The Tuesday after Labor Day often brings lots of deals. Sometimes the market likes them, sometimes the market hates them. This morning we learned that Microsoft (MSFT) is ponying up $7 billion for Nokia’s (NOK) device business. The market hates it.
Of course, there are many people in Finland today who are upset. That’s not just because they know that their coffee is better than Starbucks, or that now they can only program in Windows. No, the real reason is that Microsoft’s stock price is tanking — it’s down 6% in morning trading in the Nokia news — and everybody knows why. This is not a vote of confidence.
I recently defended Microsoft CEO Steve Ballmer. I may soon retract that. This is not the deal of a braniac.
Interestingly enough, 51% of readers of a Yahoo poll consider the acquisition a brilliant move. This implies either that Ballmer is strangely genius or that Yahoo readers are mostly idiots. I’ll let you make the call.
We already know that the world hates Steve Ballmer more than Yankees General Manager Brian Cashman hates Alex Rodriguez. We also know that Microsoft is having a bit of a mobile identity crisis, having made very little progress against Apple’s iPhone or Android OS-based phones. The analysts remind us of this every day.
But why would you go all in on a partnership that has seemingly eroded value for both parties? It seems to imply that Ballmer sees upside in Nokia — and possibly Nokia CEO Stephen Elop.
Let’s get to the heart of the matter — which I believe revolves around Stephen Elop, an ex-Microsofter and Steve Ballmer’s buddy. The speculation du jour is that Elop may join Microsoft as the new CEO. The big rationale is that because moved his family to Redmond, Wash. and has remained there, that he must have long-term ambitions to drink lots of Starbucks and hold Microsoft stock for a long time.
That’s interesting. Except for the fact that many people not named Steve Ballmer hate Elop.
There are people that know more about it than I, so I will defer to them. For that, one might consult a former Nokia exective named Tomi Ahonen, who is now a prominent speaker, blogger, and analyst on all things mobile. If anybody can give us insight, a former Nokia executive can. In May, 2012, he wrote that “Elop has pretty well destroyed what was left” of Nokia. He has also regularly written about the disaster that is the Nokia/Microsoft parntership, and why it’s not working.
Ahonen’s main beef with Elop (and he has many), is that Elop does not understand the service provider clientele or the sales distribution channel for mobile devices. You see, the powerful service-provider channel controls sales. Think about what happens when you walk into a wireless retail store: They put certain models forward, add subsidies and incentives the way they see fit. They tell you what to buy, basically.
“If the reseller channel refuses to sell your product, your company dies,” wrote Ahonen in his blog in 2012. Elop, he says, has not fixed the reseller problem. In fact, he made it worse.
There’s another problem with this concept, too: Skype. You see, Skype is a free service, right? The service providers hate Skype. Microsoft owns Skype, and they push it on all their phones. Interesting, eh? You are trying to gain market share in the powerful service provider channel, yet you are pushing a product that they all hate.
What’s interesting is that Ahonen, who obviously has great contacts at Nokia HQ, has been ahead of the curve on all of this, writing last week about the speculation of Elop as Microsoft CEO and detailing why it won’t happen.
I’m not spending this many words on Ahonen’s analysis because I think he’s the sole decider of everything Nokia, or the only opinion out there. But his theory does boil everything down to that one simple problem: Microsoft/Nokia can do everything in their power to make a better mobile product and it won’t matter unless they figure out a way to fix the reseller problem.
Stephen Elop isn’t the guy for that. Apparently the market understands that.