened. It took time, of course, to react and I think Nokia had a bit of strategy paralization. Keep in mind their feature phone business is still huge. It was a wise focus from a standpoint of where they could compete.

          Windows phone really did seem like the logical choice at the time since when they made this decision Google was not a friendly partner. They are now that Rubin is gone.

          My point is, let’s judge this again when we see the effect of the deal take place.

      • DarwinPhish

        Replace Nokia with Danger and you could made the exact same comment 5 years ago!

  • def4

    If you had good knowledge of Nokia culture you wouldn’t be so optimistic.
    The article read comically wrong to me exactly because of this assumption that Microsoft would benefit from the spreading of Nokia culture.

    Microsoft doesn’t need that. They already are arrogant, greedy, deluded and entitled enough.

    • benbajarin

      I appreciate the disagreement. I do have the privilege of engaging frequently with Nokia’s executive team. From the time I have spent sharing our views on the market and industry and listening to theirs I do think they understand what is happening and are actively looking at every route to meet needs of consumers.

      As I said, I’m not ready to write the last word on this situation yet.

  • Quicksingle

    Nice article Ben. I agree that the Nokia culture needs to spread through Microsoft, almost like get out of the way Microsoft and let us Nokia guys do our stuff. I agree Nokia on an Android platform would have been more compelling. I am still not convinced whether the merger will be a success, although Microsoft has been known to keep throwing money at problems. As consumers it is great if we have competition and choice,

  • Bazza

    This article does have some interesting comments regarding the value of Nokia’s people and perspective as applied to the handset industry. Everyone is hoping that the combination will enhance both sides of the merger with Microsoft benefiting in its attempt to impact the mobile market.
    However, after reading Ben’s thoughts, I’m wondering if that can really happen.
    Have you read the article in Vanity Fair detailing the use of “stack ranking” as a pervasive management tool at Microsoft, and its impact on the company’s ability to respond to new challenges (not to mention how it affects moral)? If even half of that report is true, how can Nokia’s culture have any place at Microsoft?
    What are your thoughts, or is the issue not important?