Microsoft has made front page news for the last few weeks, first with the announcement that CEO Steve Ballmer would retire once a replacement was found, and then with the announcement that Microsoft was buying Nokia's devices business. Neither item was completely unexpected. Despite years of solid revenue and an enviable profit margin, Microsoft under Mr. Ballmer had few major new products. The Nokia purchase had been rumored for several months and also is the culmination of an increasingly close partnership between the two companies. Like Microsoft, Nokia has been regarded as an early innovator that lost its way. So, what does this marriage between two tech titans that many regard as "past their prime" mean for the enterprise?
Microsoft, hardware giant?
The obvious outcome of the acquisition is that Microsoft now becomes a full-fledged hardware company. Past in-house hardware has been presented as "one-off" products, with Microsoft assuring hardware partners that it would avoid cannibalizing their sales. With Nokia, this "gentlemen's agreement" will likely come to an end, at least with smartphones and tablets.
One of the major complaints with Windows Phone and Windows 8 on tablets, and really any new release of Windows, is that the software and the device don't integrate well. By buying Nokia's hardware capabilities, Microsoft hopes to steal a page from the Apple playbook and bring hardware and software under one tightly integrated roof. This is a laudable goal, especially since Microsoft formerly straddled an awkward fence between Google, where its Android OS is readily and easily modifiable by any and all hardware providers, and Apple, with its tightly integrated (and fully closed) OS and hardware.
The other obvious benefit to purchasing Nokia is that Microsoft's mobile offerings have largely failed to meet their sales targets, a fact that has not gone unnoticed by Microsoft's hardware partners. With sagging desktop and laptop sales, tablets are a key component of all the hardware players' growth strategies. Major hardware partners have quietly abandoned plans to release new tablets based on Windows RT, and in many cases are turning to Android for their tablet offerings. Despite well-designed hardware, Microsoft's own Surface line of tablets has failed to achieve commercial success and still struggles with areas like battery life where Nokia may be able to help.
Waiting for Windows
On the enterprise tablet front, the obvious benefit we'll see from this match is a new series of Windows tablets. It's a safe bet that such a device was already in the works, and the only question is how quickly the combined company will be able to implement the benefits of a tighter integration between hardware and software. If it wants to succeed, Microsoft needs a comprehensive and cohesive line of tablets. At the entry level, a successor to the Surface that offers a more familiar tablet format vs. its current laptop-like screen, while retaining the high quality hardware, snap-on keyboard, and battery life would be a good start, assuming low pricing is maintained. At the upper end, a tablet running Windows 8 in a similar form factor with well-executed pen input might make enterprise inroads.
The major problem is that consumers and enterprises are losing patience waiting for Microsoft to get its act together on the mobile front, and I have yet to hear anyone quip that Microsoft's biggest problem with mobile is insufficient hardware. On the consumer front, the availability of Office on a tablet has failed to set the world on fire, even with the aggressive pricing of the Surface RT. With enterprises, longstanding Microsoft shops have begun to standardize on Android and iOS for mobile and are largely ignoring Windows Phone and Windows 8. Both problems stem from software more than hardware. Furthermore, despite the lofty talk around every merger and acquisition, they are messy processes and distract both companies from their core business, as everything from product development to HR are reworked and employee uncertainty becomes the modus operandi.
I don't see Microsoft's tablet offerings making much headway in the consumer space in the next year, leaving the enterprise — where a cheap, lightweight mobile device that runs Office is compelling — as their best hope. Microsoft will need to overcome the growing negative perceptions around Windows 8 and also clear the muddied waters around Windows RT. It must do all this while integrating a large and relatively quirky hardware company into a technology behemoth that's lost its innovation chops. Not to mention a major reorg that amounts to the final hand grenade tossed into the fray by the departing CEO.
Microsoft has won major technology battles before, obliterating Netscape in the browser wars and dethroning Sony on the gaming front, but mobile may be a battle the company can't win with its current Windows/Office-centric strategy. Do you agree? Share your opinion in the discussion thread below.
Patrick Gray works for a global Fortune 500 consulting and IT services company and is the author of Breakthrough IT: Supercharging Organizational Value through Technology as well as the companion e-book The Breakthrough CIO's Companion. He has spent over a decade providing strategy consulting services to Fortune 500 and 1000 companies. Patrick can be reached at firstname.lastname@example.org, and you can follow his blog at www.itbswatch.com. All opinions are his and may not represent those of his employer.