This is the blog of what happens when Two Plus Two is Less Than Two. Not less than four, that was not a typo, I really meant less
than two! Or in other words: why do we know now, that Microsoft's Nokia gambit has failed beyond recovery.
This blog is not about Nokia's record-setting failure in
smartphones. I have written enough about why I evaluate Nokia CEO Stephen Elop
as the worst CEO of all time. If you want the first 19 reasons, they are here.
The 20th reason is here, and the 21st reason is here. I am not alone in calling
Elop incompetent and one of the worst managers alive, or even possibly the
worst CEO of all time. This blog is not about the Nokia point-of-view. This is
now the calculation from Microsoft's angle. How did it turn out for them. The
Nokia partnership was the most certain slam-dunk gambit that could not fail, no
matter how badly it might be botched, this was so pure gravy for Microsoft,
they would always end up roses in the end. The scheme that could not fail. Like
Baldrich would say on The Black Adder, I have a cunning plan...
MERGERMATH
When high-priced management consultants and mergers and acquisitions experts talk about corporate takeovers, partnerships and mergers, they talk of 'synergies'. They hope to achieve that optimal condition, where two companies are so good together, their combined performance is more than their two separate parts were independently. So they hope to find a mathematical formula where 2 plus 2 equals more than 4. The parts, when merged will achieve more than they did independently. That is often the hope, in reality it rarely succeeds, but it can be done (far more often in measurements of financial performance than other metrics, and achieved through cuts of overlapping functions, but nonetheless).
So that is the optimal. The next best thing is to hope that the two entities, when added together, produce more than either individually, so 2 plus 2 equals less than 4 (but more than 2). This is still an improvement from either individual player's position but then such things as management politics come to play, who got to be CEO of this venture etc.
That is still usually seen as a good merger or partnership. The bad situation is if the resulting partnership achieves no gain. So 2 plus 2 equals 2. The combined effort is no better than either one was able independently. Now the effort took a lot of administration and management effort for no actual gain (but at least there was no loss).
And the worst situation is when 2 plus 2 equals less than 2.
This is a catastrophy. The merger or partnership was so poisonous to its
partners, they would have been better off without attempting it. This is
unfortunately often the case. Ok, lets take a look at Microsoft and Nokia, from
Microsoft's point of view.
THE VISION
Let me show you what the CEO of Microsoft, new CEO of Nokia and the Nokia Board were looking at, about the time when this partnership was sealed. This was their ''prize"
These are the market shares of Nokia's ecosystems (Symbian
and Maemo) partners in blue, and Microsoft's ecosystems in red (Windows Mobile
and Windows Phone) when the partnership was announced, ie the last quarter just
reported, Q4 of 2010. Nokia had 29% of the market, and its Symbian partnership,
mostly with Japanese and Korean handset makers had 35% market share. Microsoft's
Windows ecosystem had 4%. Now the math in Steve Ballmer's head looked at that
picture and saw the potential of a juggernaut with 39% market share, after
these two parts were merged and allowed some time to reach their full
potential, right? At the time this would be the 'first ecosystem' by a wide
margin over Android the second.
And yes, there were the Nokia partners, but even if we allow for Nokia's
partners all to run way (to Android) and just take Nokia's own Symbian (and
Maemo) smartphones and all Windows based smartphones, their market share would
be 33% Remember, at the time Nokia was
bigger than its two nearest rivals, combined (today Nokia is one fifth the size
of Samsung and one third the size of Apple's iPhone, when counting Nokia
branded smartphones). In the previous 12 months, the total unit sales of
Windows based smartphones had actually declined, while Symbian had grown
strongly by 42%. You can see why Ballmer was so eager to jump into bed with
Nokia. Even if this migration by Nokia to Windows were to be executed 'poorly'
and we'd say that Nokia lost half of its customer base and they lost all
Symbian partners, the end result would still bring 14% market share gain to
Microsoft. Added to its current 4% that would give a wonderful 18% market
share, a huge jump for Microsoft, and far exceeding Windows peak share it had
ever had globally of 12% a bit before the iPhone had launched. At 18% Windows
would be all-but-guaranteed to be at least the third biggest ecosystem and if
all went perfectly with Blackberry and Apple cannibalizing each other and
Android growing fast, Windows might, just might with 18% be even the second
largest smartphone OS. In any case here is where the myth of the 'Third
Ecosystem' came from. The vision that even if Nokia utterly botched its
transition from 'the obsolete' Symbian to 'the superior' Windows Phone, from
'obsolete style' Symbian phones to new 'iPhon-a-clone' style Windows Phone
touch screen smartphones - even if this was totally messed up, Nokia would have
to get at least half of its current market to this new powerful ecosystem.
That was the belief and expectation. Some then-current Windows partners (HTC,
Samsung, SonyEricsson, LG etc) might initially become upset by Nokia joining,
but the moment they saw how big and powerful Windows Phone OS would become,
they would soon go where the money, ie the market was, and stay with Microsoft.
That was the expectation, the hope.
Gartner, in fact, one of the big 4 analyst houses of the handset industry,
issued its forecast for this partnership and projected that 18% as their
expecation of what the partnership would do in 2012. So this is no bizarre Tomi
reinvention of history or attempt to somehow paint Microsoft and Nokia in a bad
light. This was a fair view to the partnership by the expectations they had in
Redmond.
Then remember, this is not 2 plus 2 equals 4, nowhere near it. This is
definitely 2 plus 2 equals less than 4. And Ballmer and Elop put their spin
machines into overdrive to hype this partenership, and sure enough, plenty of
willing 'experts' came out with forecasts promising the partnership would do
far above 20% market share and the myth of the Thrid Ecosystem was launched
into the minds of the analysts, investors, operators/carriers and very
importantly, application developers.
Now why do I say 'cannot fail'. Remember, Microsoft's actual unit sales of its
smartphones were falling in 2010. No matter how little Nokia would bring to the
table after the transition, because Nokia was so huge, it would be a massive
jump for Microsoft. And lets remember, Nokia was the bestselling smartphone at
the time, on five of the six inhabited continents, where 92% of the planet's
population lives. Where most smartphones were sold. Nokia so much owned the
world's largest smartphone market - China (far bigger than the USA) that Nokia
had 77% market share in smartphones just there. And it wasn't even Nokia's best
market by market share.
So lets take the beyond any reasonable expectation utter catastrophy scenario. If Nokia somehow lost four out of every five customers it had, lost 80% of its market share in this transition - mind you, Microsoft wholeheartedly believed that Symbian was obsolete and without a future, and that Windows Phone would revitalize those Nokia sales - but if Nokia somehow lost 4 out of 5 customers it had in the transition to the better Windows Phone smartphones of modern design, then Nokia would still walk in with 6% market share, and added to Windows 4%, they would command 10% of the market. That would not be 'the Third Ecosystem' but counting Android as biggest, iPhone and Blackberry in the second and third places (at this time RIM was bigger than Apple), if you had 10%, you would be fourth biggest. And Microsoft would take that happily. They had a history of long platform wars, with Windows, with Xbox etc, so if they could jump from 4% (and falling) to 10% with Nokia, that would be aweome for Microsoft, even though in reality, from Nokia's point of view, this would be catastrophic brand failure. And nobody that they talked to suggested this was even plausible (by nobody I mean experts in the US market where 'all the real experts' were as believed by Microsoft ie the PC/web tech industry as opposed to the mobile industry centered in Europe and Asia)
Regular readers of this blog know this part of what happened
next. That many true mobile experts jumped on this partership immediately as a
doomed venture, that it would result in a total market collapse due to the
Osborne Effect and simultaneous Ratner Effect (that I have dubbed since as the
Elop Effect, the costliest management error of all time). So it was not just me
on this blog that yelled that their combined market share would fall to single
digits, so too was for example Horace Dediu at Asymco blog. But Ballmer and
Elop weren't listening to any 'old-fashioned' and 'obsolete' European experts
who knew only of the old push-button era of mobile, they 'knew' that the real
future of smartphones was driven by California. When Nokia top internal
managers were giving Elop their views on this super-risky strategy, he appeared
to listen very carefully and thoughtfully, while in his mind he was putting
those people on his 'must fire next' list. Very soon the top managers learned
that Elop was not willing to listen to facts, he had already made up his mind.
Talking to him was as useful as talking to a wall.
TWO ACES
Ballmer had two aces in his sleeve. First, he had 'his boy' Elop in charge.
This was one partnership that would not be wrecked by an uncommitted or faltering
CEO. This would not miss any true Windows strengths, and would not waste any
effort pursuing any futile Nokia pet projects from MeeGo and N9 to Nokia Money
to Qt to Ovi. That it was ex-Microsoft guy, Stephen Elop driving this thing
from Nokia's side, was a guarantee, it would always go exactly the way Ballmer
had planned and wanted. Every last detail of it. To the point, that Elop
maintains a second home right near the Microsoft HQ where Elop's wife and
children live and Elop commutes by jet for weekends at home as often as he can
(with plenty of convenient face time with Ballmer as needed, far away from
prying eyes of suspicious Nokia collagues).
The other ace was money. Microsoft would throw massive amounts of dollars at
this comeback. Starting with one billion dollars per year in marketing support
payments direct to Nokia (but without paying them, as these were offset by the
royalty payments Nokia was due to Microsoft of essentially the same size; these
would cancel each other out. But in other words, Microsoft decided to forego up
to 1 Billion dollars of Nokia-owed licencing fees per year in the transition
period to Windows. For a company that makes its profit on software licencing,
this is real money.) And with Elop in charge over at Nokia, he could be sure
Nokia would not be pinching pennies either. Nokia was sitting on ten billion
dollars of cash in its vaults (and Nokia was very profitable at the time).
Ballmer knew that money went a long way in buying market share, he had seen it
done with Zune and Xbox in the past, and how those deep pockets had won
Microsoft earlier the Windows wars vs the Macintosh by Apple.
I am 100% certain, that when Ballmer looked at the pie graph when agreeing to the partnership, and he pondered the two
market shares, he calculated that his boy Elop would bring in the share in the
20's not in the 'teens' or single digits. If all went perfectly, they might
even break into the 30s in market share. This was the gamble that Microsoft
could not lose. This was the ultimate 'sure thing' in the tech industry.
Whatever risk there was, only fell on Nokia. Microsoft could not lose.
TWO PLUS TWO
So here is today's picture. We are literally 18 months from the launch of the
partnership. And here is the market share. Same colors, same companies.
The
circle on the left reflects the situation in Q4 of 2010, the circle on the
right, the situation now in Q2 of 2012. What the hell happened here? This was
not supposed to be possible. 2 plus 2 equals less than 2. Quite literally, Microsoft's own market share
- the red part - is now SMALLER than it was before this partnership started.
This after 9 months from the first Nokia phones running Windows. This while
Nokia has already migrated 40% of its total smartphone production to Windows. Out
of the 25% of market share that Nokia has so far attempted to convert to
Windows Phone, Nokia was not able to convert all, nor most, or half; or even the
catastrophic one quarter. No, Nokia has lost 7 out of every 8 customers it
tried to convert from 'obsolete' and 'undesirable' and 'outdated' Symbian
before this partnership to the new and better user-friendly Windows Phone
today. Nokia traded 25 market share points in Symbian in Q4 of 2010 for under
3% market share on Windows Phone today. Yes. This 'partnership' has been able
to convert only one out of every 8 loyal Nokia owners. Seven out of those eight
went to the competition, primarily to Google's Android, Apple's iPhone and Samsung's bada.
So now when we see stats like the consumer survey that 4 out of 10 new Lumia
owners in the market where that handset was designed for - in the USA - hate it
so much that they rate Lumia worth a 1 on a scale of 5 to 1 where 5 is best and
1 is worst - this is a nightmare that was not supposed to be able to happen.
What did happen? Its not like Ballmer has seen radical new phones by Blackberry
with mind-reading or iPhones with teleportation or Samsung Galaxies with time
travel. The Nokia phones did not have a catastrophic production disaster like
exploding batteries or some kind or radiation poisoning. There were no factory floodings or earthquakes or volcanic ash stopping air shipments or pirates stealing ships or wars or strife or any outside disaster at all, affecting this cunning plan.
How could this happen?
Whatever had happened, Ballmer is smart enough to calculate, that if the first
25 customers that Nokia had on Symbian, could only be converted to 3 on
Windows, then the remaining 4 that Nokia now has left, won't yield even one
more percent of market share. Literally only one half of one percent.
Literally, now the writing is on the wall - after Q2 results, the math of 2
plus 2 in Microsoftian Nokia new math nightmare will result.. in 'less than 2'.
This is the end of the Windows Phone Third Ecosystem dream.
Now, this blog does not in any way attempt to explain why the Windows migration was the ultimate flop, but it was not due to Microsoft failing to provide money or marketing effort. The Windows Phone OS was - within reason - a modern and competitive (albeit sadly in many ways incomplete) OS. The apps for it were built with great haste and the app store at least on the surface is fully stocked and competitive, at least to the degree of considering a third ecosystem. No, the failures were all in the Nokia side of the aisle. Problems of execution. Problems of management interference and meddling. Problems stemming directly from Stephen Elop's mismanagement of this transition.
I have written several bound books worth of text here on this blog chronicling where all he went wrong - and of my early advice and criticism already more than half have either been admitted by Elop to have been mistakes or harmful (eg Burning Platforms memo) or he has recanted (eg claiming Nokia behind in tech vs for example Apple) or he has reversed a dumb position he took (naming/numbering fiasco and flipflop). The problem, in a nutshell, was that a PC guy with no understanding of how mobile industry works, came in with a pre-set mindset refusing to learn what it takes here to win. That kind of fool is destined to die trying. This result was inevitable with Elop in charge. The top management insiders knew almost immediately and Nokia has seen an alarming exodus of top management. We outsiders did not know until we saw the first Lumias, but by then, it was also clear to us, this Nokia Microsoft gamble with Windows Phone and Lumia was utterly doomed. (as I wrote on this blog such as this comphrehensive analysis of why the Lumia series was already doomed at its launch)
But this blog today has not relitigated the crimes of Elop. We have now examined the view from Redmond. This was
the 'cannot fail' game by Ballmer. He could not lose. And yet Elop delivered
failure out of this project. He snatched defeat from the jaws of victory. This
could have worked. Now it is doomed. The Nokia gambit to gain Windows a place
in the top 3 (or at worst, top 4) has failed. Now, the only road left is to try
to go Windows Phone 8, and start again from zero. Except today, Sony(Ericsson),
LG, Dell and Motorola are no longer in the partnership. Samsung has its own two
operating systems it will prefer over Windows - bada and Tizen. HTC is deeply
suspicious of Microsoft. Nokia is essentially the walking dead. What is left?
ZTE?
Meanwhile traditional PC makers are deeply suspicious of Microsoft now because
of the tablets it will manufacture. The app developers feel once again burned,
their investments were all for nothing, the promised wonder 3rd ecosystem counts
today for the 6th ecosystem at best by installed base (barely besting its older
cousin, Windows Mobile) and in terms of total installed base, amounts to 1% of
all smartphones in use worldwide. Who in their right mind would bother to
develop for that platform next, when now even this investment is Osborned and
Microsoft again starts from zero. Meanwhile Android sells 6 out of every 10 smartphones, Apple 2 and Blackberry and Samsung's bada power most of the remainder.
In 2006 Microsoft was briefly the second largest smartphone OS at 12% market share. Microsoft was then one
quarter the size of giant, Nokia's Symbian. Today six years later and countless
billions of dollars wasted, most of Microsoft's partners have abadoned it, and
Windows Phone sells 3% of the world's smartphones, while still Nokia's Symbian
outsells it, but now only by a ratio of 4 to 3. And Q2 was the peak sales for Windows Phone, it is now again in free-fall due to the Osborning of the series. Even Nokia loyal carrier partners are bailing on Windows Phone like Germany's biggest carrier/operator T-Mobile who refuses now to even sell the Lumia 900.
The grand scheme, the 'cunning
plan' of 2 plus 2 resulted in the end, less than 2. Microsoft decided Nokia is
not worth the effort and now goes it alone. It will of course take Nokia's next
Windows Phone 8 handsets 'with great joy' as any that may come from Samsung,
HTC and perhaps others, but as Microsoft has already started production of its
own tablets, it will do its own smartphones next. Ballmer won't even bother to
deny it anymore. This Nokia partnership died. Perhaps it died earlier, we don't
know, but for sure, when the internal numbers became clear that Q2 is this bad,
Ballmer decided it was over. And coincidentially - that was when he announced
the Osborning of the Lumia line, and the Microsoft tablet, and suddenly started
to act very cold and distant towards his former BFF, Stephen Elop. The Ballmenator,
he is a cold dude.
But I cannot fault Microsoft for getting into this "can't fail" deal.
I cannot fault Microsoft for not pulling its weight in the partnership, and I
cannot fault Ballmer now for looking at the blatant truth and tossing Nokia
under the bus. That all was totally sensible from Microsoft's point of view.
Lets not just now pretend that there is some rosy future to the Windows Phone 8
in mobile smartphones. It no doubt will sell well on the PC side, but as I
said, it will happen as eary as 2014, that Android will pass Windows as the
planet's most used computer OS, when counting PCs, tablets and smartphones,
combined. Yes, Microsoft's reign comes to an end in less than two years from
now. Windows 8 will no doubt be a big success but Windows Phone 8? Maybe hit a
couple of percentage points if Microsoft is lucky. 1% if things go 'as usual'
for Microsoft in mobile. And 1% is the level where even Palm quit this
industry.. This Nokia gambit was Ballmer's last best hope and it was ruined,
not by Ballmer, his grand plan was ruined by 'his boy' Stephen Elop, the
Microsoft Muppet, the most incompetent CEO of all time.
So, thats the story today. If you happen to need more info about the handset
industry, remember my TomiAhonen Phone Book, an easy ebook formated for your
smartphone so you can carry all the industry stats and facts in your pocket.
And if you are a strategy thinker type of exec, then you'll want to see my
TomiAhonen Mobile Forecast 2012-2015, the best value of forecasts into the near
future of this industry, by the most accurate forecaster in mobile.
Please let me know if you're looking for a writer for your blog. You have some really great posts and I think I would be a good asset. If you ever want to take some of the load off, I'd really like to write some content for your blog in exchange for a link back to mine. Please send me an email if interested. Many thanks!
Posted by: รับทำ seo | November 17, 2013 at 02:31 AM
Every person might want to come up with a toast at the societal occasion that has vino. This unavoidably contributes to the distinctive audio of clinking wines eyeglasses. Extremely, if your glass is not clinked correctly, it can bust, causing a major chaos. Glasses must be a bit angled so opposite bells aline, and rims should not satisfy. Read Full Article (atozscan.com) You could make a tasty beef plate sauce with red wine. All that you should do is take out a red-colored vino you love and take some into a saucepan after some butter. Hold back until the marinade gets heavier and keep in mind that the liquor will evaporate when you prepare the sauce. Dump on the meat and appreciate. There exists constantly new details readily available concerning how to have a effective home-based business, regardless of how significantly encounter you possess. This short article will discuss lots of different concepts linked to all aspects of obtaining a prosperous home based business. straight from the source (loudwork.com) Imaginative abilities may be used by commencing a image design home-based business. A lot of companies would prefer to deal with developers who definitely are unbiased vs . sizeable firms. This gives you an advantage. As a wonderful leader indicates working on building a excellent team. Learn to motivate and stimulate workers who deal with you. Balance out your drive for finished activities with the thought of stimulating and uplifting your group allow it their best photo. over at this website (vonline.vrozetke.com) It is very important to drive traffic to your internet website. Even though this is most likely the most difficult job associated with multilevel marketing, it is also probably the most vital. As soon as folks start off moving to your website, they may then comprehend what you are actually trying to sell, and it will allow them to choose how to proceed. the original source (www.ngenzeclim.Org) When choosing which network marketing software to sign up with, you should pick one that gives items that interest you. Getting your audience's consideration is less difficult if you think excited about your products or services. Related Site (support.fromoutsetcrisis.de) When you flavor a antique of vino, drink a little whilst breathing simultaneously. You absolutely do must slurp! Take time to swish the wines so that you can style the salty, sweet or acid and sour hues. Breathing in the smell whilst swishing it all around your mouth may bring every one of the flavours together and provide you the full outcome of the wine. more helpful hints; http://loudwork.com/, Because a wine is inexpensive does not mean that it must be not excellent. Chile produces fantastic vino. Many of their wines are price ranges pretty. Chilean Cabernets and Sauvignon Blancs are specifically significant. Certain nations such as New Zealand and To the south Africa develop premium quality vino at low prices. Don't just go to a winery about the spur of the minute. Establish a spending budget and make sure somebody else will generate you home. Take note of queries you would want to request, while simply being prepared to describe the sorts of wines you love. More Help - http://www.ctimasterworks.com/blog/ensure-carpet-cleaning-assistance-you-are-thinking-about-using-services-usually-takes-actions-s - Ask to view evidence of the cleaning company's permit or recognition after they appear. If they do not possess these papers, tend not to retain the services of them. They have to have these files with their tasks and if they do not possess them, they may not have access to all of them. enquiry (http://msr4top.com/vb/member.Php?u=26823) Sparkling wine might be dished up at a variety of places. Bubbly is not merely for special events and New Yrs Eve. In fact champagne really pairs incredibly with many different meals. Your palate will likely be cleansed with the light, bubbly flavour. It is advisable to combine wine with foods which can be about the salty aspect. More about the author (http://www.italknigeria.com/) Executives must know the main difference involving what they have in your mind and what should be carried out. They are usually mixed up within a leader's mind. If you are concerned about anything, clear it from your head and concentration on now. Jot it down to help you concentrate initial in the job at hand. Visit Website (cheese9.com) Property enterprises must have an internet site in today's entire world. In the current day, keeping a web appearance is the best way to ensure that you receive by far the most good results from home enterprise. Be certain to possess a pertinent website name and good quality information. Many companies encourage their reps to upsell you. The first cost is usually so low due to the fact ordinary areas that needs to be incorporated are not but will be added on to have an extra cost. Mark guard, location treatments, and high targeted traffic locations are typical choices to think about when they have started cleaning your carpeting plus it may end up charging quite a dollar.
Posted by: atozscan.com | November 21, 2013 at 11:20 PM
I think the admin of this website is truly working hard in support of his site, for the reason that here every information is quality based stuff.
Posted by: Jamey | November 24, 2013 at 12:52 AM
My spouse and I absolutely love your blog and find the majority of your post's to be what precisely I'm looking for. Do you offer guest writers to write content for yourself? I wouldn't mind producing a post or elaborating on a few of the subjects you write about here. Again, awesome website!
Posted by: รับทำ seo | November 24, 2013 at 11:40 PM
Hi, I do believe this is an excellent site. I stumbledupon it ;) I will revisit yet again since i have bookmarked it. Money and freedom is the best way to change, may you be rich and continue to guide other people.
Posted by: sns.tz2100.com | November 26, 2013 at 02:52 PM