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The Microsoft-Nokia deal: Fail plus fail equals more fail

Mark Hachman | Sept. 4, 2013
Microsoft clearly bought most of Nokia to ensure the future of Windows Phone, and ensure a safe harbor for its licensing strategy. But there's a case to be made that this is a marriage of equals. Equal failures, that is.

But Microsoft's strategy pays no respects to a very stark reality: Very few people currently love Windows Phone, and doubling down on the platform via a Nokia acquisition may be throwing good money after bad.

"Windows Phone is failing because of a classic vicious circle: Consumers will not buy it because it has very few apps, and developers will not target it because very few consumers own one," Benedict Evans, a former group strategy manager at Orange, wrote. "There may be 20-30 million Windows Phones in use, but there are 250 million iPhones and over 900 million Android phones out there. As a developer, any investment you make in Windows Phone is investment you're not making in iOS or Android, and that opportunity cost delta is huge... The ecosystem itself is sub-scale and that is self-perpetuating."

If anything, the Microsoft-Nokia agreement reduces the chances that Windows Phone will succeed, as it will prompt other OEMs to give up on it entirely, Evans wrote. That model has worked before with Apple, Moorhead noted. "But now, there's almost no hope for an ecosystem," Moorhead said.

Ben Thompson, a former business development and partner manager within the Windows Phone app team at Microsoft, also criticized his former employer. "The war is over, and iOS and Android won," Thompson wrote. "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."

And Microsoft can't simply offload those costs to another company, either. Microsoft just picked up 32,000 employees, many of whom are employed in Finland. Of those, a whopping 18,300 are involved in manufacturing. As of June 30, Microsoft employed just under 100,000 workers, meaning that it will grow its workforce by nearly a third. And let's face facts: Microsoft and Nokia will undoubtedly treat its Finnish employees fairly, while Asian contractors employed by its rivals skate by limiting worker pay and living conditions.

As consumers, we should root for competition. Windows Phone is a magnificent piece of engineering, an ambitious design effort, and enjoyable to use. And Windows Phone's app problems aren't as bad as consumers perceive. The company either directly or indirectly supports the top tier of apps, either via the developers themselves or third-party knockoffs. Nevertheless, consumers won't buy a Windows Phone because of three problems: the platform's perceived lack of apps; its struggles to provide a competitive mapping app; and poor integration tying services together.

The Nokia deal solves the mapping issue. But make no mistake: Windows Phone is circling the drain--not inevitably, but certainly. And a drowning man grasps at whatever straw he can clutch.

 

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