Microsoft continues to pursue its fatal attraction to proprietary mobile devices, much like Michael Douglas pursued Glen Close in the 1987 movie Fatal Attraction.
Its earnings announcement last night exceeded analysts' expectations, and seem to suggest that Microsoft doesn’t need to own the endpoint to thrive. But Microsoft's odds of outflanking Apple and Google are slim.
With so many positive developments in Microsoft’s core businesses, what can possibly be gained from a small, tenuous share of the smartphone market at the risk of Nokia entering a BlackBerry-like downward spiral?
Though Nokia’s $7 billion acquisition cost is small relative to Microsoft’s wealth, competition with Apple and Google in the smartphone market confuses consumers, and likely confuses Microsoft. Microsoft should take a lesson from itself and accommodate Android and iOS in the same way it once accommodated Apple’s Mac in the PC market. It extended Office and Outlook to the Mac platform and made a great margin on every Mac that shipped to customers who needed document interoperability and email with Microsoft’s enormous base.
Nokia’s performance last quarter was dismal. Radio Free Mobile predicted smartphone revenues to grow by 12% in this last quarter. In comparison Nokia revenue declined by 2%.
Radio Free Mobile’s Richard Windsor noted four main problems described in Microsoft’s earning’s announcement.
“Android is getting better at the cheaper price points, making the Lumia 520 not such great value at $135. Low-end Lumia needs to be refreshed to re-extend the gap to Android.
“Microsoft continues to make a total mess of telling users why they should buy a Lumia device, meaning that there is very little pull for the ecosystem from the handset end.
“The app store is still woefully inadequate when compared to iOS and Android and this is a major turn off for prospective buyers of the devices.
“The change in ownership may have distracted the business from pushing the devices to the best of its ability. I am hopeful that this quarter will see this fix."
Windsor also noted the truly bright side of Microsoft’s performance:
“Microsoft reported excellent results and guidance, confounding the PC skeptics.”
Revenues and earnings exceeded analysts’ expectations thanks to Microsoft’s strong performance in enterprise, cloud and even consumer segments. Xbox and Microsoft Office shipments were both strong, for example.
Windsor expects a rebound in the PC market due to the end of life and support for Windows XP. Corporations have limited alternatives to remaining on XP. Though locked down, proprietary configurations of XP images may prevail for some time within a well-defended enterprise perimeter, without security available after April of this year, this strategy is a ticking time bomb beyond the short-term transition to Windows 7.
The Nokia business will never produce great margins. If small initial margins were the price for dominating the world’s pockets with Nokia smartphones the way Microsoft once dominated the desktop, the endeavor would be worth it for Microsoft. It is hard to imagine a scenario where that will happen, though.
However, Microsoft could create its own bright mobile future if it would just follow what it learned with the Mac and extended all of its core businesses to integrate seamlessly with iOS.