News reports today startled many tech industry observers and analysts... Microsoft will acquire Nokia's mobile phone business for $7 billion. What can we conclude from this announcement?
1. Years ago, Apple seemed the outlier when Steve Jobs insisted on being a fully integrated player, creating and selling both hardware and software. Microsoft, under Bill Gates, chose to build the operating system and other software, leaving the production of PC hardware to others. At the time, it was a wise move. The PC industry has been a structurally unattractive market for many years. Microsoft and Intel made tons of money, but most hardware manufacturers operated on very thin margins (or ceased to exist). As the shift to mobile occurred, however, owning both the hardware and the software business became more important. It enabled companies to produce better mobile device experiences for the customer. As a result, we have seen many players follow Apple toward more integrated strategies. Google purchased Motorola. Now Microsoft has acquired Nokia. What's interesting, of course, is that Microsoft and Nokia have been working together quite closely for several years. Investors should ask: What precisely can you now do that you could not do as strategic partners? Undoubtedly, we will hear Microsoft echoing the kinds of arguments that Steve Jobs often made about the virtues of hardware and software integration. How ironic is that!
2. The timing of the deal seems rather odd. Ballmer announced his retirement just a week ago. Now, Microsoft announces this major acquisition. How will this move affect the search for a new CEO? Wouldn't a new leader not want to be constrained by the strategic moves of his predecessor? The Board of Directors will find itself with a more complicated search now, particularly if they are looking to outsiders as candidates.
3. Can a merger of two companies in weakened positions work? In many cases, it seems that such marriages do not work. In fact, acquisition integration becomes a further distraction to organizations already under duress.
4. Is this move part of a broader strategic reshaping of Microsoft? Many people have suggested that Microsoft should break itself into several pieces (separating some of the consumer businesses from the enterprise businesses). I thought that such a move might come under a new CEO, but could it happen sooner? One could now envision a scenario, though unlikely, where the firm announces a breakup and launches a search for two CEOs, one for each part.