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………..

Advertisements

Why Low Oil Prices are Bad for the Global Economy as Well

In 2 weeks I’m going to be in Lebanon for vacation and as I will stop by the gas stations to fill up my car, I will be paying almost the same price that I used to pay when I first graduated from university around 6 years ago. At nearly 25,000 Lebanese Pounds per 20 liters all the Lebanese will be raving about it and enjoying this Holiday season to the maximum ( yes they will forget all the economic, social, residential, and environmental issues, they will also forget the refugee spillover from the neighboring war-plagued Syria, they will forget that we are still without a president for almost 8 months now and that our parliament is aiming to outlive the parliament that was around during all the 15 years of civil war. Ironically enough most of the faces are still the same and yes I am talking about the parliament and not about a senior citizens residential compound)

Of course not only the Lebanese are the ones joyful about it; in fact they share the same feelings with more than half of the residents of the planet. Americans are planning more and more road trips and the demand for big SUVs is ramping up again, and the Europeans might have something to cheer them up and keep them warm this winter after fears of Russia cutting them from the oil supply as a result of the ongoing tension between Russia and well most of the world. But all this comes with a price tag and a hefty one also; just as the increasing prices have been hurting the economies so will the decreasing prices. OPEC is still insisting on keeping the production and supply levels on current levels although supply is far exceeding demand and thus challenging the free market theory that supply and demand will lead to a market balance. The reasons behind this decision are plenty but I am not going to delve into the politics of it right now but the fact is everyone is hurting from it.

Oil producing countries are going to face massive budget deficits with many of them starting to question for how long they will be able to sustain such low prices and still go on with their development plans. Europe seems to be heading towards another recession in which low oil prices will not be of much help (the PIGS are now PIIGS with Ireland joining the club) they should start looking for a different animal name soon and preferably a longer one it seems.

In USA seemingly it will have the worst effect. The country that started the global economic crisis in 2008 might as well be leading the world into another one and if USA sneezes, Europe gets the flu. Right after the crisis, a massive effort was put into creating a more efficient economy that is not as much relying on oil as before and as a result a wide variety of fuel economic cars started to take more place on the roads instead of the traditional much larger gas guzzling V8s, the Prius which was literally the laughing stock of every movie and every comedian started to have its last laugh against all the skeptics. Green energy was strongly supported and subsidized and the glass panels industry witnessed a great boom. Now the lower oil prices have halted all this with the people reacting very fast to the low oil prices and ordering big trucks again and the still expensive alternative energy sources are being ditched in favor of traditional energy sources. What is even more, GM has announced its plans to lay off some workers from its Lake Oreon plan starting January 2015 and the reason cited is simply due to decreased demand on its economical cars the Buick Verano and the Chevrolet Sonic and I am guessing it won’t be long before the other carmakers will follow lead. Such is how much shortlived is the people’s memory and that’s how quickly they go back to old habits. Am I the only one seeing a “cash for clunkers” campaign looming in the Horizon once more?

Fiat was gambling on its tiny 500 model to conquer the streets of USA, Smart America was hoping that this would be its revival point and VW group were betting that their fuel economical tiny cars will help them dethrone BMW and Daimler as the kings of European cars in the USA. Alas, all those dreams might be going with the wind now.

In Lebanon, we party all the time; in the middle of the Israeli invasion on us we were partying, in the peak of the global crisis we were partying and now we are partying. In fact we don’t need a reason to party, we just need…… a place! But this time we have a reason and it’s the oil crisis. While countries have been bracing for the damages that the oil prices will cause to their economies, we are planning where to spend New Year’s Eve! I just hope that the economy does not sour so much that I lose my job and miss the chance of enjoying the low gas prices!