Earlier, we got news of a dramatic shift at Microsoft that potentially will see 18,000 employees displaced and forced to find other opportunities. Most of these will be related to the acquisition of Nokia’s Devices and Services business. We’ve also gotten word of Nokia’s Asha and X devices being ceased, as well as MixRadio now up in the air. For some time, I’ve been wanting to voice some thoughts, and given today’s events, I thought why not do it now.
The biggest theme I’ve seen across the internet today has been “it’s Elop’s fault”. This drives me insane and I’ll explain why soon enough. Let’s start from the beginning.
(Not interested in reading the whole thing? We have a very condensed TL,DR)
Elop Joins Nokia
Stephen Elop joined Nokia as CEO in late 2010, following his employment at Microsoft. He joined the Finnish company at a point where things were already on the decline, without signs of improving and changes needed to be made. The infamous “Burning Platform” memo of 2011 outlined this shift.
The shift saw Nokia move from producing Symbian and Maemo/MeeGo based Smartphones, to Windows Phone. This kickstarted the on-going belief that Elop was a trojan horse sent in by MS to drive prices into the ground, and be ripe for a takeover. Whilst that did end up happening, lets look objectively at the facts.
Elop came into Nokia with one goal; turn Nokia around and make the company profitable. The smartphone market share Nokia once led was on a decline. Things needed to change and Stephen Elop was given that task. Apple had pulled out in front and that wouldn’t change. They had captured the US market significantly. Samsung had pulled ahead of other Android manufacturers, and again, there was no sign of their pace slowing.
Nokia’s in-house strategies (Symbian & Maemo/MeeGo) were not strong enough ecosystems to make a difference. Symbian had proved to be dating, and MeeGo was being crippled with minimal resources. In fact, from inside sources, I’ve been told if it weren’t for Elop, we probably would have not seen the N9 at all. (Tough pill to swallow given I blame Elop for the Harmattan’s demise – but plausible given the delays we’ve seen Jolla undergo, which thankfully they seem to be back on track and kicking ass!).
You’re a struggling company that’s losing market share by the hour. Do you jump ship and hope that unlike the others on Android, you won’t fall to Samsung? Or do you try hedging your bets and go for something that gives users choice? Open up a new user base with a partially established ecosystem, backed by one of the worlds largest software makers.
Nokia had only two ecosystems to join; Android or Windows Phone. Samsung had already established itself as the gauntlet in that space. Only recently, has the likes of HTC, LG and Sony picked up their game and proved themselves worthy to give Samsung something to worry about. This only leaves Windows Phone.
Windows Phone was different. It gave consumers something else, and Nokia hedged its bet that this would give them the edge over a saturated market of Android OEMs. It was backed by own of the biggest software vendors in the game, so the choice makes sense. Sure, Elop may have been bias due to his affiliations with MS, but there’s no overlooking the facts that Windows Phone made sense as a means for Nokia to differentiate themselves in the market.
Why Nokia could not have gone for a strategy that saw MeeGo-Harmattan as a high-end niche product with innovative advancements (enough to challenge the iPhone in terms of premium hardware, and easy-to-use yet powerful software) and Windows Phone to compete with Android (market saturation over multiple price points, bringing the high-end innovations to more consumers) still bewilders me. Despite the strong message that Windows Phone was Plan A, B and everything that followed, Nokia released an AOSP-based (Android Open Source Project) strategy, replacing Google’s services for Microsoft’s.
Now onto the acquisition by Microsoft. You can’t blame Elop alone. The board hired him. The board assigned terms to his employment. I’m sure there were negotiations by both sides, but both parties agreed to them. With news of the acquisition of Nokia’s Devices & Services business, it was revealed Elop had a clause that saw him benefit from a takeover and turning the company around into a profitable state.
Nokia’s phone business was still declining. Sure, it may have been improving slowly, but it was still well into the red. It’s Lumia handsets had gained traction globally, even outselling the iPhone in several European countries. This still wasn’t enough. Lumia had become synonymous with Windows Phone, just like Samsung’s Galaxy line with Android. In fact, brand recognition placed Lumia higher than Windows Phone. If another company using your product is more recognised, that gives you incentive to take them out of the picture right? And that’s exactly what Microsoft aimed to do.
Microsoft had a strong desire to edge Nokia out of the picture, solely due to people seeing tiles and going “Is that a Lumia?”, regardless of it being a Nokia, Samsung or HTC Windows Phone.
Shifting focus back to Elop and the board now, and the board’s sole aim is to work in the interest on investors; Maximise returns for shareholders and get the company in a positive financial direction. Elop’s incentive, was to get Nokia being profitable again. When the opportunity for Microsoft to purchase the parts of Nokia that were resulting in the red, why would they not agree?
They would not only be injecting the company with cash flow, they’d be removing the debt of the company as well as the licensing agreements with Microsoft that would see on-going return on investment for shareholders.
Elop, as the CEO when this acquisition took place would benefit as per outlined in his contract. Why would he be opposed to this? Trojan or not, as a business man, this makes sense. You’re only as strong as your weakest link, so if you can get rid of it, and enhance the overall business, you do it.
Layoffs & The Future
Looking at the layoffs announced today, this was expected. You have two big companies that are merging talent. You’ll end up having multiple personnel that fill the same roles. If multiple people are filling the same roles, your outlays are going to be higher than needed. From a business standpoint, if you can remove your overheads whilst keeping your income the same, you do it! Its called maximising profits. Simple economics taught at a high school level.
As for the future of Nokia’s D&S division, namely services like MixRadio, it isn’t a shock. Microsoft has announced they want to be a cloud and mobile first company. They will benefit off their services. Microsoft has Xbox. One of the most successful aspects of their business. Inside this business, they have their own entertainment services; Xbox Music, Xbox video etc.
MixRadio and Xbox Music are essentially competitors. Sure, they serve different functionality, but both give users access to music. As a software company, you will want YOUR users on YOUR OS, using YOUR services. Though you essentially own that service, it is still a competitor that is taking profits away from your service. If you can remove a roadblock to capitalising your profits, you do it! Again, simple business strategy.
Nokia X devices getting the cut, is due to the services issue. Though the Google services are removed by default, it is still AOSP. This means a user, with enough determination, aka Google searching, can remove Microsoft’s services entirely and use Google’s and get a pretty functional Google-powered Android handset. Why would MS want to give their biggest rival a helping hand?
As for Asha, well this is a competitor for low-end Lumias like the 520 (and even lower). With MS gaining indian OEMs like Micromax, removing their competition will see Micromax and others push the lower tiers with MS products, which will only strengthen the ecosystem. Once again, its all strategic business and smart economics.
I am aware that this is a rather extensive post and if you’ve made it all the way to the end I applaud you. I appreciate that not everyone will agree with me, and I welcome constructive comments. If you’re going to just post hatred for Elop, don’t bother.
- Elop joined an already in trouble Nokia
- Elop not solely to blame for fall of Nokia
- WP was most viable differentiating solution for Strategy change
- All Elop and Board choices make logical business sense
- Board approved Elop’s bonus for takeover
- Board approved MS acquisition
- Notion of “Trojan” is just stupid
- MS layoffs are to maximise profits
- Ceasing Nokia X & Asha is in interest of ecosystem
- MixRadio is competitor of MS service – must go to maximise Xbox Music profitability