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December 11, 2013

Stanford Deconstructs Microsoft's Nokia Buy


By Paula Bernier Executive Editor, TMC



TMCnet recently spoke to some of the industry’s movers and shakers about their thoughts on 2013 and the year ahead in tech. Here’s our interview with Michael Stanford, who has been an entrepreneur and strategist in VoIP for more than a decade. He blogs at www.wirevolution.com and is a monthly columnist for Technology Marketing Corp.’s INTERNET TELEPHONY magazine.


Who is the most interesting person in tech this year, and why?

“Elon Musk because he dreams the impossible dream, and somehow flips its state to possible.”

What was the biggest tech failure in 2013?

“Healthcare.gov, though it was more of a PR failure than a tech failure. Forty percent of major ERP projects come in more than four months late. Assertions that commercial sites don't have problems like this are plain wrong. High-profile commercial sites frequently go down, sometimes for days, like the Apple Developer website in September, or the entire AT&T wireless data network when the iPhone was introduced. So misses like this are business as usual in tech, and even more so when the government is involved. The F35 fighter, a darling of Congress, is running years late and blowing over a trillion dollars. But for a project as high profile as healthcare.gov, which faces such implacable hostility from such a large number of people, it is hard to envisage any scenario that could be dubbed success.”

What were the three most important tech developments of 2013?

“The most important was politico/technical: the discovery by the general public of what telecom industry people already knew: that privacy is obsolete, thanks to phone tracking, click tracking, call tracking, street view, traffic cams, satellite imagery, and the mass storage and big data software technology that makes all that data storable and mine-able for all eternity. George Orwell had it right, except he missed by 20 years, and by the scale. It isn't just Big Brother watching you: anybody can, and you fuel it with your Facebook Likes and Instagrams. This is a fundamental change in social reality, ranking with the printing press and the industrial revolution.”

What was the top startup of 2013?

“The startups that get the most ink or venture capital don't necessarily stay in business, but companies that fail can still end up being hugely influential on the industry. For example, Pebble may or may not survive, but it helped to force the smartwatch market, which may turn out to be important.”

What was the most noteworthy acquisition this year?

“The most noteworthy acquisition was Microsoft's acquistion of Nokia's devices and services businesses, because it marked some kind of end for the non-smartphone market.

“Nokia's phone software has always been user-hostile; this is only an irritant on phones that don't do much, but now that the phone business is pretty much synonymous with the smartphone business, Nokia's capitulation to Windows had some business-strategy sense: get the software from someone who knows how to do software right. Unfortunately, it is debatable whether Microsoft is such a company. But the other options for Nokia were equally bleak: another Android me-too or persevering with Symbian. Symbian has no apps to speak of, and apps are essential to smartphones. Windows, too, has relatively few apps, but Microsoft has a huge developer network and a lot of money to throw at cultivating it, so that makes business sense, right?

“I think not. The train has left the station on smartphone operating systems. We already have Coke and Pepsi there. Only Samsung has the market might to challenge that equation, and whoever heard of a cash-gushing consumer product company ditching a formula that's working? Oh, right, Coke again, but Samsung may be smart enough to have learned from that case study.

“So Ballmer looked at Google and Apple's smartphone strategy, and decided to copy their vertically integrated operating system/hardware story. In mid-2013 this was a fait accompli in the market, with Nokia selling 80 percent of Windows phones, so mirroring it in the business structure has a logical ring.

"Microsoft acquires Nokia sounded great at first, because Nokia has a gold-plated intellectual property portfolio, and Microsoft already gleans substantial license fees from every copy of Android. So that's Microsoft consolidating a strength, right? No, because Microsoft didn't buy Nokia. It bought half of Nokia, and that half didn't include the intellectual property trove. But maybe Microsoft didn't need the Nokia patents, since it seems to be doing better with its Nortel patents than Google is with its Motorola ones.

“So maybe it wasn't such a bad business proposition, since Microsoft can't come up with anything else to do with its cash pile, and it got a license to all the Nokia IP plus $15 billion in annual revenues for $7 billion, and there are plenty of people to fire (synergies in business-speak) to get the profit margins up.

“Many people have pointed out an added bonus: Microsoft gets Stephen Elop as a potential successor to Steve Ballmer, who has said he is stepping down. But this deal didn't have to happen for Microsoft to get Stephen Elop as a potential successor to Ballmer, since Nokia's board is smart enough to recognize their mistake in hiring Elop, cutting their new CEO loose with his sinking ship. In his tenure at Nokia, Elop has proven more talented (in the Gladwell sense) than Ballmer, since Nokia's global smartphone market share has plunged from 30 percent in 2010, when he took over, to 3 percent in the first half of 2013, while during the same period the share of Windows on smartphones has remained relatively flat, bumping up and down below 5 percent.

 “So why was this deal so noteworthy? First, because it marked some kind of end for the non-smartphone market. Second, the precipitate fall of a former market-dominating titan like Nokia is always good fodder for business-school tracts.” 




Edited by Cassandra Tucker
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