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Microsoft to acquire Nokia: A tale or a true strategy lesson?

posted Aug 8, 2011, 4:02 AM by Julien Pillot   [ updated Aug 10, 2011, 1:19 AM ]

Few weeks ago, I have already devoted a post to the rumor about the possible acquisition of Nokia’s phone business by Microsoft. Since then, I could not stop myself thinking about this contingency. Trying to take no account of the actors’ identities at fisrt, I merely recited the basics of Management Strategy just like I would have been likely to teach my students. Here comes my thought on the present case.

  • Starting point: the Major “M” plans to acquire the firm “N”, a lagging but still highly-valuable Major. Nevertheless, N’s acquisition is seen as too costly by M’s businesses.
  • Main goal: Sharply decrease N’s value in order to save money on the transaction.

  • Step 1: Manage one of your home Chief Executive to be appointed to a key position on the Board of the firm you long for.

⇒ Stephen Elop, Nokia’s CEO since September 2010, was an ex-Microsoft’s Chief Executive

  • Step 2: Once at the helm, accelerate the coveted ship’s scuttling in making a set of decisions against markets’ expectations, especially with respect to homemade products.

⇒ February 2011, Nokia announces that most of their mobiles to come will work on WM7, Microsoft’s own Operating System (OS) for mobile devices.

⇒ April 2011, Nokia makes the death of their homemade OS (MeeGo and Symbian) official despite huge previous investments in R&D.

⇒ June 2011, the just-released Nokia’s N9 working on MeeGo is seen by the whole industry as a last stand, while customers shows expectedly little interest in such a stillborn product.

⇒ July 2011, Nokia continues to close their online stores one after another. Last shutdowns to date: USA and UK.  

  • Step 3: In the meantime, create the buzz in announcing a large partnership between two powerful but lagging companies on the mobile phones relevant market.

⇒ For further information, please see my previous post on that issue…

⇒ … but keep in mind that, as the archetypal good able to generate network externalities, WM’s current market share (almost 10%, but only 1% for WM7) is far from being reassuring enough to incite independent developers in creating apps optimized or dedicated to the Microsoft’s OS (almost 27K apps are currently available on Windows Marketplace while App Store and Android Market fluctuate between 350 and 400K available apps depending on the source)…

  • Step 4: Let financial markets do the rest

⇒ Private investors interpret Nokia’s strategy as particularly hazardous; it results in a dramatic drop of Nokia’s shares. Since February – i.e. the announcement of Microsoft-Nokia partnership – Nokia’s stock drops 50%!

⇒ Meanwhile, Microsoft’s stock remains steady… probably because OS for mobile devices is by no means Microsoft’s core market.

⇒ Consequently, in only few months, the amount of a hypothetic friendly takeover bid decreased by 50%, that is to say approximately $20 billion in the present case. Quite a winning strategy for Microsoft’s savings, isn’t it?!

Of course, this scenario is pure fiction and everyone is invited to judge its likelihood. No doubt that time will tell if this story is likely to stand up to scrutiny. At least, it will remain a pleasant tale to tell my students…