Is Microsoft/Nokia a sleeping giant or just sleeping?

  • Posted: 23 April 2011 08:17 PM

    This topic was inspired by a conversation I was having with Steves over at the Google v Apple thread.

    steves - 23 April 2011 07:43 PM

    the big elephant in the room and what i see to be the failure of many on the AFB forums is the sleeping giant MSFT/NOK.

    MSFT is about to explode on the scene, and it took me a while to confirm my belief, but I now reasonably believe they will trounce android.  it is microsoft that we need to worry about not google.  .

    this reluctant-to-switch-to-mac 89% group, who fears the unknown, with 20 years of MSFT inertia behind them, will simply prefer to go with the known - a windows phone.

    I’ve taken the position that Microsoft has been asleep at the switch and that their position in mobile and even on the desktop is in Jeopardy. Steves made some great counter-points and hinted at something more. I’m inviting Steves and anyone in the AFB who thinks that we’re underestimating Microsoft/Nokia to share their opinion with us. It’s easy to find Microsoft bashers. I’d love to hear the case for Microsoft (and Nokia).

         
  • Posted: 23 April 2011 08:36 PM #1

    Just to kickstart the conversation, here are Horace Dediu’s thoughts on Microsoft, excerpted from a wide ranging interview posted at his ASYMCO site, here.

    Q; How about Microsoft? Do you think the company will lose the podium in Post PC era?

    A: Microsoft already has lost its position as leader in personal technology. The end actually came in about 2000. Once Windows became ?good enough? and did not crash so much, they have had a hard time finding something to improve. If you go back and watch every CES keynote that Microsoft presented since then it?s been a litany of dead end ideas.

    Every major innovation since 2000 has been in consumer technology and that?s never been an attractive business for Microsoft (with the exception of XBox which was really aimed at Sony and Nintendo without the intention of creating a new market.) Microsoft struggles not because they lack talent (engineering or management) but rather because their business model is relatively rigid. They make money through software licensing. You can see how that?s a hard thing to sell to consumers (?I?m buying what??) Consumers tend to pay Microsoft through the purchase of another product. If the market demands hardware/software integration (like in a phone or tablet) or making money by giving software away (like Google), they struggle. This business model rigidity is present in almost all companies, so Microsoft is not uniquely troubled.

         
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    Posted: 23 April 2011 08:48 PM #2

    I have no reason not to believe that MS/Nokia could be a force IF they can come out with some really compelling products. 

    I don’t see it happening solely because of the non-inertia of Windows captives.  There’s currently no real tie-in on either the hardware or software side that will keep those people captive.  It wil have to be done with product.

    The one other thing I would concede is that they might be able to put together an ecosystem, but it might be an even prop bet that HP.might be the one to pull this off.  Either way there’s definitely room for someone to win the anybody-but-apple race.

         
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    Posted: 23 April 2011 08:49 PM #3

    IMO the Nokia/‘Microsoft has the potential to disrupt the status quo, but when you put two Alpha Gorillas in the same room who know what will happen.  I think it is safe to say that both companies have the engineering expertise to create the next big thing and both have the contacts throughout the world.  My concern is the management teams.  The recent performance from both companies doesn’t exude confidence in what they will do together.  The world doesn’t stop while you get your shit together, but both have huge goodwill which could help if they deliver something that excites.  I think Microsoft has a slow leaking tire with Windows but the PC is a maturing market so growth will slow against the mobile.  MS Office is a huge franchise, your kids can hardly survive middle school without learning to run office so that monopoly is still safe.  The MS server business is healthy and in spite of them burning money in the entertainment division the xbox360 with xbox live is well done and should provide an avenue into the living room.

         
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    Posted: 23 April 2011 08:51 PM #4

    FalKirk - 23 April 2011 11:17 PM

    This topic was inspired by a conversation I was having with Steves over at the Google v Apple thread.

    steves - 23 April 2011 07:43 PM

    the big elephant in the room and what i see to be the failure of many on the AFB forums is the sleeping giant MSFT/NOK.

    MSFT is about to explode on the scene, and it took me a while to confirm my belief, but I now reasonably believe they will trounce android.  it is microsoft that we need to worry about not google.  .

    this reluctant-to-switch-to-mac 89% group, who fears the unknown, with 20 years of MSFT inertia behind them, will simply prefer to go with the known - a windows phone.

    I’ve taken the position that Microsoft has been asleep at the switch and that their position in mobile and even on the desktop is in Jeopardy. Steves made some great counter-points and hinted at something more. I’m inviting Steves and anyone in the AFB who thinks that we’re underestimating Microsoft/Nokia to share their opinion with us. It’s easy to find Microsoft bashers. I’d love to hear the case for Microsoft (and Nokia).

    MS’s and Nokia’s problem is their product culture and upper management.  Everything they touch (in the last 10 years) turns to crap. Let’s see, crap + crap = more crap. 

    I still get a kick out out the JA Ballmer interview where he laughs about the iphone.
          JohnG

         
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    Posted: 23 April 2011 09:18 PM #5

    Microsoft and Nokia can be seen from many perspectives. Based on what I know these companies are very compatible due to their similar views of how they capture value.

    They are both process oriented and they both prosper by creating vast distribution networks.

    However they are both vulnerable if what the market demands is something other than process and distribution. Namely vision and product creation.

    Optimized processes are only useful if you take a maturing product to a larger audience. Optimized distribution is the means to maximize that reach.

    In a new market you can’t optimize because you don’t quite know what needs to be optimized. You also don’t know what is the right product definition.

    In other words, you need an emergent strategy rather than a deliberate one.

    The bet they made implicitly assumes deliberate strategy, optimization, distribution and execution are what matters.

    I like to quote Wernher von Braun: “Research is what I’m doing when I don’t know what I’m doing”

    New markets demand a research mindset. If you compete in a new market and you think you know what you’re doing and work on optimization, then you are likely to lose to the one who spends time trying to figure out what to do in the first place.

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  • Posted: 23 April 2011 09:25 PM #6

    MSFT/NOK—The Sleeping Giant has Awoken

    OK.  Thanks, Fallkirk, agreed, it is all too easy to find MSFT bashers without any substance.

    I am altogether not interested in bashing.  Yes, MSFT has problems, I have been tracking these problems lately. For example, there are some indications of employee dis-satisfaction.  There are concerns over Ballmer’s leadership. 

    I have read all of these and they do not concern me.

    I believe they have indeed deserved the phrase the “sleeping giant”.  they are obviously sleeping for the last 10 years with the market price flat, and they are obviously giant with a 89% market share.

    They slept as to not disrupt their cash cows, windows, office…  I have articles on this.  I am sure many of you have seen these too.  I am less interested in pointing this out as frankly I bullish MSFT/NOK.

    Clearly the sleeping is now past tense.  The giant has awoken.  They are in the game now and they are about to be here in force.

    The title of this thread should be:

    “MSFT/NOK—The Sleeping Giant has Awoken”

    Remember 89% of the market Windows is good enough.  Everyone should tack that saying onto their foreheads if you are trying to make bets.

    Remember that Windows 95 was generally far worse than Mac OS 7.5 at the time.
    Look at the world now.

    History repeats itself.

    The mobile space is in its infancy.  I think we would all be best served to completely and I mean completely ignore any MSFT/NOK bashing you hear by pundits, where the pundits describe the market leaders/incumbents AAPL/GOOG have the game all locked up. These people literally cannot see the forest through the trees.

    Dont forget they also have alliances with Twitter.  Have their own search engine.  Own the enterprise.  Own 89% of consumers.  They can afford the luxury of acting slowly, deliberately, over 10 years. 

    AAPL was willing to sacrifice their cash cows (ipod) first… to make way for the new (iphone).  that is the main reason AAPL is their first. 

    AAPL was hungry.  MSFT was a full and sleeping in a cave like a bear.  Now they are awake.

    Here are some recent links for your reading pleasure.  Enjoy.

    win 7 mango
    http://arstechnica.com/microsoft/news/2011/04/windows-phone-7-mango-one-heck-of-an-upgrade.ars

    msft pr
    http://www.microsoft.com/presspass/press/2011/apr11/04-21msftnokia.mspx

    nok pr
    http://press.nokia.com/2011/04/21/nokia-q1-2011-net-sales-eur-10-4-billion-non-ifrs-eps-eur-0-13-reported-eps-eur-0-09/

    commentary
    http://arstechnica.com/microsoft/news/2011/04/pact-signed-nokia-windows-phone-7-handsets-by-year-end.ars

    http://mobilized.allthingsd.com/20110421/exclusive-microsofts-lees-and-nokias-oistamo-talk-about-the-final-contract-they-just-signed/

    video
    http://conversations.nokia.com/2011/04/21/one-step-closer-to-first-nokia-device-built-on-windows-phone/?sf1351153=1

         
  • Posted: 23 April 2011 09:29 PM #7

    asymco - 24 April 2011 12:18 AM

    Microsoft and Nokia can be seen from many perspectives. Based on what I know these companies are very compatible due to their similar views of how they capture value.

    They are both process oriented and they both prosper by creating vast distribution networks.

    However they are both vulnerable if what the market demands is something other than process and distribution. Namely vision and product creation.

    Optimized processes are only useful if you take a maturing product to a larger audience. Optimized distribution is the means to maximize that reach.

    In a new market you can’t optimize because you don’t quite know what needs to be optimized. You also don’t know what is the right product definition.

    In other words, you need an emergent strategy rather than a deliberate one.

    The bet they made implicitly assumes deliberate strategy, optimization, distribution and execution are what matters.

    I like to quote Wernher von Braun: “Research is what I’m doing when I don’t know what I’m doing”

    New markets demand a research mindset. If you compete in a new market and you think you know what you’re doing and work on optimization, then you are likely to lose to the one who spends time trying to figure out what to do in the first place.

    Wow you’re good. You just get better and better. Thanks for sharing.

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    Posted: 23 April 2011 09:49 PM #8

    The right management could make any of the tech giants have a couple new legs to stand on, without buying out another giant.

    If someone knows the company willing to take a hard look at a couple of my business plans, drop me a line.

    Failing that MS will manifest flesh-eating disease.

    Cl4

         
  • Posted: 23 April 2011 10:20 PM #9

    asymco - 24 April 2011 12:18 AM

    ...In other words, you need an emergent strategy rather than a deliberate one….New markets demand a research mindset. If you compete in a new market and you think you know what you’re doing and work on optimization, then you are likely to lose to the one who spends time trying to figure out what to do in the first place.

    hi asymco.  thanks for the great AAPL estimates, i read it for years before i knew of AFB.

    that said, have to disagree if you are counting MSFT out based on what i think your 2 fundamental key points and premise are… which seems to be:

    1) success requires an emergent strategy. 

    Not so.  This would only be the case if AAPL had not blazed the trail.  It requires no extreme visioning to follow a well blazed iphone trail other than iteration.  Judging by how good WM7 is, and what I’ve read about the next WM7 replacement, it is shown that iteration does work.

    Further, look no further than WIndows steady advancement… from, say, a crippled Windows95, to todays extremely stable and highly functional Windows7 OS.  No emergent behavior necessary for success.

    That said, lets move to #2

    2) MSFT does not a research mindset.

    Not so.  I’m sure MSFT has the research talent to invent the most compelling UI’s imaginable.  It’s clear MSFT has a team dedicated to 100% pure research for research’s sake.  Ironically, not applied R&D.  I say that since I think MSFT’s problem is that so little of their research actually makes it through the pipeline.  But that is due to other reasons as I’ve said (protecting existing revenue streams, politics, etc) , not for lack of research. 

    Witness, say, their surface table, their incredible photo mega pixel technology, their house of the future….their doomed incredible MS Encarta encylopedia—still one of the best…which they killed.  All incredible technology that seems to have not moved forward due to politics and protecting existing turfdoms, but not lack of ability to research.  I could give dozens of other examples if I really tried.

    So even if I am incorrect in that there is no need for emergent visioning behavior of MSFTs part, they certainly to have the research talent… what is missing is the strong charismatic leader willing to make tough decisions. 

    Of course MSFT has long since learned that this type of leader is not required, all that is really required is slow and steady wins the race, once you know where you are headed.    Let AAPL pay for your R&D dollars.

         
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    Posted: 23 April 2011 10:22 PM #10

    Like RIM, after lots and lots of promises leveraging its Windows savvy and market strength, Microsoft produced its own disastrous mobile platform, Windows Phone 7. It’s not as bad as the PlayBook, and if you really want one, a carrier will sell you a unit. Dell too jumped on the Android bandwagon and produced a series of awful tablets, after a failed foray into making its own smartphone. (Remember the Axim?)

    http://m.infoworld.com/d/mobile-technology/anatomy-failure-mobile-flops-rim-microsoft-and-nokia-566?page=0,0

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  • Posted: 23 April 2011 10:24 PM #11

    asymco - 24 April 2011 12:18 AM

    I like to quote Wernher von Braun: “Research is what I’m doing when I don’t know what I’m doing”

    Horace, I’m definitely going to steal that quote.

         
  • Posted: 23 April 2011 10:26 PM #12

    pats - 23 April 2011 11:49 PM

    MS Office is a huge franchise, your kids can hardly survive middle school without learning to run office so that monopoly is still safe.  The MS server business is healthy and in spite of them burning money in the entertainment division the xbox360 with xbox live is well done and should provide an avenue into the living room.

    Agreed.  What I’d like to see is MSFT’s lines of business broken out and projections made in the same vein as the AFB by other more skilled than I.

    like a “MFB forum” if you will…

    my understanding of the way AFB came to exist is that the individual bloggers came first—and eventually found one another here.

    does this already exist?

    or is there an interest and desire here at AFB to create the MFB?

         
  • Posted: 23 April 2011 10:35 PM #13

    afterglow - 24 April 2011 01:22 AM

    Like RIM, after lots and lots of promises leveraging its Windows savvy and market strength, Microsoft produced its own disastrous mobile platform, Windows Phone 7

    Wow, this article is lacking information, completely full of FUD and very biased.

    Steer clear if you want to leave with your brain intact.

    The Axim cannot be compared WM7, any more then Win3.1 can to Win7.

         
  • Posted: 23 April 2011 10:55 PM #14

    steves - 24 April 2011 01:26 AM
    pats - 23 April 2011 11:49 PM

    MS Office is a huge franchise, your kids can hardly survive middle school without learning to run office so that monopoly is still safe.  The MS server business is healthy and in spite of them burning money in the entertainment division the xbox360 with xbox live is well done and should provide an avenue into the living room.

    Agreed.  What I’d like to see is MSFT’s lines of business broken out and projections made in the same vein as the AFB by other more skilled than I.

    like a “MFB forum” if you will…

    my understanding of the way AFB came to exist is that the individual bloggers came first—and eventually found one another here.

    does this already exist?

    or is there an interest and desire here at AFB to create the MFB?

    There would have to be interest in owning MSFT as an investment first.  I would only have interest in owning MSFT if I knew the day before Ballmer announced his retirement. 

    Frankly, if MSFT hasn’t learned from its self-destructive culture of interdepartmental rivalries and politics, how could it realistically expect things will be different dealing with Nokia?  MSFT could treat Nokia like a department and squash any upside the combination might hold.  I get the business opportunity with MSFT gaining a larger customer list and leveraging the infrastructure (distribution points if you will), but it still requires leadership and innovation to leverage such advantages.  MSFT and Nokia have a better chance at getting lucky with new market share in mobile than they do from executing with current management.  Both companies have very mixed track records of building hardware that people want at a price that generates gross margin.

    Do I think the MSFT and Nokia offers hope to beleaguered investors?  The best way to put it, absent clear signs that MSFT has learned from past mistakes, is the old saw “hope springs eternal.”

    And if you need more reason to be pessimistic, it’s worth pointing out that Guy Adami owns MSFT.  rolleyes

         
  • Posted: 23 April 2011 11:03 PM #15

    BillH - 23 April 2011 11:37 PM

    Tough conversation to have really.  Steve’s perspective, based on multiple decades of actual experience has a great deal of truth embedded within his central premise.  I respect that experience and accumulation of knowledge.  I really do but…,I believe it to be fundamentally flawed and have invested accordingly.  We older folk carry decades of baggage with us that is in the process of being overturned right before our very eyes and yet we continue to discuss this decades old topic.  Mac vs. PC, open vs. closed, android vs. iPhone.  Entertaining for those of us of a certain age but really, (and this is the only way to say it), the kids don’t give a shit.  They’re buying what they want and what serves their needs which in some cases is functional and some cases cultural but what difference does it make.  They’ll take them to work even if it means they have to run boot camp or Parallels and they know how.  The “truth” is in Apples financial statement and IDC’s industry papers.  Microsofts and Nokia and Dell and HP are in decline and will continue to be until they can show the world better products.  They haven’t been able to do that for years and I don’t have any reason to believe it will change anytime soon because it hasn’t.  They don’t have a single product that I want to buy.  Not one.

    BillH, well said.  I agree with most of what you said.

    The younger generation will buy what they buy.  You are 100% correct.  I have already considered this in depth.  Yes there is years of baggage.  And, in fact, I would LOVE to see the corporate enterprise of the year 2050 be entrenched to no single vendor.  Linux has made much inroads, at least in the data center, but not in the common workplace.  The place where MSFT is *truly* embedded is in the government.  You just haven’t seen anything until you see how slowly large city government moves and how entrenched these legacy systems are with MSFT / Exchange / Sharepoint, etc and how long it takes for any change to occur.  You go deep into actual state, county and federal politics then. 

    You talk about dinosaurs but these dinosaurs are eality and it will take at least 10-15 years to clean up some of these MSFT messes, maybe much longer with so many vested interests in keeping them in power.

    Literally a new generation needs to be born and take over, like you said.  And that is what is happening now with Apple.  That generation has been born and people are taking their ipads and iphone to work and demanding interoperability.  It *is* happening.  I agree with your central premise completely. 

    But none of that changes my central premise.  The writing is now on the wall.

    In what timeframe will this newer, more technology enabled generation be able to dismantle the shackles of MSFT in the govt, enterprise, and in the 89% of the homes?

    Will they be able to do it in just 3 years?  Because that is all the time we have before MSFT phone becomes a key player. 

    That said, I think the wisest investment is to diversify across all of the mobile space. Mobile space is winning out over the laptops, which previously won out over desktops.  Hedge your bets.

    In fact, I am so bullish on the mobile space I am thinking of going all in 100% into the mobile equities, with perhaps some china equities, once i feel comfortable with overarching market conditions.