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Microsoft Finally Making Smart Moves – Is It Too Little Too Late, Though? Here’s How To Make Money Regardless
In the controversial article Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof!
I attempted to make clear that those that are really in the know know
that looking towards the future, Apple is not the real threat. As
quoted from the blog post:
The CEO of the hardware side of the
recent Microsoft/Nokia alliance (Elop) put it most accurately –
recognizing what I have been saying for about a year now, and that is Google/Android is at the forefront of the mobile computing wars – according to Nokia’s Elop: “Our first priority is beating Android!”.
How is Elop going to address this by
using Windows OS? He has to do more than just charge more, he has
to produce better product at competitive prices, which keep getting
lower. Elop will have to license the Widows OS, which is an
expense, one that he would bear to nowhere near the same extent if
he used Android. I feel he mistakenly looks at this as Google
commoditizing the Android platform, in lieu of the more reasonable
perspective of Google commoditizing the entire portable computer
space.
Well, the answer has arrived. Microsoft is buying Xx% of Nokia for paying Nokia over $1 billion to product Windows Phone 7 hardware.
Nearly all of this money is undoubtedly going into R&D and
marketing. Nokia and Microsoft (their new defacto owners) invariably see
Google as the pre-eminent trheat and are pulling out all of the stops
to nullify said threat. This also answers the question of how Elop, the
Nokia CEO will be able to deal with the reduced margins of having to
buy OS licenses while competing with vendors who get Android for free –
Microsoft is not only footing the bill, but investing in the business
as well. You see, the drop in Nokia’s share price is highly unwarranted
and their is visible synergy in this deal. Nokia gets to remove the
costs of OS R&D from its line times, sunk costs that have apparently
had negative incremental returns as they have had their asses handed to
them by Apple and most definitely Google – who knocked them off of
their number one market share perch in just over a year.
Microsoft gets the economic benefits of an existing hardware platform
that happens to have the number one marketshare metric in the world,
and gets it for just over a billion dollars. This is a win-win
situation. The question is, will it win againt Google. Both companies
will still fail if they don’t execute on Google-time, who has compressed
development cycle years into months – literally!
From the Bloomberg article linked above:
Shrinking Margins (yeah, you’ve hear thist from me often enough)
Espoo, Finland-based Nokia needs to cut
costs to keep operating margins from narrowing further, after they
shrank to 4.9 percent last year from 19 percent a decade earlier. For
2011 and 2012, Nokia may cut its budget for research and development in
devices and services by about a third from last year’s spending of about
3 billion euros, said Sami Sarkamies, a Helsinki-based analyst with
Nordea Bank.
Microsoft spokeswoman Melissa Havel
declined to comment on the specifics of the agreement. Laurie Armstrong,
a spokeswoman for Nokia, said the final contract hasn’t been signed and
the company will share further details when they are complete.
Nokia’s royalty payments will help
Redmond, Washington- based Microsoft make a profit on the accord even
after the payments to Nokia, one person said. Some of the payment to
Nokia would be made before the company starts selling the phones,
meaning Microsoft bears some upfront cost in the partnership.
…
Microsoft shareholders want the company
to salvage its mobile-software business while also reining in costs. The
company doesn’t break out results for its mobile-software unit, and
instead groups them with the profitable Xbox video-game business, making it difficult to evaluate the financial performance of phone software.
Chief Executive Officer Steve Ballmer
has come under pressure from investors and his own board to improve
sales of mobile software after the company lost market share to Google
and Apple. Microsoft stock has declined 7.8 percent so far this year.
The agreement for the more than
billion-dollar payment was part of a campaign by Microsoft to keep Nokia
from choosing Google’s Android operating system, one of the people
said. Nokia also opted for Microsoft because Windows Phone software,
which is newer than Android and has a smaller number of handsets for
sale, gives Nokia a better chance to stand out, one of the people said.
The agreement also has Microsoft paying Nokia for the right to use its patent portfolio, one of the people said.
As part of the deal, Microsoft will use
Nokia’s Navteq mapping products for functions such as geolocation
services and selling local advertising and coupons tied to a user’s
position. If successful, that also could generate additional revenue for
Nokia, which will share in the sales. The two companies will also
divide revenue from services like search and advertising, Microsoft
President Andy Lees said last month.
I’ve been warning my subscribers about margin compression in this
space, and its about to get much uglier – to the extreme benefit of
consumers of personal and enterprise tech. Previous (and prescient)
posts from last year on this topic…
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- As
I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing
War! Their Marketing Campaign is PURE GENIUS! and it Appears as if
the Phone Ain’t Bad Either - Apple on the Margin
- How
Google is Looking to Cut Apple’s Margin and How the
Sell Side of Wall Street Will Enable This Without
Sheeple Investor’s Having a Clue
Monetizing the Mobile Computing Race
We have a pretty firm idea of who is in the pole position as of now,
but that position is both risky and volatile, not to mention medium to
long term in nature – see Navigating BoomBustBlog Subscription Material To Find The Google Valuation Drilldown.
A more risk averse strategy is to go long on the component vendors
who supply those battling for pole position. Last week we released the
document
Long candidate #1 – Hardware: The Mobile Computing Wars
to subscribers that outlined who our number one pick was after an
initial scan. This is not necessarily the absolute final say on the
matter since we have yet to perform a full forensic analysis, but the
company does look good in comparison to over 120 peers. Non-subscribers
should reference The Potential Equity Investments Most Likely To Prosper From the Google/Apple/Microsoft Mobile Computing Battle.
I am releasing the draft of the full shortlist of prospective long
candidates as of now (17 pages, 5 companies) to subscribers. Please be
aware that is a draft document and work in progress, but it is quite
informative nonetheless. See Mobile Computing Vendor Long List Note WIP. Those who wish to subscribe should click here.
Click here to read up on all of Reggie Middleton’s Mobile Computing War opinion, analysis, and research.
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Android's ecosystem is hybrid : Samsung, LG etc. The Microsoft-Nokia deal creates a hybrid 'techy' solution. So only Apple and RIM (Blackberry) provide us with 'total integrated' seamless technology. Strong selling point as the game gets more complicated. Also the single eco-pure solution allows all gross margin generation in one corporate. No interfacial problems on either technical or financial issues. An ability to be market reactive on fast track mode. A lot of big advantages...being driven by the main drivers...apps. applications or the 'value added mirage' of IStore, ITunes, etc. Next step I-TV etc. A big sexy company getting bigger and bigger...That's the killer...quasi Monopoly position for Apple..watch out down the road of this virtual mirage of services all integrated...that we don't really need but feel oh, so, so, sexy...so the roll in tech stocks goes on...
Reggie,
You still don't know what you are talking about.
Google has two tiers of Android. "Free-ish" and "Non-Free" Most vendors go the non-free route because they get Google branding and dev support among other things. The vendors that went "Free-ish" are stuck with buggier software, generally rewrite the GUI, and less than ideal compatibility with the Google branded product.
You've got the consumer's end of the business all wrong too. The costs of the devices are going down because the hardware costs are declining. The consumers are generally paying the same rates while the carriers costs are going down. ex. Ipad2 is cheaper to make than the initial release.
Finally, your obsession with the tiny U.S. mobile market makes you look like an amateur.
Yeah, I love you too. You forgot to mention ho much that non free Android costs. Answer... a hole lot less than developing and supporting the OS yourself. Ask those vendors that junod ship. I've spent several man months studying the Google business model, don't tell me I don't know what I'm talking about.
The global stats for both OS and vendor stats are all over my site, both free previews and paid versions, via download and interactive spreaesheets. You read an article or two on ZH and proclaim you know more than others about analysis you never bothered to read. Shame... if I'm an amatuer your momma didn't raise you with any manners....
And finally, yes costs are going down rapidly. Consumers are paying considerably less for increasing more capable tech at the expense of vendor margin. Go to my sit and look at the HTC margin charts. Even the carriers are feeling margin squeeze. If you are going to challenge me, do so with both more knowledge and more manners...
a hole lot less than developing and supporting the OS yourself.
Hardware vendors dev costs did not fall through the floor because Google arrived. There was no great shake-up with multi-purpose smart phone devs after google arrived.
You read an article or two on ZH and proclaim you know more than others about analysis you never bothered to read.
Do the right thing and use global stats. You know, the ones that show Nokia still way, way ahead of the other wanna-be's.
if I'm an amatuer your momma didn't raise you with any manners....
That's true.
Consumers are paying considerably less for increasing more capable tech at the expense of vendor margin.
Which consumers? The ones buying Apple product? Nope. The ones buying wireless service? Nope. Margins are being crushed, hardware is not a factor driving the phenomena.
Really dumb move by Nokia. They could have been an open platform with a light Linux. Millions of Geeks would jump in to write applications and the populace would follow the applications.
They opened their Symbian codebase full GPL and it didn't increase penetration. Symbian needed a bog-standard C interface. Never got it. The e-series phones are great. Great media handling, lots of apps, no carrier BS, and good battery life.
Nokia had two issues that got them where they are.
1. No one at the exec level driving the many parts they own outright into product
2. Limited interest in the U.S. market because the carriers rule. It's an expensive country to own a wireless phone with the carriers acting as an oligopoly, but they needed to do it anyway.
Info on some different iPad 2 models!
http://www.somethingawful.com/d/news/ipad-2-models.php
never say never.
Is it just me or does this smartphone thing look like a rehash of the PC wars?
Proprietary but "better" system trumped by firms that compoditize the hardware to sell the software. But in this case the software is being comoditized too.
I have thought this for a while, too.
I believe it will have the same result, as well. In computing, the threat to established order has always come from beneath. If you watch folks in their 20s and younger interact, they are using phones for nearly all the tasks older folks use PCs for. They will only become more capable.
I don't even think there's any doubt that something like the phone's form factor will be the next dominant computing platform.
Yea until we just become wireless borgs.
I think a certain demographic would line up overnight to have the surgery.
Could you please proofread/spellcheck your articles. You open with "really in the know know that" in the first paragraph, "Andoroid" on the first graph and "to product" in a link following just after.
On the Microsoft note I own a W7 phone and it's a very usable piece of kit. Their OS was well received on release by the tech reviewers and buzz was pretty positive. Unfortunately they had a Bing like damp squib of a launch and their latest travails with their first OS patch is not helping them gain traction.
My feeling is that they would have been distinctly less eager to pay this kind of money to a hardware provider if some of their launch ones hadn't let them down (Samsung...) and the launch overall had been more successful
On the note of Google's Business model and how they kill incumbents, this is the best article I've seen on the topic:
http://abovethecrowd.com/2009/10/29/google-redefines-disruption-the-%E2%...
In this case the framework is maps rather than mobile, the model however remains the same...
This was one of those 3 am posts, pardon me. The link you provided was interesting and actually mirrors what I put on my site at. 4 am...
http://boombustblog.com/reggie-middleton/2011/03/08/comscores-latest-stats-show-android-wiping-the-floor-with-its-competition-besting-apple-everyone-else-by-ever-greater-margins/
I went into detail regarding the incentives that Google uses to bypass its competitors. Think of what it can do with revenue share at the thin margin retail store level, particular pushing high end products such as the Xoom.
The only way I would be long MSFT is if a guy named Ballmer "retires" to spend more time with his family.
Until MS addresses the pesky virus issue, it's Apple for me. Not withstanding is the fact that Google went in and removed content from consumers phones over the weekend-at issue, certain websites......no, thanks.
Windows phone is superior to droid and iphone for email - if they focus/invest I have to think that MSFT can stake a sizeable claim in the mobile space - My problem with Google is their tendency (single minded drive) to amass vast quantities of data on users of goog products, for that reason I will not use droid, nor would I touch chrome or google tool bar - I do use gmail in some circumstances e.g. registering here at ZH as unlike yahoo it does not transmit your IP to recipients.
as for rim - too many pucks in the head for poor old balsillie - they will end up like palm, which HP will surely drive to oblivion - who buys rim? maybe Dell or maybe the blackberry just dies on the vine (bush)
You know Microsoft sucks up the same amount of personal info, right?
The single positive thing to be said on this score is that at least all the servers are in the US.
Purely anecdotal, but I've had it about a month now and like my Win7 phone a great deal - clean and usable interface.
Has excellent email capabilities. Setup for work mail (Exchange server) was like 30 seconds, did it in the store.
Very good browser.
Also, if you're on any social networks, it's great. Facebook is just beautiful on this phone.
Been writing for the platform a bit, very easy. It's not much more involved than writing async .NET WinForms apps.
I bught the Android Samsung Galaxy S a few months ago. It's far more phone that I'll ever need. I was using a Blackberry flip phone, but the damn scroll ball broke three times in two years.
What I like:
What I don't like:
As I think most phones are becoming more game consuls that communication devices, and I agree that margins will come down, I've been short (and wrong) on Apple on several occasions. The biggest issues I see for Nokia, after the MSFT deal, is can they make a phone that people actually like? Lately, the answer has been no.
"How To Make Money Regardless"
Wanna know how I make money? I don't listen to Creggie. (The Cramer/Reggie character).
i still would not underestimate Apple
That's a good idea. You shouldn't underestimate anything. The risk here is not to overestimate Apple, though. Facts are being replaced by marketing.
I just read some incredible reviews about the MacBook Airs. Seems like Apple has a big time winner in that space and should see incredible growth there too.
Reggie, your obsession with hating on Apple is annoying. It's annoying because Apple is a very good company with great products, yet you spend so much time hating on a good company. In the real world, I don't know anyone who dislikes their Apple product, you know the average consumer that matters. Will google/droid outsell the iPhone? Probably, maybe, who cares? The real question is whether or not there is enough new market for both to grow. Your argument is too us vs. them. Tell me what is going to happen to Apples' net income. Is it going down? Because at the end of the day that is what matters. If we are keeping score by stock price, which is what ultimately matters, you are losing this argument big time.
I don't know anyone who dislikes their Apple product,
Then you don't know many IT admins working multiple platforms. They are as bad as Microsoft, only their users are proud of paying extremely high prices for average product. Devs have some of the industry's worst documentation and support. And then there's the amount of testing required to stay 'current' across incompatible OS releases.
you know the average consumer that matters.
As long as you keep paying, then you matter.
Or ever supported a product on it, either.
I never thought lifestyle marketing would induce people to overpay so vastly for an Intel box with a pretty Unix shell and a development environment that could easily have come from the mid-1990s.
You don't know me but I hated my apple computer (when I had to try to get a hardware problem fixed) and would be very unlikely to ever even look at another apple product. The whole experience of dealing with them left a bad taste in my mouth. (I didn't junk you)
Nobody can seemingly match Ipad2 market attract. It's not tech efficiency, its the market perception and juggernaut leading edge effect that Apple now applies based on its super sexy image. Overwhelming app's library.
Isn't that what they said about the iPhone 4 last year? Look who's number one now... The iPad 2 has more competition coming out of the gate than the iPhone 4 ever had, and is much newer to its market - only a year old.
Reggie : your graphic shows the MS of the mobile OS system generic products (if I understand it correctly, not MS of Iphone-4 product vs other individual hardware products. But I may be wrong). Granted your point. But OS platform is ONE component of the overall solution. What has always impressed the market since the reappearance of IMAC, Ipod etc. moves in the late 90's has been the Apple ability to provide the solution (HW+SW) in one inimitable, sexy product. That's the jazz! Also a client friendly product and the razz ma-tazz around it does the rest plus apps. library. Its a hard act to follow right now. As they are on a roll. The market only swears by them for the PRODUCT, not the component. If my assumption is wrong on OS graphic above then you have a point.