Microsoft : Mobile First, Nokia Last

Microsoft today sent some shockwaves down the tech industry announcing restructuring program which could eliminate more than 18,000 positions over a period of next year at Microsoft, roughly 90 days after closing the Nokia Devices & Services business  acquisition.. While this was pre-hinted by the new CEO Satya Nadella in its open letter to its employees announcing the new strategy circling around “productivity and platform” with motto of empowering ever person & organization on the planet to “do more” and “achieve more”.

Microsoft Strategy & Restructuring

  • While the new strategy and the much needed restructuring was imminent after closing the acquisition, the implications are profound
  • We discussed about how the integration and business model rejuvenation would be key for Microsoft to take the company to the next level but by taking time and smartly ustilizing the Nokia talent pool and allocating resources prudently and not by what looks like a hasty and ruthless blow
  • The new strategy and restructuring efforts have different implications on Microsoft, acquired Nokia business, their employees and overall industry and competitive environment
  • But for the acquired Nokia employees and those who will be laid off this  will be hard to gulp down and would drive lots of resentment and brain drain
  • It also seems like most of the layoffs will be in manufacturing, developer relations, sales & marketing divisions which means more outsourcing, non-mobile folks will sell mobile products & existing Microsoft employees will take over Nokia employees which have so far done tremendous marketing and developer relation efforts for the platform & Lumia brand
  • With “mobile first” strategy its ironical that majority of the Nokia employees are shown the door
  • It is clear now that Microsoft purchasing Nokia was never about acquiring talent, engineering or R&D expertise but more about stopping Nokia to move towards Android
  • Nokia’s competitors will definitely rejoice and with open arms welcome the huge pool of Nokia talent being laid-off
  • It will be a point of no-return for Microsoft to attract the talent back once gone
  • This shows that Microsoft wants  to get leaner and faster by removing redundancies and aligning the workforce towards a common goal, but looks like the transferred Nokia employees were more redundant in Microsoft’s eyes

Nevertheless, lets have a look at how Microsoft is positioned right now from product portfolio, hardware strategy and partner ecosystem perspectives in middle of this restructuring:

Microsoft Strategy & Portfolio

  • The strategy laid down by Mr. Nadella and senior executives at Microsoft is to focus on its core competency which is to lead as a “platform” company building capabilities and unique experiences circling around “productivity” from business to personal use-cases
  • This is the right strategy for Microsoft and this is what its core competency is
  • With digital work & life experiences at core, Microsoft aims to create a more focused first-party benchmark hardware running Windows based OS (Cloud OS, Windows, Windows Phone, XBox) rather than other platforms from Android (e.g. Nokia X) to even acquired proprietary Nokia platforms (e.g. Asha)
  • Instead Microsoft just aims to extend its cloud, software and services horizontal across multiple platforms to scale and not its own hardware

Exhibit 1: Microsoft Portfolio & Strategy
Counterpoint - Microsoft Strategy 2014 - Business Unit

  • This means Microsoft will continue to focus more on a vertical hardware play with its own platform rather than a horizontal multi-platform play
  • This supersedes Nokia’s strategy to use Android (AOSP) based Nokia X hardware or Asha (S40 touch) hardware to pimp Microsoft experiences at sub-$100 price-points
  • This will definitely leave a big hole in retail price segments of US$35-US$85, a high volume and high-growth segment
  • Companies such as Google, TCL-Alcatel, Indian microvendors and other Chinese players will rejoice to capture the share away from Nokia’s stronghold segment over the years
  • However, to address this issue to some extent or expand its TAM, Microsoft decided to go ‘full monty’ earlier this year and make its Windows platform ‘license fee free’ to OEMs for Windows platform based devices under 9 inches
  • This move has helped Microsoft immediately gain momentum to compete with Android head-on and rope in current Android OEMs
  • Microsoft have now expanded its partnership to more than 20 brands globally for Windows Phone platform and slowly building partnerships for Windows tablet form-factors as well
  • With the help of Qualcomm and Windows Phone reference designs, OEMs will be able to launch Windows Phone smartphones faster and at competitive price-points
  • It will also open doors for Microsoft to pull in current Windows PC OEMs to manufacture Windows Phone devices
  • Microsoft aims to tap more fast-growing local market mobile device kings similar to Micromax, Karbonn, Presitigio and others
  • This allows these local kings to diversify from other long tail of competitors in their respective market without much upfront costs and investments
  • With more hardware partners, Microsoft aims to drive scale and momentum for the platform so it can attract more developers to build apps for the platform
  • Also with broader scale, Microsoft could easily recoup the given up license fee or platform development costs through its huge portfolio of software products and cloud services designed for multiple screens
  • Additionally, Microsoft with Windows 8.1 & Windows Phone 8.1 will look forward to drive more and more ‘universally developed’ apps to drive greater scale to entice developers and step towards its goal of convergence
  • While this strategy has got legs with an aim to get a leaner body, it remains to be seen how fast can Microsoft can ditch internal politics and run faster to catch up with competing platform duopoly of Apple & Google
  • In addition to the three screens (mobile, tablets/PCS, TV (XBOX) ) where Microsoft has aligned its efforts, it should also think about automotive, wearables and IoT segments which will drive the next wave of growth as the smartphone, tablets and PC markets mature
  • Google has already jumped into all these areas and Apple has already shown a glimpse of extending its platform capabilities in many of those areas at WWDC 2014
  • With this scale and reach, Microsoft will have to also develop a big data analytics platform to learn more about it users and enter the big information era which will drive the growth in the next decade

 Exhibit 2: Microsoft Hardware Partner Ecosystem
Microsoft Windows Ecosystem Partner OEMs

 To summarize, the decision to axe thousands of Nokia transferred employee so soon and that too in middle of Microsoft’s “mobile first” strategy is a bit of a shocker, there is definitely a glimpse of some level of politics still prevalent within Microsoft which Mr Nadella has to change from within. However, otherwise from strategy perspective Microsoft is pretty well positioned to cement itself as one of top three ecosystems with some level of distributed momentum across portfolio.

However, Nokia as a strong force and brand once is on a rapid ramp down as Microsoft shifts focus away from Nokia’s strong feature phone business, proprietary and cross-platform hardware efforts, talent pool for a Windows only strategy.