Published September 05, 2013
Desperate times call for desperate measures.
When Steve Ballmer announced Microsoft (MSFT) would become a devices and services company, I had my doubts about what he meant. As bold new visions go, it was pretty vague, or so I thought.
It’s not vague anymore. Tuesday’s announcement that the software giant would buy Nokia’s mobile phone business made its intentions crystal clear.
It’s now evident that Microsoft’s outgoing chief and its board have a strong grip on reality. They get the predicament they’re in. They understand that, if they don’t take drastic measures, the company that once dominated the technology world will almost certainly become irrelevant.
And it certainly appears as if the folks up in Redmond plan to go head-to-head with Apple (AAPL) and Google (GOOG) in mobile phones, tablets, and who knows what else. The big question is, can they pull it off? Do they even have a chance of beating those Silicon Valley giants at their own game?
The answer to that question is surprisingly straightforward.
Some have characterized what Microsoft is desperately trying to accomplish as an Apple-like turnaround. If that were true, it would at least have a chance. Unfortunately, it’s not. That’s a complete mischaracterization of Microsoft’s situation.
You see, when Steve Jobs returned to Apple in 1997, the company was nearly bankrupt. So Jobs made a deal with his archrival, Bill Gates. He stood on stage and announced that Microsoft would invest $150 million in Apple and continue to support its Office suite of products for the Mac.
Aside from getting ousted from the company he founded, that had to be the most humbling experience of Jobs’s life. But it had to be done, so he did it. And that day marked the beginning of the greatest turnaround in corporate history, but not because Steve Jobs decided to play the game by Microsoft’s rules.
On the contrary, Apple’s MacBook, iPod, iTunes, iPhone, and iPad were breakout successes because Steve Jobs learned to think different and he taught Apple to think different.
What spawned a unique string of category-killing products was a new way of designing, developing, integrating, manufacturing, marketing, and selling consumer devices. Apple broke the mold.
None of that would have happened if Jobs had decided to throw in the towel and play Microsoft’s game. He didn’t even just change the rules. He created a whole new game. And make no mistake: that’s the opposite of what Microsoft is doing now. What Microsoft is doing is playing Apple’s game by Apple’s rules.
Granted, Google followed Apple’s lead in some ways. Why can’t Microsoft do the same thing? Because, Google makes a living selling search ads. It can afford to flood the market with free operating systems and cloud-based applications that compete with Apple and Microsoft because it sells more ads that way.
Microsoft’s income, on the other hand, is derived from selling operating systems and productivity applications. That’s a whole different ballgame. It can’t afford to go the Google route because its share of the $100 billion global digital advertising pie was a paltry 2.5% compared with Google’s whopping 31% last year.
So you see, this isn’t very complicated. As long as Microsoft tries to make a go of competing with its Silicon Valley rivals on their own terms, it will not only be playing catch up to giants that dominate the market, it will have to do it at a significant disadvantage in every way that matters.
The only way for Microsoft to win this game is to do what Apple did – figure out a way to change the rules. And, if the acquisition of Nokia’s mobile phone business is any indication of its strategy, that does not appear to be the plan up in Redmond.
Not only that, but while I do think Stephen Elop is a very capable executive, if the plan is for the former Nokia CEO to take the reins from Ballmer, that, to me, sounds a lot like nails being hammered into Microsoft’s coffin.
After all, Elop failed to turn around Nokia. Sure, he did some good things, but $7.2 billion for a business that was once valued at upwards of $200 billion is no turnaround in my book. And while it’s true that he was dealt a tough hand, I could care less about that. When you play in the big leagues, winning is all that counts. Excuses don’t.
Besides, Steve Jobs was dealt a tough hand when he returned to Apple. Lou Gerstner was dealt a tough hand when he turned around IBM. They succeeded where Elop failed. And the job of repositioning Microsoft to compete head-on with Apple and Google is not just a tough hand, but unless there’s a twist I’m not seeing, it’s a losing hand.
More on the subject: