Two Plus Two Equals Two Or Four?

The announcement that Microsoft is acquiring Nokia's handset business is a recognition that Windows Phone and Nokia devices are attached at the hip and are in fact one business not two. It is also apparently a recognition that Nokia was running out of cash and needed to do something big.

So now we have three fully integrated mobile OS and handset companies (Apple, Microsoft, Blackberry) and one fully integrated mobile OS and handset company with an OEM ecosystem that is sort of working (Google). Android is open source so we are likely to see it in various flavors (Amazon Android, China Android, etc) for a long time to come. It is also possible that Samsung and others figure out how to fork Android into something they can control and own.

My view is twofold. One, that Microsoft had to do this. The future is in mobile devices not PCs and they need to increase their focus and investment on Mobile. I am not sure this will work, but I also don't see that they had a choice. Two, that this changes nothing. Android and iOS are dominant and becoming ever more so.

My bet is two plus two equals two, not four.

For more excellent analysis, I give you Ben and Ben:

Ben Evans

Ben Thompson


Comments (Archived):

  1. JamesHRH

    Totally agree.Mobile evolution is pretty simple:- one way paging- two way low bandwidth typing (BB)- mid-bandwidth touch screen (iOS / Android)It must be fun to be Steve B. – you have to do things and they mean nothing.The interesting question is: what new mobile UI frontier could MS crack and settle?They are not even in the game of other UIs, not that I like any of the current instrumentation, glass or watch ideas.Ugly situation in Redmond.

    1. JimHirshfield

      Little kids, little problems. Big kids, big problems.

      1. LE

        As I like to say we all eat shit just at different tables.

      2. JamesHRH

        That’s a great one Jim.

        1. JimHirshfield

          Thank you Sir

  2. jason wright

    every empire falls.p.s. i use windows on my desktop. i have a nokia phone.

    1. JamesHRH

      Just saw on Twitter, from Anil Dash:MS = cash + Skype + Nokia + hungry new CEO = Bet worth taking

      1. jason wright

        yep. there’s a lot of goodwill out there for windows and nokia and takes a certain kind of talent to squander that.

    2. gorbachev

      Well, I don’t know.Nokia is a case study of an Empire that hasn’t fallen. It has reinvented themselves many, many times during its 150 year history.It started as a paper mill, then made rubber boots, car tires, TVs, and finally in the last 2 – 3 decades, mobile phones and cellular networks.

      1. JamesHRH

        Really? Great story.

      2. jason wright

        i was thinking the apple empire, and the android has been a great european company. it does indeed have an incredible history, with a very organic evolution over time. google by comparison is a freak, a mutation on steroids, and it will fall. apple will also fall, but that’s more natural.when a company starts naming its product after a chocolate biscuit one senses its creativity may be on the wane, which is what happens to companies backed by those who only have money and maximum return as their motivation.

  3. Marco Barulli

    Don’t forget FirefoxOS!

    1. Dale Allyn

      And Ubuntu phone, but both are still embryonic.

  4. William Mougayar

    Next, they will buy the BlackBerry devices division. Then, 2+2 will equal 2.5.

    1. JimHirshfield

      That’s just a Ball(mer) n’ chain

      1. William Mougayar

        oh, I thought you were going to say it’s a Ball(sy) move.

        1. leigh

          LOL you two are killin’ me 🙂

          1. William Mougayar

            Hey, don’t go Ball(istic) on us, and don’t Ball your eyes out crying for Nokia.

        2. JimHirshfield

          That it is.

        3. LE

          A possible regex for that would be Ball[mer|sy]

          1. William Mougayar

            Good one.

    2. Jeffrey Hartmann

      I really think there isn’t as much benefit to them doing this, but I would not be surprised if Redmond spends some of their war chest to grab Blackberry as well. The existing relationships with companies might be a way to put Microsoft phones into existing businesses as the upgrade path for those that are still on Blackberry Messenger and Blackberry phones. And they could leverage existing enterprise contracts to offer benefits others can not (we will discount Windows upgrades/SQL Server if you buy our phones) as a bonus and potentially grab some people on the fence there as well. Probably not worth doing this if they don’t do it really fast, the window of opportunity for that sort of strategy is probably closing already.

    3. JamesHRH

      William, here is what they will do next.- buy a modem manufacturerHere is the hidden long term strategy they are not disclosing yet ( you heard it here first ;-)- design a signature Xbox (that looks like an X) that has a bband modem, router & hard drive in the middle, with 4 spokes / cradles: handsets, tablets, keyboard & controllers- have the hubs dynamically control bandwidth from landline & cellular providers to each device & use location awareness to activate monitors / screens, regardless of device- have the Xboxes talk to each other and manage bandwidth on your WLAN- have different configs of spokes, for different types of rooms (TV / gaming, office, kitchen)- merge all Xbox, Live & Skype accounts into a single Xbox account- sell them in groovy colours, like the original iMacs- rename the company Xbox (never goes stale)- steal Jobs’ digital media hub position w a digital access point position (that is the most rewarding part of all for Steve & Bill)Shhhhhh. Keep that under your hat though.

    4. fredwilson

      i would bet against that. they are betting on windows phone.

      1. William Mougayar

        Yup. I later changed my mind. BB is doomed til they go private and figure things out. Maybe re-emerge as a browser-based smartphone only like a Firefox OS/Unbuntu style, because they still have the best mobile browser.

  5. leigh

    Just the other day I noticed our creative director has a Nokia Windows phone. He said he loves it.What i like most about this move, is that the mobile market is maturing in a way that isn’t being brand led and that product + ecosystem is becoming the future. I bet you the biggest signal this will be sending is to developers that Microsoft is going shopping — if you are an app developer struggling to get noticed in a big Ocean, Windows might be an interesting strategic play.

    1. William Mougayar

      How would a struggling developer do better if their app is targeting 5% of the market? I’m not sure if I understood that point.What might be interesting is that Microsoft could focus more on the enterprise market, especially if they buy BlackBerry entirely. Then the BBM server software is up their alley.

      1. Timothy Meade

        I would say that BBM’s relevance is oversold. Microsoft wiped out BES with a free minor upgrade to Exchange and WM5. Small messaging providers have essentially the same volume and the integration with SMS and email essentially negate any lockin drven network effects.As for Nokia, I just don’t see how this works out. The core “innovation” in Windows Phone is a launcher screen that both iOS and Android both have APIs to support. There may be some value in the overlap with .net applications on desktop, or follow on sales from xbox obsessees, but I can’t see it emerging as a strong third player.Google’s development for Android is moving to the thightly controlled Play services and Chrome. You can see this in their recent conference where the are building immersive search not into Android but into Chrome.Overall mobile systems are stagnating, features aren’t driving sales, brand is, and those brands are Apple and Samsung.

        1. leigh

          Brand has been driving sales but that is beginning to change. Can’t look to the future with a rear view mirror 🙂

        2. William Mougayar

          It would be a sad day for BB if things ended that way for them.

      2. leigh

        They can be a big fish in a little pond — easier to be found — (and let’s be clear, that pond is still pretty big 🙂

    2. ShanaC

      yes, but is that enough

    3. JamesHRH

      We are on the other side of the fence on everything lately.Mobile is not brand led?

  6. jason wright

    isn’t Android a very messy ecosystem?

    1. JimHirshfield

      Define “messy”

      1. jason wright

        no 😛

        1. JimHirshfield

          OK, be that way.

      2. Kasi Viswanathan Agilandam

        Is it this? … too many things in too little space? 🙂

        1. JimHirshfield

          I don’t think so. Nothing messy about android in my opinion.

  7. Cam MacRae

    Two plus two equals five; for large values of two and small values of five.Or so the old joke goes. Pre Ballmergeddon I would have assumed there was no way they’d not fuck this up.Now I’m rooting for a five.

  8. Jeffrey Hartmann

    Actually once I saw Ballmer was retiring I thought something like this might happen. Looks like Stephen Elop is coming home to Redmond and probably has a good chance of becoming the new CEO. I think this is going to be a very interesting time for Microsoft. I really think if they focus on hatching some of the very kewl things that come out of Microsoft Research into products they could have some more success for years to come, I’m not sure if competing directly with iOS and Android is the only way they can be great again. I think if they define a new product category or two, they could really get back in the game and get back on the growth trajectory. If they don’t, this is going to be the beginnings of a LONG decline. Definitely will be interesting to watch.

  9. Guest

    Nokia’s developer program and toolset are more interesting than MS.At Mobile World Congress 2012 they shared what they were working on in NFC, interior location apps and AR with a number of European R+D institutions (particularly German) which fits with Bing and what FB may or may not be doing with geolocation.So 2+2 = 3, imo.

  10. kidmercury

    forking android is the only way to go if you’re coming this late into the game. fork android, target a specific type of customer, bundle the device with a set of apps for the targeted customer type, build hardware for this customer type, brand message for this customer type.there will be a ton of successful ecosystems, too many to count probably, but those who attempt to go it alone without forking android (or perhaps some open source OS, but probably android given how entrenched it is) will suffer a degree of embarrassment the likes of which have rarely been seen.

    1. fredwilson

      you have been consistent in that view. i think you may be right. differentiation is what you build on top of the OS.

  11. fredwilson

    My partner Albert also posted on the newsHis take is here…

    1. pointsnfigures

      for once I agree with Albert.

    2. LE

      In computer science and computer programming, a continuation is an abstract representation of the control state of a computer program. A continuation reifies the program control state, i.e. the continuation is a data structure that represents the computational process at a given point in the process’ execution; the created data structure can be accessed by the programming language, instead of being hidden in the runtime environment. Continuations are useful for encoding other control mechanisms in programming languages such as exceptions, generators, coroutines, and so on.Hah! A good reason to not have engineering types from Harvard and MIT be in charge of naming.To me “continuations” is the perfect name for a retirement, lifecare or 55 plus community.(Like what he has to say of course).

      1. ShanaC

        yes, but I respect albert, he’s a very strong engineering mind

        1. LE

          What does that have to do with my point though? Why is Albert as a “strong engineering mind” qualified in the area of naming? I would argue that it’s the opposite. Someone whose brain is wired that way is less likely to be able to understand the nuance of an analog concept like this.

          1. ShanaC

            so, I respect him for what he is, not what he isn’t

    3. ShanaC

      thank you

  12. William Mougayar

    It’s peculiar that the Verizon/Vodafone $130Billion acquisition is getting a big yawn compared to the Microsoft/Nokia $7B one.Both have some non-US components, so maybe we’ll see a new wave of US companies using their foreign reserves to purchase non-US assets. That should be interesting to watch.

    1. pointsnfigures

      It should also be a lesson to legislators that poor tax policy has consequences. Corps are keeping their earnings outside the US because of an artificial roadblock. If a non US acquisition spree happens, it will cause more startups to get going outside of the US.

      1. William Mougayar

        It would open an interesting dynamic. It’s just my speculation now, but there are lots of corporate dollars outside.

      2. CJ

        Corps are putting them there to avoid paying what they owe to start. Tax posted is only poor because it doesn’t actually lead to much tax being collected.

    2. Ricardo Diz

      Very well said.

  13. Guest

    To survive in the Google Glass, Apple smart watch, wearable contextual tech era, MS needs to fast-track this R&D project of theirs to production-scale asap:*…With my developer hat on, this is SEXY.

    1. Matt A. Myers

      I personally don’t love it. Perhaps more use cases need to be developed – or one of those things where experiencing it will change my mind.

      1. Guest

        Obviously the design needs to be miniaturized and made into a button / pin / motif on our tops instead of this “shoulder boulder”.In principle, though, it’s FAB.The reason is because our bags weigh 6+ extra kgs with the various devices we carry to access the Web (phone, tablet, notebook).Google Glass doesn’t cut it for me.I’m short-sighted and HATE wearing regular glasses. They’re a nuisance to clean, I can see the frames which detract from my enjoyment of the beauty around me and they create unsightly dents on the bridge of my nose.Not to mention the health (cancer) concerns with having radio frequency receptors so close to visual cortex and brains:. http://www.businessinsider….Would I buy Google Glass AND pay for an Android phone with blue-tooth because Glass can’t of itself provide me with Internet access? NO.That’s an uneconomic and inconvenient proposition to me as a consumer. As a developer, I can see that wearable technology is a new platform for code, apps and services.It’s open for discussion, though, which form factor that wearable tech is in.I’m not keen on smart watches either since anything on my wrist gets in the way of it being able to code as quickly as sans-wrist obstruction.So…Omnitouch in button-on-my-top form and this MS vision of 2019 (think ‘Iron Man’ and Minority Report’) is what I’d like to see shipped in production as a consumer:*

        1. Matt A. Myers

          I have the similar concerns for caution re: Google Glasses, and likewise, watches or anything metal on my body bothers me.We’ll have to see how it all evolves. 🙂

  14. pointsnfigures

    Is $MFST paving the way for other tech companies. Run out of internal innovation, and use your cash horde to buy it. Future for $AAPL and $GOOG?

    1. LE

      I think that type of thing works well if you are buying cash cow type businesses but not businesses where you constantly have to be innovative and come up with new things.The reason is that once a company gets purchased the owners and top employees will not be as motivated because they will have the prize that they were going after in the first place.Plus it’s hard for a company to manage a bunch of different companies operated by different people.

      1. PhilipSugar

        Agree completely.

    2. Ricardo Diz

      This just doesn’t make any sense to me. Microsoft is not buying Nokia for its innovation as I see it, it’s buying for its manufacturing capabilities, more or less like Google did with Motorola.On the other hand, both Google and Apple are regular buyers of other tech startups, mainly to get an edge on a specific innovation (although it’s a given that talent acquisitions are frequent nowadays as well).

    3. JamesHRH

      ‘Buying innovation’ is not the dumbest idea in the world.Check out Proctor & Gamble’s approach.

  15. falicon

    I don’t buy the statement that “Microsoft had to do this”.Yes – mobile is the trend (and likely the future), but Microsoft doesn’t have to be a player in the mobile OS world, or the mobile Hardware world.They *could* have simply decided to focus more on the software side of things (the one area they actually still have a reasonable brand in). If they went all in on creating a killer mobile experience for their office suite, they would likely make a bigger long term splash than trying to compete on all levels with every other big company (ie. they need to be slashing and consolidating products to refocus their company and mission rather than expanding and trying to remain a ‘big player’ across the board).

    1. leigh

      I don’t know about that. They need to ensure the long term viability of the ecosystem for their software.

      1. falicon

        It depends on what their vision of the future really is…right now it feels like they are chasing everyone else’s vision, instead of defining their own.”a computer in every house and on every desk” was their vision…and they made it happen. What’s the vision now though? It doesn’t feel like they have a clear picture beyond “keep Microsoft in the daily mix of peoples lives”…but that’s only a perfect strategy for failing (big)…

        1. Carl Rahn Griffith

          Indeed. I don’t see any leadership/vision there, at all. I interviewed with them a decade or so ago and whilst the whole experience was very interesting, and very generous – flown out, put in a nice apartment, met loads of ‘interesting’ people, etc – it was a weird and unsettling experience. Was way too big an organisation to seem coherent in the new era of IT, with its existing structure.And guess what – though people never believe me – how did I get that interview? I emailed Bill, directly, saying I thought I could help them a lot by applying my Unix/X experience in business to their entering the world of NT/etc.A few weeks later one of his VPs contacted me and invited me over. Amazing.Wonder what would happen now if you directly emailed someone at Bill’s level? Or in any enterprise in fact: I don’t even get replies when I apply for a job stacking shelves in a supermarket, lol…

          1. peter

            I emailed Steveb once. Had a question and some feedback. Got a resppnse in two weeks and got contacted by people in hos org to follow up on the feedback. So it still seems to happen

        2. andyidsinga

          agree that they have to define their own vision ..and hopefully that involves making a lot of small bets on new ventures and smaller acquisitions .. then being patient with them for several thing that microsoft has done recently that is really cool is – allows javascript developers to write little javascript recipies for android phones. the dev envionment is web based and very elegant ( and easy to use). when i started playing with it i was all ‘holy crap, microsoft did something really cool here, this has a ton of potential’

        3. JamesHRH

          Ben Evans agrees with you & so do I.No vision + no strategy = Flailing

  16. Tom Labus

    I’m looking for negative reviews of the deal as a buying signal for MSFT.Mobile is a volatile area and fortunes can change quickly. Plus I love the phone

  17. Bruce Warila

    Do ecosystems really matter? Do operating systems matter? I use Google apps and services on my iOS devices, on my Samsung phone, and via Chrome on my Mac. Google is an ‘abstraction layer’ that seems to run on/over everything. I think we could have any number of operating systems or ecosystems, but we will only have a few abstraction layers. Sure, there are nifty things that can be done when you own everything down to the metal, but bobbles don’t matter as much as services..

    1. Elia Freedman

      It does matter, however, if your services aren’t available for your bobbles. And that, precisely, is a big problem that Microsoft has with Windows Phone right now. Google understand this completely:

    2. PhilipSugar

      You and Elia have hit on a point that I have thought about.As technology progresses where you want to be on the stack moves up.In the early days it was great to be Intel, Seagate, Nvida.etc.Then it was great to be Cisco or Microsoft (OS part)Then the money to be made was in Office (the majority of MS profits today)Because as things got better people cared less about those things they could abstract. What switch, computer, and storage does Gmail or Office 360 run on??? Who cares?So the problem I see is going to where the puck was versus where it will be.If it was decreed on high that I had to use an Android instead my iPhone or vice versa I might grumble but not carry a second device. Flying as much as I do I realize that BB users choose to carry a second device. That is sad. I don’t even recall ever seeing a Windows phone.So my point is that maybe it doesn’t really matter, its going to be like a PC, who cares what it is, what matters is the productivity (or time wasting) apps you can use on it.

      1. sigmaalgebra

        For a smartphone, does it bother you that the software collection is very limited,that the screen is way too small, thatthe pointing device and the keyboard suck,and that there’s no way on that device to have the data you need for either your home life or your office work?

        1. PhilipSugar

          I only use it to check stuff. I love my Macbook Air. I own three iPad’s but would never even use those to type this.

          1. Aaron Klein

            Almost my exact use case. I do type some things on iPad or iPhone, but only when my MacBook Air isn’t handy. 🙂

          2. sigmaalgebra

            Thanks for clearing that up for me.With Fred’s”The future is in mobile devices not PCs”I was wondering what I’d missed.Once I was talked into buying a cell phone, but thereception was so bad in my house that I took itback. Later someone gave me a cell phone, but Inever ‘activated’ it. For a ‘smart phone’ ortablet, never was tempted to get one so don’t haveone and never tried one.I agree with you — useful mostly only to “checkstuff”.In the meanwhile, I have a long list of things I’dlike to have MUCH better on PCs and in Windows, butmobility is just not even in the top 1000 items.I know; I know; Apple’s has made a lot of moneyselling mobile devices, but so far for me they justfill a very welcome gap in my collection ofimportant tools.E.g., for phone calls, I don’t want to take onewhile away from my desk because only my desk, anddesktop computer, have everything I need to take aphone call.To me, mobile devices are security disasters. Soelsewhere in this thread I posted some of what Ithought Microsoft could/should do about that.

    3. SubstrateUndertow

      As these devices become central control interfaces for our own locally personalized intranet of health and other automation thingies, is it not likely that owning very thing down to the metal will become a much more significant advantage ?

    4. Matt A. Myers

      It matters in shareholder minds, and in trying to stay competitive with where the current status quo is at. It makes sense to own what your competitors do, just in case they do something clever that you must mimic down the line or risk being too far behind to compete.Otherwise, you’re completely right. 🙂

    5. fredwilson

      see my post today on firefox OS. i still think OS matters but maybe it will matter less in three to five years

    6. Bruce Warila

      This is the best description I have seen on Google’s ‘abstraction layer’

  18. Ana Milicevic

    I’m going to dig out Vic Gundotra’s tweet from Feb, 2011 when he so aptly said that “Two turkeys do not make an Eagle”.As with many moves Microsoft has made I question the timing of this: it would have perhaps been the right move 2 years ago, but now that there’s a high-end Android market and it’s effectively become a two-person race that’s a long way to run just to catch up with the leaders. Still, it is interesting as it indicates a possible deeper shift within Microsoft, especially if Stephen Elop winds up in the CEO chair. There’s a large global opportunity (and significant brand loyalty can can perhaps be leveraged) in upgrading existing Nokia feature phone users to a smartphone era and from what I’ve seen the product is certainly competitive (with the app ecosystem still lacking).

    1. ShanaC

      I don’t think they are after smartphones as much as hardware in general

      1. Ana Milicevic

        That may be, but I hope that mobile features prominently in any strategy they are considering.

    2. JamesHRH

      That’s a great line.

  19. Henry Yates

    If I was a Nokia shareholder, or Finish for that matter, I would be very unhappy. First the board appoints a Microsoft guy, he then choses Windows over Android, after that Nokia’s fate was more or less sealed. In terms of bad strategic decisions the Windows decision takes some beating.

    1. gorbachev

      Nokia shareholders are enjoying it as the stock is up about 40% after the news.As someone who went to College next to a Nokia research center and saw roughly 5 out of 10 classmates go to work for Nokia, I think Nokia has long since lost its halo in Finland.The main headline on Helsingin Sanomat ( Price was Good, but First We Mourn

  20. William Mougayar

    Another thing here is that Microsoft has indirectly established a low price bracket for a potential BlackBerry acquisition; Nokia’s being a reference point.

    1. LE

      Good point. Kinda dovetails with what I was thinking earlier in terms of pundits and transactions like this. People always think of the reasons why a transaction doesn’t make any sense (and the other guy is stupid) but that’s because they aren’t privy to all the details and most importantly they aren’t thinking creatively about other reasons for doing something that are not obvious.I just bought a piece of real estate in a complex where I own another unit. The broker thought I was stupid because property there isn’t renting or moving. My logic is that now I control another unit of the same exact sf and I don’t have to worry about someone else undercutting the rent and setting the market price on what I don’t own. And I bought it at a price where I can afford to wait a year or so to rent it out. (There were other reasons as well).This doesn’t mean I am right and the right thing will happen in the end. But I had a reason for doing what I did.Financial people have the hardest time with thinking like this because they think of everything in business as digital, numbers, precise and it’s not it’s analog.

      1. William Mougayar

        Exactly. Strategy is never revealed upfront. It unravels later.

    2. Ana Milicevic

      I’m curious – who do you think potential BB buyers would be?

      1. William Mougayar

        I think they will go private more likely.

  21. Matt A. Myers

    So did Microsoft get Nokia for relatively cheap then?

    1. gorbachev

      That depends on how you’re looking at it.Compared to what Nokia once was, yes, hell yes.Compared to what Nokia is now, seems like the price is relatively fair.

    2. PhilipSugar

      On what basis do you think its cheap? They didn’t get their patents, Nokia was teetering on bankruptcy, they had gone all in with Microsoft so they were unattractive to anybody else, what am I not seeing?

      1. Matt A. Myers

        They have a license for the patents for 10 years, and I’m wondering if they expire sometime around then too?

  22. William Mougayar

    Steve Ballmer was getting tired of hearing “What comes after Microsoft?” So he looked up what’s after M, and it was N.Then Bill Gates wondered if anything came before Gates, so it was F.So, they scratched their heads, put F and N together, and came-up with Finland and Nokia.

  23. jason wright

    i don’t suppose the dead hand of the NSA is behind this in any way? the revelations about Microsoft and Skype and the NSA were bad. now nokia is potentially within the NSA’s reach too.

  24. markslater

    bijan posted on his recent android lovefest……but the simple reason that the iphone is far superior than android in so many ways is the deadly design combo of hardware and software. The iphone is an amazing PRODUCT. Android is great software. MSFT might be looking at the PRODUCT approach not just the software approach here……

    1. CJ

      Yeah, amazing boring product that is now a victim of their own success. They haven’t innovated in ages and are at risk to being locked in as #2.

    2. fredwilson

      we disagree on this mark. HTC One running Android is vastly superior to iPhone5.

  25. Carl Rahn Griffith

    The best ‘analysis’ is often the very simplest; in the spirit of Occam’s Razor…Downtown Josh Brown ‏@ReformedBroker:Microsoft had $68 billion in cash last week with no shot in the mobile market. Today it has $63 billion and owns a major global handset biz.

    1. JamesHRH

      But they still generate 90% of their net cash from Office & Windows….

    2. Benedict Evans

      Unfortunately, it owns a former major global handset business. Look at the trajectory of the featurephone division, which is the only part that can now be described as ‘major’

      1. fredwilson

        i agree with you Benedict

      2. Carl Rahn Griffith

        Absolutely. It will be interesting to see the rate at which such users upgrade and which path they choose if/when they go from feature > smart. This segment is hardly ‘user-chooser’; more a case of needs-must…

    3. Aaron Klein

      True that. I had the numbers off, Josh has them right. It may not work but I’d rather see them fight this fight.

  26. Sebastian Wain

    My concern is if Microsoft is being negligent instead of if they are right or wrong. For example, I think Skype acquisition was negligent in a moment where this kind of technology was moving to the browser (WebRTC), being commoditized, and with a few lines of code everyone can technically replicate the technical parts of the service. Nokia acquisition and Microsoft recent write-offs will scare investors.In others aspects I also experienced a general degradation in the Microsoft relationship with partners/developers that can obviously harm their business and developers ecosystem. For example, they didn’t release the latest Windows 8.1 version to MSDN customers, only to a few vendors. Companies need the latest release to test their software in new environments.There are a lot of positive things that Microsoft is doing right related to the cloud such as Hyper-V, App-V, Azure, and development tools. The main concern is if they only understand the infrastructure and not the end user and if this issue is embedded in their DNA. When I deal with some of their commercial hosted web services, like Microsoft Exchange, it seems like nobody in Microsoft used GMail, AdWords, or Google Analytics before…

  27. LIAD

    love the ‘for “more” excellent analysis’…

    1. fredwilson

      i need to do more of that. linking out is what blogs are all about.

  28. John Best

    In conversation with Mr. Evans earlier -@bestjohnd My 2p: I’d put WP8 on the low end “feature phones” and licence Android for smartphones while I developed an XPhone OS. CC @BenedictEvans@BenedictEvans @bestjohnd it doesn’t fit on low-end phones. That’s part of the problem.@bestjohnd@BenedictEvans Without extending that ecosystem, I can’t really see a way to hit that 15% (and I own a Windows Phone)

  29. Joseph Scott

    So now we have three fully integrated mobile OS and handset companies (Apple, Microsoft, Blackberry)Shouldn’t that be four? Google owns Motorola. Yes they license Android out to others, but Microsoft would do the same (if anyone would take them up on it).The timing of the big Microsoft re-org, Ballmer leaving, now purchasing Nokia; is a massive amount of change for one business to consume in a short period of time.

    1. fredwilson

      that’s what i said, google is both. nobody else is. microsoft might want to be. but they are not.

  30. Elia Freedman

    In the smartphone business we already have three winners: #1 is Android, #2 is iOS and #3 (but likely to move up) is android. Android, the OS with Google services, versus android, the OS layer without Google services. We already have Amazon as you pointed it and soon to have China Mobile and others. There is no room for MS in this picture.Most are advocating MS pull an IBM and go enterprise. The company doesn’t have the services chops for that, though. I, however, think the PC was built off programming languages that helped everyone from coders to every day people create their own stuff. We don’t have those pieces in place yet for smartphones and tablets.If I’m MS I’m less worried about Windows and more wondering what the mobile “spreadsheet” looks like? The mobile “word processor”? I continue pushing Azure as I think that has the potential to be a world beating service. I think there is incredible room to maneuver here.

    1. William Mougayar

      That’s why I think that MS might be interested in BB to complete this picture.

      1. Elia Freedman

        I don’t see how this helps. I wrote this a couple of months ago. You may find it interesting:

        1. William Mougayar

          I was thinking in terms of strengthening their enterprise mobile offerings. It puzzles me still how Microsoft does so well in some areas like the Xbox or SharePoint, but not in others, eg being so lame with Skype. Did u see Om’s post re:Skype You changed me, too bad you didn’t change Microsoft.

          1. Elia Freedman

            BES could help its enterprise business, I agree, and it could be a component of an “enterprise developer strategy.” It makes a lot more sense than Skype or Nokia do, anyway.

          2. CJ

            Not when you consider that they don’t really need enterprise help, they need consumer help. Too bad they got rid of their chief consumer guy a while ago when they shitcanned the Courier.

          3. CJ

            Because neither of those areas needs to run Windows. And this is why I think Gates running MS and maybe even selecting the successor is a problem. When J. Allard developed the Courier it took the internet by storm, never had a MS product gotten so much viral press since Win95 and then they killed it. Why? Because Gates said it doesn’t run Windows. Read the VanityFair article written a year ago and you’ll see more of the same coupled with a poisonous internal rating scale that lead to an environment that’s more suitable for backstabbing than teamwork.

          4. anne weiler

            Pretty sure that was Ballmer, not Gates.

          5. CJ

  …For Ballmer, it wasn’t an easy call. Allard and Sinofsky were key executives at Microsoft, both tabbed as the next-generation brain trust. So Ballmer sought advice from the one tech visionary he’s trusted more than any other over the decades–Bill Gates.

          6. PhilipSugar

            This is total truth, on both counts.Not Windows, who cares? Their operating system for Ford’s sucks ass and that is a polite description.Rank and yank is absolutely poisonous. It might work once when you come into a crappy organization. Do it to a healthy one and you kill it. I’ve hired great people but you tell me I need to shit on somebody??? That is sadistic.

      2. PhilipSugar

        BB is done. Look at how many people that have to carry a BB carry a second phone. You don’t see this for any other device.

        1. William Mougayar

          It’s true about the 2 devices thing, although I carry an Android & iPhone now. Part of me is in denial of accepting that BB is close to being irrelevant. Though I started getting worried when one of the co-founders started spending more time buying the Phoenix Coyotes than running the company 3-4 years ago.

          1. PhilipSugar

            That and the lawsuit. I never thought they could go down as fast as they could. They define the consumerization of the corporation.Although I think people carry this through to the big systems like SAP and Oracle which is wrong.

          2. LE

            “spending more time buying the”To me that’s always a red flag and is a marker of someone who is heading out to pasture or distracted in focus from what they should be paying attention to. Can’t even begin to imagine how booked up someone in that position is to begin with. Doesn’t matter if business is good or bad.I felt this way the minute I saw Bezos buy Wapo personally. It’s a distraction. Amazon is not a cash cow and can easily falter. On a lesser scale Marcus Lemonsis (CEO of Camping World) stars in the very watchable and interesting “The Profit” on CNBC. I feel the same way about what he is doing. He not only is spending time filming the show but he has to spend time on his investments as well. No doubt it with alter what Camping World is able to do. Or Fred coming off the “no investment year” the same year he was essentially setting up the Academy of Software Engineering which I’m sure took him a great deal of time and effort which distracted from business.

          3. CJ

            I think Bezos buying Wapo is part of his vision so not a distraction and Amazon could easily be more profitable but they’re spending a crapload on R&D to gain marketshare.

        2. CJ

          BB Hardware is done, but BB as a service isn’t. I’d easily pay $20 for a BB email app on my Android phone. It’s just that much better. No one has done email as well as BB has and that’s by a huge margin. The ‘good enough’ that you’re hear touted isn’t even close in comparison.

          1. PhilipSugar

            I’ve never used BB email. I would love to understand.

          2. Aaron Klein

            As a long time user of BlackBerry, I totally disagree with that statement. The hardware is equally as important as the software. It was a combination of real push email, great sync with Exchange, amazing qwerty keyboard and email being the central “app” with almost zero navigation or UI required.Here’s the simple way to understand it: BlackBerry was an email pager. It turned email into a single inbox that combined the best of email, twitter DMs, texts and chat.Your BlackBerry buzzed, you pulled it out and were looking at the new message. You hit R for reply, typed a 90wpm 10-second reply, hit Ctrl+Enter, and slid it back into the holster.To this day, nothing in the modern smartphone world has come close to rivaling the BlackBerry email experience. It turned you into an efficient email ninja.

          3. PhilipSugar

            Gave up Exchange in the last century….same for Outlook. Still use Excel and Word. Powerpoint….reluctantly I suck.

          4. Aaron Klein

            I did as well. Word and Excel are the last mainstays. Gave up PowerPoint for Keynote…one place the Apple productivity suite outshines Office.

      3. John Revay

        How many people do you know that still use a BB – I think I only know 2 or 3 people left.

        1. Pete Griffiths

          I think I know those guys.

        2. William Mougayar

          A handful I see downtown in the financial district.

      4. Ana Milicevic

        Would they really need BB? With Windows phones and the Office suite I think they have a very good proposal for the corporate world.

        1. William Mougayar

          I’m changing my mind on this. Yup, I think the game is over for BB.

    2. Aaron Klein

      You’re probably right, but the question is…does something come along and change the paradigm?It was only 2007 that BlackBerry had a massive, leading app ecosystem and the iPhone couldn’t run apps. The paradigm changed and it was so much better that it gave iOS the chance to catch up and surpass.We could be late innings in this game or we could still be in early innings.I do know this: yesterday, Microsoft had $70 billion in cash and the capacity to make $10 per phone they sold. Today they have $63 billion and the platform upon which to build something new and great.Will they do it? Odds aren’t great. But I’d rather watch this movie than the alternative.

      1. Elia Freedman

        RIM never had a good app ecosystem. It was no where near as strong as WM and Palm. We are now about 1/7th of the world’s population owning smartphones. That die has been cast. But it isn’t too late for the next shift. We went from mouse to touch. What’s next?

        1. Aaron Klein

          I guess it’s a matter of opinion, but BlackBerry was effectively the iPhone of its time when it came to apps. Every important app of its time was there. Twitter, Facebook and Foursquare had native apps. No great marketplace. Direct download and install from an app vendor’s web site, just like a PC. Rudimentary Office doc editor was my first time editing a document on mobile (still an experience that sucks)!Everyone mocked the iPhone for being overpriced and incapable of running “important software enterprises need.”But the web browser, iPod, camera, photos, visual voicemail, beautiful texting, HTML email and beautiful easy-to-navigate touch UI were so amazingly good – like 10X better – that the other things you could do on a BlackBerry ceased to matter.Can Microsoft make something so addictive and amazing that the capability apps bring to iPhone and Android cease to be important so we can get THAT? I wouldn’t put my money on it, but that’s what it will look like when smartphones get disrupted. And in terms of guessing what it is, your guess is as good as mine, right now. I haven’t spent much time thinking about it.

      2. jason wright

        we’re at the end of the beginning.the prologue has been written, the scene set, the cast of characters assembled. nothing more is yet knowable, which is why we watch with anticipation.

        1. Elia Freedman

          Nicely put.

    3. fredwilson

      great comment Eliadid you see this post?…the role of play services in Android is something i was not as focused on as i should be. thanks for bringing it up.

      1. Elia Freedman

        Thanks and I sure did! Amazingly good technical article and explains a lot of how Google is dealing with little “a” android.

  31. ShanaC

    1) Why do men’s names repeat so much more than women’s names.2)I’m not sure what to make of this. I do know if you read the notice closely, the x-box team is either being pushed aside (stupid) or about to be taking over mobile (smart)Microsoft has a number of very hazy paths to take to becoming what they should be. It remains to be seen if the Nokia purchase will help that.

    1. someone

      seems the xbox UI has taken over everything. I imagine their designers are making the rounds…

  32. LE

    One strategy that Microsoft could use is to take it’s cash hoard and use it for “walking around money” in order to pay developers to port their apps (either established or promising) to Microsoft platform. To take the risk out of things.…Now they do have this,……but it’s not much of an incentive. They need to spread around serious dollars. But they have serious dollars to spread around. Moral hazard doesn’t matter.While they tried something similar with Bing that was directed at consumers. Here the amount of people they need to attract are well known and I don’t think it would be impossible to get buy in if the money was right.Anytime you have an easily identifiable group and a large amount of cash this is something to consider.I’ve thought about this as a way that someone could take on Hacker News. Take the best commenters and cut them into the action on a new service. Cut off the air supply of the other venue.

    1. fredwilson

      they will do that. they are doing it already actually.

  33. John

    My two high school daughters just received new nokia phones with microsoft interface. Their initial reaction was that they were not too pleased about having a microsoft interface. But after trying it out for a little while they were impressed with the interface and how fast and smooth it seemed. However, our existing cell phone network doesn’t yet support these nokia phones.

    1. CJ

      I see more women with Windows Phones than anyone else.

  34. Aviah Laor

    A brave Microsoft can still acquire a foothold in the Android market: they should provide a fluent sync of the Windows desktop to mobile Android devices. The Android Google account sync is nowhere near the perfect iOS-Mac sync. New PC’s sales decline, but people still use them a lot and probably will for many years, and this is still a Windows dominated market.

  35. Drew Meyers

    Pre acquisition, Microsoft and Nokia are both irrelevant to my day to day life. Post acquisition, both are still irrelevant.

  36. sigmaalgebra

    Five suggestions for Microsoft to respond to therise of mobile:(1) Continue to dominate the server side. Theserver side is not going away and, instead, with therise of mobile, is rapidly rising in importance.The rise of mobile has created desperate needs foradditional functionality on the server side.(2) For Microsoft’s mobile operating systemsoftware, use hard/software virtual machine andhardware universal host machine technology (keptminimal to maintain performance) to support all theapps in the world. Use increases in mobileprocessor performance and power efficiency to coverthe loss in efficiency from the virtualization.(3) Offer important features in mobile hard/softwarethat need (possibly new) functionality of WindowsServer — ‘own both ends of the wire’. “Everyoneuses Windows mobile operating system softwarebecause it is the only way to get the specialfunctionality of Windows Server; so many people useWindows Server because Windows mobile operatingsystem software needs it.”.E.g., currently computer users, especially mobileusers, and now of extreme importance forinternational travelers, need to access the Internetvia a secure (strongly encrypted) connection and aproxy server. E.g., keep the spooks from seeing theIP addresses of the real TCP/IP session end pointsand from seeing even the header lines in SMTP(e-mail) and HTTP (the Web). Microsoft can offerthat secure connection and have Windows Server bethe proxy server of choice.Some of this functionality can be offered first forlarge intranets and later rolled out torevolutionize the Internet and, basically, keep thespooks OUT of the Internet.(4) An important feature needed: Currently a mobiledevice is one heck of a security vulnerability.E.g., an international traveler crossing a bordercan have their mobile device taken from them and allthe data extracted and kept. So a mobile devicevery much needs a polished way to push all its datato a server, then have essentially no data at all,and later cleanly restore the data from the server.Microsoft can offer such functionality. Also a userof a mobile device needs a way to deny spooks dataon the geographical location of the owner of amobile device.(5) For small offices and home offices (SOHO),Microsoft should offer functionality with, say,Windows 7, that lets such a user have the criticalserver functionality they need for their mobileusage. Then, of course, their Windows 7 server getsthe protection of the Fourth Amendment.

  37. Robert Holtz

    I couldn’t agree more with you, Fred.Microsoft HAD to acquire Nokia at this juncture. In fact, it is long overdue. It is true that this changes nothing but “no change” is actually a point of progress for them.Microsoft has failed to take the #1 or even #2 spot in mobile. Their efforts with Nokia are the closest thing they’ve had to any success in the space. That said their alliance has been precarious at best. Nokia could have abandoned Microsoft any number of ways (i.e. dropping MSFT and making their own Android phones, selling their IP to Apple, or doing something unexpected like buying PalmOS from HP, etc.) Microsoft NEEDED to tighten up the situation and this has probably been in the works for a very long time.And while I think Microsoft right now is in more business sectors than it ought to be, it is clear that mobile is now a foothold that a company like Microsoft MUST plant its flag. Especially up against Google/Motorola/Android and Apple (which includes dozens of mobile acquisitions and literally hundreds of acquired and original patents in their portfolio).Having said all that, I’m not 100% that the “One Microsoft” strategy is the way to go anymore. If they were going to do it, they should have done it literally years ago when they were eating Apple’s dust. Having missed that wave, I’d play things different now and play their historical strengths instead. The situation with Apple has changed a LOT under Tim Cook and Microsoft doesn’t need to copy their entire playbook. In my view, there is a strategy now that would be easier to execute and at a fraction of the cost with a much greater likelihood of success.If I were their next CEO, I would simplify the mission substantially… and that would mean selling or dropping a lot of lines of business. In my view, Microsoft’s best future is in the enterprise. I’ll elaborate on that if anyone cares.But for the here and now, if sometime between now and Ballmer’s actual departure, if Nokia were to announce they were dropping Windows Phone and doing something else — anything else — it would be devastating for Microsoft (at least in terms of perceived momentum and certainly in terms of mobile market share).So, yes, this changes nothing but that in and of itself is a minor victory for Microsoft.

  38. Kasi Viswanathan Agilandam

    when something good …. I repeat … good …is available cheap you gotta grab it …. lucky MS and poor Nokia.I did the same thing just a week back … acquired a land just next to my house … because itwas available for 1/9 the price it was estimated 3-years back…. now the market is slow/low but I always valued it 5 times better than what i bought it for …. next to my house … I can always extend my house to Villa or I can make it my garage or make it my next start-up or my …. OR and OR sell to someone who wants it at a better price than today.It is not 2+2 ….IT IS 50+2 ….does any body care whether… 50+2 = 50 or 53 who cares …. it is part of 50.

    1. LE

      “I repeat … good …is available cheap you gotta grab it”That’s what drives so much consumer behavior with discounting. But rationally if you are justifying buying something because of price you are making a mistake.You decide if you want something and then within reason you try to get it at the best possible price.I’ve seen to many people make a decision to buy something if they can get it for $x to the point where they ignore signals that it’s the wrong buying decision. In other words the thrill of getting a bargain overrides the need for the product. This is really a bazaar way of dealing.



        1. Kasi Viswanathan Agilandam

          I agree with the statement … but I bought another boat and I am not sinking.Microsoft is also not sinking … just added another product (life boat …) to their ship.

      2. Kasi Viswanathan Agilandam

        Bazaar way of dealing is not ‘totally’ a bad way of dealing.Will it make microsoft bigger than what it is now… … may not …but definitely not going to drown it….if MS has to drown ….that is because of something else and definitely not nokia buy.It definitely meet their new agenda of “Hardware and Software company”.

  39. iamronen

    the only thing that came to and stuck in my mind when I heard about this is that two wrongs don’t make a right :(sorry for Nokia, good riddance to Microsoft

  40. John Revay

    “Two Plus Two Equals Two Or Four?”Catchy headline in relation to your post.I have said it before – if that VC things does not work out for you – it seems like you could be a great copy writer :)I use to be a big MS fanboy – how things have changed!

  41. Pete Griffiths

    Windows phone is the Amiga of mobile. The ship has sailed.

  42. Steven Kane

    not in any way claiming i’m predicting the future, just offering an alternate view:MSFT has $70 billion cash and generates $17 billion free cash flow/yearNokia has a gargantuan installed base around the world… just not so much in the USAApple and Google are doing fantastic jobs with their mobile OS’s but the days of startling innovation are behind us (at least for the moment.) we are in a time of evolution not revolution (at least for the moment.) “fast followers” prosper and even come to dominate in such moments. toyota corolla and celica? imac? etcMSFT is nothing if not one of history’s most aggressive and successful “fast followers”MSFT had a huge huge triumph with Xbox… but only after being at laughed at for even considering entering that market, and then investing tens of billions in essentially buying users and market share and seducing app developers. but in the end is was a huge win.MSFT now views mobile devices at their next Xbox frontier. to heck with innovation, its all about fast following and market share and app developers.did i mention MSFT has $70 billion in cash and generates $17 billion/year free cash flow?Q4 2014 — free upgrade to new “XPhone” for any existing nokia users.Q1 2015 — free upgrade to new “XPhone” for any android usersQ4 2016 — MSFT stock at $100oops, darnit, dropped my crystal ball. shattered to pieces. thats all i got



      1. someone

        of course, Office and Windows are missing from your rant.

        1. FAKE GRIMLOCK


          1. someone

            well played, mr. monster

          2. FAKE GRIMLOCK


          3. someone

            oh, but I spoke too soon. consider Azure, a latecomer in the cloud services market behind AWS and google whatever, which has become a billion-dollar business in closer to 300 days than 300 years.

          4. FAKE GRIMLOCK


          5. Steve Bowden

            I’m really enjoying these Fake Grimlock posts. Do you have a website?

          6. Steve Bowden

            thanks for the reply. I found your blog site. I didn’t subscribe to your twitter feed-it’s too early in the relationship this is going to fast for me.

      2. Steven Kane

        yes MSFT has had its share of humungous failures. unlike aapl and goog — oops, except for MobileMe. and IOS maps. and Google Plus. and and and. and google acquired their entire mobile business, by acquiring android and motorola. hardly the deep well of internal innovation. why cant msft do the same? heck, apple hasn’t invented anything, just designed and assembled things and marketed brilliantly.the more i hear the herd screaming “its game over” — EVEN IN ALL CAPITAL LETTERS — the more i hear “its game time”. no competitor with $70 billion in cash and $17 billion free cash flow/year ever should be underestimated.

        1. FAKE GRIMLOCK


          1. Steven Kane

            Actually I’ve been commenting on — AND ADMIRING YOUR WIT, GRIMLOCK — pretty much since’s inception.:D

          2. laurie kalmanson

            Surprised you haven’t eaten the herd yet.

    2. someone

      it seems to be a parlor game to dismiss msft. it happened when the original mac was released. when the netscape browser was released. when vista stumbled. like your idea of renaming the phone. “skypephone” would sell I think. <disclosure: i=”” have=”” an=”” android=”” phone=”” and=”” a=”” surface=”” pro=””>

    3. fredwilson

      i sure hope so. but i would not bet on it.

  43. Vineeth Kariappa

    When you get the milk 4 free, why buy the cow?



  45. george

    I like your math! The only thing I would like to add is that Steve Jobs was an amazing visionary – he got this right! Google/Motorola + Microsoft/Nokia + Samsung/Tizen are all trying to become more and more like Apple. Its a land grab and you have to compete end-to-end.

    1. fredwilson

      not exactly. what google is doing right now is way more interesting than what steve did at apple.

  46. Dave Stagner

    Since when does having the best product lead to market domination? Companies get to dominant positions with inferior products all the time, as long as some other synergy can drive them. Microsoft hasn’t had the best operating system, in, oh, ever (CP/M, OS/2, Linux, OSX, the list goes on), but they dominate the desktop and have serious server share due to some early luck and a lot of great synergies. Blackberry failed in the market despite a once-dominant share and a product that was really excellent at what it did, by failing to brace for the synergies the iPhone brought to the table.

  47. Homer OnSkype