I’ve been telling people left, right and centre – Elop is a Trojan horse! Ex-Microsoftie Stephen Elop joined Nokia as CEO in September 2010, and the first thing he did was declare that the company is sinking and they need a new hero – Windows Phone! Everyone in the tech sector knows of the famous ‘Burning Platform’ memo from Elop to Nokia employees as soon as he became CEO.
It was on this strategy that they discarded Meego, an internally developed OS (in collaboration with Intel), which really had people excited and was actually a really nice OS with some interesting interface paradigms.
Time and again, people questioned the wisdom of going all-in with a single platform, when even the Android market leaders like Samsung and HTC, selling millions of devices were hedging their bets with Android AND Windows. But did Elop listen? Apparently the ‘focus’ of the entire company on a single ecosystem was necessary. Fair enough.
Further down the line, the lack of sales from Windows phones and Nokia’s low-end phone market getting beaten up by Android OEMs meant that they were essentially squeezed from both ends – the high-end smartphone market opting for iPhones and flagships Androids, and the low-end phone base moving to cheaper yesteryear Androids and, well other Androids.
Share prices took a beating, company valuations dropped. Instead of now hedging bets and giving in to massive demand for merging the OS chops of Android with the hardware design chops of Nokia, Elop took the hardline decision of STILL sticking with just Windows phone. But he also did something else – he sold off all of Nokia’s major assets, like their own headquarters, which they still use on lease! Reduced assets lowered the valuation of the company even further, this move being carried out under the premise of propping up its balance sheet. In 2011, 11000 employees were laid off as a restructure, followed by 10000 more in June 2012, along with the shutting down of several global facilities. Effectively, the overall value of Nokia dipped to incredibly low levels.
On the other side of the bridge, Microsoft had been dabbling in some hardware design of their own. By releasing the Surface tablets, they ran the risk of alienating their OEM partners like HP, Dell, Samsung, who by the way, were completely dependent on the Windows 8 PC platforms for their bread and butter. (Only Samsung was able to ride the smartphone wave and mitigate this risk.) As partners, Microsoft and Nokia believed that Windows Phone would be the 3rd horse in an essentially 2-horse race in the smartphone ecosystem between iOS and Android.
The Nokia shareholders and board had been very patient with their ‘safe’ strategy of ‘Stephen Elop CEO’. However, at a shareholder meet in 2013, their patience had finally worn thin and Elop was told that his strategy had not reaped any dividends, and he had a very short timeframe to show results. Investors also suggested a rethink of Elop’s single OS strategy, which he still had the guts to decline.
Overall, the effects of Elop’s single OS, discard everything else strategy since him taking over the CEO role were that Nokia’s mobile market share globally had dropped from 29% to 15%, from undisputed market leader to future also-ran. Its smartphone market share is at 9%, which is certainly higher than smaller players like Huawei or ZTE, but below abysmal for an ex-emperor. Most tellingly, Nokia’s share price dropped from $10 to a low of $1.63, a drop of 85% under Elop’s watch. And then Microsoft bought the devices and services divisions, the major brand names and left behind only the ‘Here’ mapping division which they still will exclusively lease for 4 years. In short, the heart and soul of Nokia.
So this is how you drive down the price before buying something! Quite clearly, we Indians have got nothing on Microsoft’s bargaining techniques. In a street sale, this would be equivalent to going to the vendor’s house, eating his food, making his wife leave him, starting a family feud, throwing out his bed and belongings, and then meeting him at the shop to buy a shirt for a 90% discount.
In short, this was Ballmer’s masterstroke (is it a coincidence that he announced his retirement now?). Want to buy world’s market leading phone manufacturer? Get your team man to do an inside job and run it to the ground. Buy it when there’s nothing left, and they’ve committed to you in any case. At a minuscule fraction of the cost.
Do you know how much Microsoft bought the majority of 150-year old Nokia for? 7 billion dollars. You know what else they bought recently for 7 billion dollars? A 10-year old video chat software called Skype.
Well played, sir. Well played.