Microsoft’s “Strategic” Mistake

Nokia’s life and death in the mobile devices industry is that of a fairy tale gone bad. After dominating the global market in the 90’s and mid 2000’s, a series of bad business decisions led to its dramatic downfall and demise. And although the climb was slow and painful, going downhill was as fast as a free fall. Nokia’s failure to remain competitive can mostly be attributed to failing in predicting the market trends, its slow reaction to technology and customer preference changes and the lack of an effective leadership to steer company ahead.

By 2013 it was obvious that Nokia needed  a savior; its global market share in the smart phone market had slipped to 1% or less, to add to that the company was facing fierce competition from local phone makers in both China and India which were once the company’s stronghold in the low end cell phone market. At this point, the company had only two options either to shut down the mobile device department or find a possible partner/buyer.

When Stephen Elop joined Nokia as CEO in 2010, the company was not in its best shape and form but also at the same time it was no secret that Microsoft was expressing interest in entering the smart phone market and it was no secret also that they wanted to do so through an acquisition. During that time, Nokia was struggling between two in-house operating systems instead of focusing on exclusively one so when Elop joined his first decision was to kill both systems in favor of windows OS. At the time, he justified his choice by claiming that he was seeking “differentiation” but soon after the first windows phone were rolled out Nokia announced that they will also produce android phones (how does that really differ from having two in-house OS?)

Turns out, all this was made in the purpose of setting the stage to ripen an acquisition by Microsoft. Elop did his job, Microsoft bought Nokia and all lived happily ever after….. Well not really because the story has just begun. No matter how great an idea is, if the execution does not rise to the occasion then the whole idea is just a big failure and this is where Microsoft seems to be headed to. Microsoft made two strategic mistakes in a very short period 1- They announced that they will remove Nokia’s from all their mobile devices. 2- when signing the deal with Nokia, there was a penal clause that forbid Nokia from independently producing cell phone devices before the end of 2016. Really now? Only 2016? You do not forbid such a strategic player from re-entering the market for such a short period only! Because despite all of Nokia’s failures in the recent years, the name alone was a leverage and Microsoft underestimated the power of the brand name and here are two big examples for why is that.

Example 1:  Back in the 90’s IBM was leading the market of personal PC’s with its legendary Think Pad laptops which dominated the business world but towards the end of the decade, IBM had decided to divest this department in order to focus on its core business. Lenovo, an up and coming Chinese manufacturer and seller saw the opportunity and jumped to it and they were able to acquire the division. Inside the corridors of Lenovo there was a debate on whether to keep the name “Think Pad” or kill it, eventually the proponents of keeping the name won and it turned to be a winning strategy since people related to the name and the confidence in the laptops was not lost despite being bought by a Chinese company which at that time still meant that Chinese products were substandard and not of a good quality.

Example 2: Nissan Motor Company is a remarkable car maker and one of the market leaders these days but they were not always that successful… nor were they always called Nissan…. The company that will soon celebrate its 100th anniversary changed hands of ownership many times in its early periods and just like any Japanese industry they focused on efficiency and reliability, two features that earned them the hearts of many car enthusiasts around the globe but under the name Datsun and not Nissan. So when the top management decided to kill the name in 1986, it proved to be an almost lethal mistake. The company went in a downward spiral because the confidence and familiarity that came with the Datsun name were lost by Nissan and people were not so welcoming of the new name so in addition to the rebranding costs and the marketing campaign to change the names, the slipping sales of Nissan nearly brought the company to its knees and led to drastic measures including hiring the first ever non-Japanese CEO to a Japanese company – The Lebanese Mr. Carlos Ghosn, and also hundreds of lay-offs, a decision that until that date was unheard of in the Japanese culture. 12 years after that, Nissan revived the name Datsun and is reaping the benefits of such a decision.

A third indirect example can be derived from the stories of BMW and Mercedes Benz, both car makers own or “owned” luxury brand cars and compact cars. BMW owns Rolls Royce and Mini Cooper while Mercedes owns the struggling Smart and until recently they produced the now defunct Maybach luxury cars. The reason why the first is successful with both brands and the second is failing is very simple: “differentiation”. BMW differentiated both brands and gave them a separate identity while Mercedes tried to associate them with its brand as much as possible just like Microsoft is doing so with the smart phones unit. Sometimes imposing a successful brand name on a different product can have a reverse effect and instead of acting as a leverage it would drown it….

A short while ago, Nokia announced that they were planning a comeback to the smart phone which poses a real and direct threat to Microsoft. When Microsoft purchased the cell phone division, they neglected the Nokia maps software which turned out to be one of the most valuable assets which is currently the target of many companies from cell phone companies to car makers. This alone can help in marketing and selling the new Nokia phones. The re-entry can be cheap for them and they can opt on choosing android OS just like the tens of cell phone makers in the industry. Along  with their maps and other solutions that Nokia is famous for it can prove to be a winning combo. Moreover, they might come back to their senses and work on redeveloping  their in-house software because the world might be ready for a new breakthrough.

Both companies are treading a fine line here because a comeback in the tech world is almost impossible and none has been able to do it so far. But in Nokia’s favor there is a remarkable brand name………..

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3 thoughts on “Microsoft’s “Strategic” Mistake

  1. I really love this. i think you have captured this situation really well.
    Do you use Microsoft’s smartphone? just wanted to know.

    Like

    1. Thanks! I do not use it currently, but I used it for a short while and some of my friends do use it. The interface is nice and friendly, after all most of us are used to windows on their desktops and laptops but it is the brand image that they should be careful about and also the fact that Nokia was and still in the business of developing software… they just left too many loose ends.

      Liked by 1 person

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