Nokia and Microsoft, the ugly choice

Posted by Rob Enderle


A lot of us here are suddenly asking if Microsoft can save Nokia. Back in 2005 Palm was clearly in trouble, their smartphone sales weren’t going anyplace and their plan to break the company into two parts - one  software and the other hardware - had failed badly. 



Internally, they had killed their unborn iPod Touch-like product sometime prior and the company was on life support. 

Palm partnered with Microsoft in an attempt to recover but neither company separately or together could execute. After nearly going under, the firm was sold to HP. 

 Based on the announcements earlier this week, the long-term prognosis for Palm is the same as Voodoo Computer which HP killed a year or so ago.  


Nokia now finds itself in analogous circumstance and has made a similar risky move.

Unfortunately, it isn’t hard to look back and suggest the outcome will be the same. 

However, there are a few important aspects that differ, which may make such an arrangement work when it didn’t before.  


Executive Focus

While Palm and Microsoft were never close, Steven Elop is ex-Microsoft himself and was a powerful executive there. He clearly knows how to get Steve Ballmer’s attention. Remember, Ballmer just missed half his bonus because of Microsoft’s failures in the smartphone and tablet space.   



And one way to get any executive’s attention is via their bonus. It is also clear that if Elop doesn’t execute, his career as a CEO is likely over, meaning, Nokia’s failure would be catastrophic for his career. 
   

Palm didn’t have this visibility and back in 2005 Steve Ballmer simply wasn’t focused on smartphones and clearly believed the iPhone was a joke. He obviously isn’t laughing now.

I would argue both executives tenure at their respective companies are now likely tied to this deal. Even Steve Ballmer would likely not survive if it failed. You put someone’s job at risk, you’ll get focus and they have focus. 

Getting Over the Deadly Announcement


Regardless of focus, both firms will need to bring up their game sharply to deal with the backlash from Nokia investors and employees who are in revolt at even the idea of this deal.   



This is somwhaty similar to what might have happened had Steve Jobs’ predecessor in the CEO roll at Apple - Gil Amelio - gone ahead with one of the plans he was considering before bringing Jobs back. That plan was to license the Windows Kernel for Microsoft. Handled badly, that would have clearly killed Apple and gotten Gil fired prematurely.   

Fortunately for Nokia their fans aren’t as religious as the Apple fans. Still, they aren’t reacting well to this and folks are reporting an employee walkout.    



Steven Elop is not Steve Jobs and even Jobs, if you recall when he took the money from Microsoft, struggled with a much less invasive move.  

This is a marketing problem and, at least right at the moment, neither company is stepping up sufficiently to deal with it.

End Game

The reality is that neither company really had a choice but to do this deal. Sales of Windows Phone 7, even after a very strong marketing campaign and some decent partners, have been tepid.

While Nokia has lost almost alll relevance in a market, it still leads mostly by volume.  

Microsoft needs a company of Nokia’s stature to get them back in the game and Nokia needs a company with Microsoft’s resources to close on Apple.  

Neither firm has enough clout anymore to go it alone and Microsoft’s existing partners collectively haven proven unable, and unwilling, to really close the gap with Apple.   


If they aren’t relevant, in this developer driven world, they won’t get the applications they need and if they don’t get those applications, they won’t be relevant.

But Nokia has a global reach that even Apple envies and Microsoft, though weakened, remains the most powerful software company in the world. Together they have a chance at doing this but only if they learn from and don’t repeat the Palm mistake. 

Wrapping Up: Why not Google?

This is easy; it is because Google can’t even defend their own platform, let alone resource a partner in trouble.   

If Nokia moved to Google rather than getting funding and help from Microsoft they might get asked to pay a royalty to them as HTC did and their litigation with Apple would get worse.   



An advantage with partnering with Microsoft is that Microsoft can indemnify against Apple, Google can’t and Nokia is big enough to possibly attract Oracle’s attorneys as well. Going for Android would be like a drowning man taking an anchor rather than a life jacket.  

Nokia had some ugly choices. They could have tried to go it largely alone (which clearly wasn’t working), and been in line for developers after Apple, Google, RIM and Microsoft.



Or, the could have executed massive downsizing to contain costs in the meantime or take the one partner in the above-mentioned group that would help co-fund the mobile effort.  

While clearly not a slam dunk, this has the best odds and having a company of the size and power of Microsoft interested in ensuring you survive and is clearly better than having them on the long list of firms who want to gleefully attend your funeral.  



In the end, that was likely key to the choice; do you want one of the biggest knives at your back or in it? That’s not a hard choice for me - given there are already a lot of folks on the latter course.  

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently, he provides his services to most of the major technology and media companies. The opinions expressed in this commentary are solely those of the writer.