Microsoft and Nokia: The Silver Lining

on September 6, 2013
Reading Time: 4 minutes

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

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.