Buy a Burning Platform: Microsoft and Nokia

What doomsday analogy has not been used? The Titanic's been mentioned, and so has the Hindenberg. Some observers noted that two wrongs dont make a right, while others opined that zero plus zero still equals zero.

No, the announcement that Microsoft was buying whatever parts of Nokia it did not already own has not generated a lot of love.

Haters gonna hate, as they say in the big leagues, but perhaps the saddest thing about this is that no one really seems to care. Microsoft CEO Ballmer is already on his way out, meaning that the company must have recognized that the announcement of the acquisition, already in the works, would not save his job or resurrect his reputation. The stock was down @4 percent after the deal went public, as is wont to happen to acquirers as savvy investors anticipate the problems of digesting a major new business. And Nokia's was way up - almost 50 percent - suggesting not so much that the world anticipates a great new beginning, but that investors could not believe their luck when it became clear someone would actually pay to salvage whatever shares they had not dumped in despair.

The Burning Platform is one of the hoariest business cliches. It traditionally refers to crises that force change - if the platform on which you stand is burning, you need to jump to survive. In this case, the perception is that both Microsoft and Nokia constituted burning platforms: Microsoft's computer-based financial prospects are threatened by mobile and Nokia's by the fact that it is neither Apple nor Android. It is hard to see how this combination does much to defer the inevitable. Msft and Nokia were already allied but did not gain much market share from the leaders. This further intertwining is unlikely to change that dynamic.

The two-now-one remain massive enterprises with bright employees, staggering financial resources and strong legacies. They, or now 'it,' are not going away. But the tax dodges and financial manipulations that may make this work in the short term are, in their way, indicative of the longer term concerns. This deal is an acknowledgement of the past, not an embrace of the future. JL

Ryan McCarthy reports in Reuters Counterparties:

The war is over, and iOS and Android won. It would be far better for Microsoft to focus on serving and co-opting those devices, instead of shooting the most promising parts of their business in the foot for the sake of a platform that is never going to make it.

Nokia has “collapsed into the arms of Microsoft,” Reuters writes, in a deal to sell its handset business for $7.2 billion. (Here’s the official Microsoft release, and the official strategic rationale PowerPoint deck.) The purchase will be paid for entirely from Microsoft’s $60 billion tax-advantaged overseas cash hoard, Heather Timmons says.

For Microsoft, the reviews of the purchase ranged from meh to grim. Will Oremus says the move helps Microsoft “cement its status as an also-ran in the smartphone marketplace.” Microsoft, David Pierce says, has essentially paid $7 billion to become the “devices and services” corporation Ballmer mentioned in his recent retirement memo. Pierce also suggests Nokia’s low-priced Windows Asha phone could be a way to jump-start Microsoft’s mobile market share in developing countries. Benedict Evans notes that Nokia is still a ways off from producing the number of phones Microsoft will need to break even — Nokia is currently some 20 million units a year short.

Whether it’s worth still investing in the Windows phone platform, however, is another question. Felix says “there is really zero consumer demand for an alternative smartphone OS” beyond Google’s and Apple’s. Ashlee Vance says the deal reflects “the terror that Apple and Google have struck into the hearts”of Nokia and Microsoft over their success in the mobile market. Ben Thompson, who says the deal just doesn’t make any sense, adds:

The tragedy in the deal, as I hinted at earlier, is that I think Microsoft ought to abandon Windows Phone. The war is over, and iOS and Android won. It would be far better for Microsoft to focus on serving and co-opting those devices, instead of shooting the most promising parts of their business in the foot for the sake of a platform that is never going to make it.

For Nokia, the reviews of the deal were more positive. Christopher Mims notes “this deal probably saved the company.”  As Kevin Delaney puts it, Nokia’s “share of the global smartphone market has fallen from 34.2% in 2010 to just 3%” in the first half of this year. CEO Stephen Elop’s 2011 memo to employees warning that Nokia was “standing on a burning platform,” it seems, was exactly right. Nokia’s shares were certainly on fire after the announcement today; they were up as much as 48%. Microsoft’s shares, meanwhile, ended the day down 4.5%