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  • The Tragic Fates of Microsoft and Nokia

    February 9th, 2012

    As you know, we’ve been running a series of articles strongly suggesting that Microsoft is on the skids, suffering from what has become a long-term decline. With the major part of their sales coming from legacy products that are no longer growing, they need to find ways to succeed in the mobile space. So far, they haven’t done so well.

    But there’s yet another tech company that’s seen its best days, and I wonder whether they are making decisions that will sacrifice their future too. It all comes to the fore with the news this week that Nokia plans to axe another 4,000 employees from their rosters. This cutback involves people who assemble Nokia smartphones in Finland, where Nokia’s headquarters are located, Hungary, and Mexico. As with many other tech companies, this factory work will move to Asia. Since September 2010, when former Microsoft executive Stephen Elop took over as CEO of Nokia, a total of more than 30,000 jobs have been shed.

    You almost begin to think that Elop has earned the label as a slash and burn specialist, but I wonder how well it speaks to his capabilities as an executive or lack thereof. For example, in the last quarter, Nokia reported that earnings had fallen by some 73%, and smartphone sales had contracted some 31%. Clearly Nokia is having problems getting a solid footing against Apple and Google’s Android partners, most particularly Samsung.

    Last year, Nokia inked a pact with Microsoft to become first among equals in building smartphones featuring the Windows Phone OS. Microsoft even granted them a cool one billion dollars to as an incentive, or a bribe if you want to call it that. At the time, I wondered if Elop had come to Nokia as a stalking horse for Microsoft to resurrect their failed smartphone platform. But so far it hasn’t happened, despite the arrival of the Lumia smartphone series. So why are they keeping Elop as head of the company?

    So far, Microsoft’s smartphone platform continues to suffer, with a market share in the single digits and falling. At the same time, Microsoft is porting the face of that interface, dubbed Metro, to Windows 8. Perhaps they hope that familiarity will bring acceptance. As people migrate to Windows 8, they will embrace the similar look and feel of a Windows Phone device. As a matter of fact, it’s not a bad interface. Reviews have been pretty decent, but in terms of the feature set, Microsoft continues to lag a year or two behind the leaders of the smartphone universe.

    As the iOS and Android continue to advance, Microsoft is stuck in the rear seat. While this situation didn’t hurt Microsoft in the PC market, there’s no compelling reason for someone to buy a Windows Phone handset just because Microsoft promises that critical features will come, but not for another year or two. By then, the same customers will already be ready to buy new smartphones that are even further advanced, as Microsoft continues to play catch up.

    Understand, I do not like to see a company go under. The executives will often suffer the least, since they’ve already made their riches, or have golden parachutes to protect them in case they lose their jobs. But when tens of thousands of people are left jobless, that’s a tragedy of the first order. Certainly success isn’t guaranteed, but a more prosperous Microsoft and Nokia will help fuel innovation and advance the state of the art, and, of course, keep workers on the job. I’d love to see a version of Windows 8 that trumped Mac OS X in critical ways, in the same way I’d love to see a version of Windows Phone that was superior to the iOS or Android.

    If Microsoft learns the true art of innovation, rather than shabby imitation, it will mean that other companies will have to advance their own platforms in order to compete. You’ll have a wider selection of wonderful gear at your favorite electronics boutique, and your experiences will be far more rewarding. There’s nothing wrong with that.

    But the real issue is that a skeptical public just won’t give Microsoft and Nokia passes if they fail to deliver the goods this time. All the promotional gimmicks in the world won’t stop people from ignoring these gadgets, or, if they buy one, taking it back to the dealer before the money back guarantee has lapsed.

    I won’t pretend to know how Microsoft’s problems can be fixed, or whether an executive shakeup would be sufficient to save the company. They continue to live under the 1990’s illusion of Windows everywhere, naively believing that a 90% share of the desktop computing market ensures success going forward. Certainly they are aware that they need to do something to advance their mobile platform, but I wonder whether that deal with Nokia is the solution. Why not try to strike another deal with, perhaps, Samsung, which is second to Apple in overall smartphone sales?

    If Microsoft went to Samsung with a similar proposal, they would deliver the benefit of a platform that is not, so far at least, vulnerable to intellectual property lawsuits from Apple. Sure, Samsung would have to pay royalties for Windows Phone, but many smartphone companies are already doing that because of the fear that Android is infringing on Microsoft’s intellectual property. Maybe if Microsoft offered a billion or two to Samsung, they might get somewhere, but if they don’t deliver the compelling OS that will make customers switch from Android and the iOS, maybe it won’t matter.

    Meantime, both Microsoft and Nokia are clearly living on borrowed time.

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