I have absolutely no idea why they purchased Nokia in the first place -- it was obvious that they were never going to seriously challenge Apple or Google, and Nokia was another obviously sinking ship. It was like if Circuit City had purchased Radio Shack. I have no idea why the board let Ballmer blow billions on an acquisition they knew he wouldn't be around to see through and that didn't fit with the strategic direction of the company 6 months later.
If I were an institutional investor, I would demand a change in board leadership. This kind of stuff is just unacceptable for a public company. I know hindsight is 20/20, but blowing $14 billion on acquisitions that were doomed to begin with is simply inexcusable. You can blame Ballmer for being a terrible CEO, but the blame really rests on the board for allowing him to make really big, really bad decisions.
2. Even though their relative market share is low, keep in mind the market is huge and so in absolute numbers, they are selling quite a few Lumias. Millions of devices every quarter is a pretty decent number, and something that could be leveraged in various ways. Not a direct comparison, but note that until 2007 Apple ran their entire business on products that had minority market share.
3. Not very familiar with the aQuantive deal - how was it doomed to begin with?
2. Apple's product strategy is vastly different from Microsoft's. Apple makes most of its profits from he sale of consumer electronics. Microsoft makes all of its profits from the sale of software licenses to large corporations (they make revenue elsewhere, but I don't think any of their consumer products are actually profitable). It's just not a good market for Microsoft because it doesn't fit with how they operate as a company.
3. Microsoft vastly overvalued its online properties and was playing in a space it had no business being in (media and advertising). Microsoft's core business revolves around selling software licenses to large businesses through reseller channels. While the advertising world has some similarities structurally, Microsoft just didn't have the relationships or corporate culture to make it work.
2. Agreed, Apple's product strategy is very different. I was just making the point that minority marketshare is not the show-stopper many think it is. Note that Microsoft has been making decent profits in various non-software license businesses for the past few years, including consumer electronics (XBox, Surface Pro), Azure and recently, even Bing. Their revenue streams are a lot more diverse than people give credit for.
3. This sounds reasonable, and gels with the detailed comment above from calbear81: https://news.ycombinator.com/item?id=9852898
With the possible exception of platform lock-in, all of that applies to everything Microsoft became a leader in too. Why would there be no realistic chance?
1. Apple and Google are (and were at the time of the Nokia acquisition) larger companies than Microsoft. Microsoft's usual tactics are to throw their weight around, which they can't do when they're the smallest dog in the fight. What's worse, mobile represents a huge amount of revenue for both companies, so they have both the incentive and the ability to outspend Microsoft. Microsoft doesn't have a lower cost base (if anything, it's the opposite) so they have no basis for a sustainable advantage. Mobile was never a huge revenue number for Microsoft, so they always have the option of walking away.
2. Apple and Google also have the vast majority of the market covered from a value proposition standpoint. Apple goes after the high-margin top end, and Google uses an arms-dealer model to go after the middle and low end. What value proposition does Microsoft have that is substantially different? If you can't differentiate your product, and you have the disadvantage of being smaller in a market with strong network effects, you have no basis for a sustainable advantage.
3. The market had already started to mature by the time Microsoft bought Nokia. While you can get in early in a growth market and out-grow the competition, it's an uphill battle if you're as late as Microsoft was. Your competition will still outpace your gains even if you outspend them by a significant margin.
4. Building a niche product (i.e. if you can't be #1 or #2) can still be a profitable strategy, but it is a bad idea for a company like Microsoft. If nothing else, it's a distraction from their core moneymaking activities. Their first instinct would be to leverage their existing platforms to build user share, which would be a negative thing for Microsoft's existing platforms by creating opportunity for competitors as Microsoft's users search for alternatives (see Office on iPad). And because Microsoft has a decentralized power structure, there's not much they can do to prevent this. They're better off not playing in the mobile space at all than aiming to be a niche #3 -- let a smaller, more focused player with a lower cost base take on that role.
At some point, Microsoft will realize that mobile is a game they will never win. While they would be in a much better strategic position if they had a strong mobile presence, wishing that will happen won't make it so. IMO their optimal move is to get in bed with both Apple and Google and make BYOD really awesome if your company uses Microsoft as a back office. Apple would do it because they have little to no presence in the enterprise tech space, and Google would have to do it because otherwise Apple would become the de-facto standard in corporate mobile phones. That position leaves Microsoft with other options and leverage over the industry, which they currently don't have sitting at the bottom and looking up saying "me too!" It's also very hard to do any of this if you're in direct competition with Apple and Google on the OS/handset side.
As I see it, you seem to be trying to prove that things that actually happened were impossible, but no one noticed.
Also, Microsoft was a very different company in the 80s. They were a scrappy startup that had to prove themselves, and didn't have any legacy products, cost structures or business models dragging them down.
I'm not saying it's impossible for a company to be successful in the smartphone space as a solid #3, just that it's a bad idea for Microsoft to try to be that company. It's too far from their core competencies, and it clouds the strategy for their cash cow products.
IMO the majority of the value of Microsoft as a company at this point is their enterprise sales network. The relationships they have there are essentially a machine that lets them print money year after year. Consumer electronics (like cell phones) don't let them take advantage of their most valuable asset.
Instead of trying to chip away market share from Apple and Google, Microsoft should be going for the jugular against IBM and Oracle in the enterprise space by getting Microsoft enterprise applications on every phone, tablet and browser they can. Because that's the part of the company that makes money, and what they've done over the last 10 years is essentially try to leverage their high-margin enterprise software business to create a low-margin consumer electronics division. It's insane, and while I understand the need for products like Surface to create a baseline for quality with their OEM partners, it also doesn't make sense to sacrifice your profitable businesses to try to make those other products a success.
But Excel's huge win was developing the ability to save a spreadsheet in Lotus format so your coworkers could open it.
I actually don't "hate" Bing. I find their answers to questions directly in results slightly better than Google's version of the same. But I still use Google as they have more historical search data to utilise so results remain more accurate (and will almost indefinitely). Bing also seems to choke on technical queries and special characters more often.
Do we? Aren't people constantly speculating about them spinning it off because it's a loser?
http://www.gamesindustry.biz/articles/2013-11-07-huge-xbox-l...
http://www.ibtimes.co.uk/xbox-one-has-raked-400-million-loss...
(Candy Crush isn't helping much, either.)
http://thevarguy.com/business-technology-solution-sales/0707...
IE is still very popular and defaults to Bing. Firefox is very popular and now defaults to Yahoo or Yandex or Baidu depending on the country you're in...
> does not matter how much you push , google will not defeat, because their income resource is somewhere else
The majority of their revenue is advertising, and the majority of the advertising revenue comes from search ads, so search is exactly where their revenue is coming from.
> and abandoning Bing is almost will end up Microsoft's death
huh? I don't see how that could possibly be true.
That's not true . (maybe IE is more popular in some corner of the world , or among some users but) We all know in search engine market share , google is ruler and leader, without even a serious competitor. (recently maybe bing become a little more viable). Does not matter you (as company) put yahoo or anything else in your browser default homepage , most people will use/switch to google. Need for search engine will be increase with Internet and population growth.And I think this will end up with Google's exponential growth in compare with Apple or Microsoft linear growth.
> The majority of their revenue is advertising, and the majority of the advertising revenue comes from search ads, so search is exactly where their revenue is coming from.
Yes , exactly , because of that they don't care if they create some "free" OS better than Windows. Like what they did with Android. They just want better IT industry , better OS , better PC. Because with increasing IT users , their revenue will increase.
>huh? I don't see how that could possibly be true.
I see this problem in reverse order , with Microsoft giving up on bing, Google will end up without any serious threat to its income and core market share. And recent years already proved my , Google wants everything , after a while their ChromeOS will be viable replacement for Windows.They will push gaming on Android. and etc etc etc , and after years mayble Microsoft will end up where Companies like Novel are today .
But these are my view , I could be wrong.
Atlas was really all Microsoft wanted since Google had bought DoubleClick and Atlas was at the time one of the few other large ad serving platforms. The ad serving business basically consisted of a way to track campaigns, impressions, clicks, conversions for large media buys for Fortune 500 companies. There was also synergy with the Avenue A | Razorfish business since clients like Nike, Best Buy, Hawaiian Airlines, and MSN would use Atlas to track their large campaigns across the web. The expectation from Microsoft at the time was that they could build a large display network across the internet using data from users that visited MSN or Bing just like Google does with it's search.
AA|RF was a bad fit because Microsoft was not in the advertising agency business so they quickly dumped that to Publicis. I worked at AA|RF in client services for a few years and were growing quickly at the time. We were doing things like multi-channel attribution and tackling view-based conversions years before they became a mainstream topic in the display ad world. A lot of those folks have gone on to lead at other places like Bob Lord, President of AOL, who previously led AA|RF!
DrivePM was a retargeting business that leveraged custom cookie pools that could be created based on both user's ad viewing/clicking behavior and tracked behavior on a client's website. So for example, you could say I wanted to target only people who viewed my ad in the last 2 days and visited my checkout page but did not complete their purchase. I think with investment, this business could have grown to take advantage of the surge in RTB and programmatic buying. One of the most interesting programs they had was a "recyling" product that basically took wasted impressions and resold them to other advertisers to reduce media costs. This involved doing a study to see what the optimal number of impressions was per user and the conversion rate dropoff curve per additional impression. Once you had that number, you would set a rule that said if this user has already seen the maximum number of ads from one advertiser in a given time frame, don't show the ad and instead show an ad from the recycler network.
Hope that helps!
It's a little hard to suggest that for that price tag they didn't have any other options to manufacture devices.
Better analogy would be as if Kmart purchased Sears, which they did back in '04, to pretty much the same outcome.
Sometimes I think terminally ill companies thrash around like this to generate transactional cash flow for friends and family, to help the leadership get jobs elsewhere after the ship finally sinks.
What do you think the rest of the time??
This is exactly what they do. A company doing as badly as these in the 19th century would have been wound down and the remaining assets distributed to stockholders. Today they take on debt, "restructure" endlessly, file for bankruptcy protection (usually more than once) and churn, churn, churn to keep those senior managers employed just a little bit longer. Meanwhile the stockholders, who would have taken a moderate loss under a liquidation scenario, instead get wiped out completely. Directors these days are basically extensions of senior management; they'll approve of pretty much anything the CEO wants to do as long as it's not (a) winding down or (b) an indefensible violation of their legal obligations. M&A is a very popular way to be seen to "do something"; it's a standard act in the CEO's keeping-your-job-for-a-while-longer playbook. In this case, it also allows the next CEO to use the blame the last guy tactic along with the big "one-time" writedown to buy himself some more time.
All standard 21st-century corporate behavior.
Given that, its an open debate if Microsoft is big enough, conglomerated enough, internally disconnected enough, such that success or failure in monopoly Office app licensing has anything to do with console gaming hardware. If they share little more than common ownership and financial structure, then we're back to "Caterpillar and BP are the same because they both have owners/shareholders on the NYSE" argument.
If MS went poof and spun off all its divisions, would there really be much effect on the divisions, other than the losing ones would run out of cash and the winning ones would have way too much cash?
I guess another bad analogy is GE is just a big mutual fund that 100% owns dozens of completely unrelated large companies. And its a fair claim that MS is the same although obviously much smaller.
http://money.cnn.com/2004/11/17/news/newsmakers/lampert/
https://en.wikipedia.org/wiki/Edward_Lampert
Lampert's earnings in 2004 were estimated to be $1.02 billion
MS saw what Google's relationships with its OEMs was like (reskinning, not doing updates, in-fighting, threats to move to tizen/sailfish, endless compromises, bloatware, etc) and wanted nothing of that. They thought if they had a tried and true phone hardware division with a known brand that they could leapfrog into the market. Well, it didn't happen, even though the Nokia Windows phones were fairly well received, especially if you're price sensitive. They entered the market pretty late and by then both the Android and Apple store were chock-full of apps. That's on top of MS having a stodgy business image that consumers find unappealing. To be fair, MS sells millions of these things per quarter, so they're not exactly failures. They're just a distant third. (8.6 million last quarter according to windowscentral.com).
My guess is that the US market just isn't price sensitive, so a good but cheap phone was largely unappreciated. The two year contract carrier deals hide the price of the phone, so its "easy" to get the hottest iphone or android. I think WP is a lot more popular in the EU where you usually buy your phone outright. Things like the Xiaomi lineup, the Moto G/E, and Android One were very much an attack on MS's focus on the low-end, and I think greatly hurt MS's low-end sales. Without those sales this acquisition wasn't going to pay off.
And I don't doubt that Microsoft can be #3 in the phone market; I just don't think it's a worthwhile thing for them to aspire to do as a company. They will be perpetually fighting for market share, and that will tempt them to leverage their other products in ways that forego other potentially more profitable strategies for those other products. The phone market is a distraction for them at this point; and I wouldn't be shocked at all if they spin off the entire consumer electronics division (including Xbox) in the next 5 years.
[1] http://www.computerworld.com/article/2488599/it-management/m...
Wow, well there it is--looks like the rumor is true. So the Nokia deal was basically a complete flop?