We continue along the lines of last week’s Monday Note kriegsspiel with the latest speculation Will Microsoft, at long last, buy RIM? The idea has been kicked around for at least five years: Days after the iPhone’s introduction in January 2007, Seeking Alpha suggested that the Xbox maker ought to buy RIM in order to build an XPhone. In retrospect, this would have saved both companies a lot of grief.
It’s early 2007 and the BlackBerry maker is riding high. With its Microsoft Exchange integration; a solid PIM (Personal Information Manager) that neatly combines mail, calendar, and contacts; and the secure BlackBerry Messenger network, the “CrackBerry” is rightly perceived as the best smartphone on the market. I love my Blackberry and once I manage to get a hosted Exchange account for the family, I show my un-geeky spouse the ease of over-the-air (OTA) synching between a PC and the BlackBerry. ‘No cable?’ No cable. She promptly ditches her Palm device. One by one, our adult children follow suit. For a brief time, we are a BlackBerry family.
But the Blackberry’s success blinds RIM executives. They don’t see – or refuse to believe – that the iPhone poses a threat to their dominance. A little later, Android comes on the scene. Apple and Google deploy technically superior software platforms that, by comparison, expose the Blackberry’s weaker underpinnings. In 2010, RIM acquires the QNX operating system in an effort to rebuild its software foundations, but it’s too late. The company has lost market share and shareholders see RIM squander 75% of its market cap.
Now, imagine: On the heels of the iPhone introduction in 2007, Microsoft acquires RIM and quickly proceeds to do what they’ve only now accomplished with Windows Phone 7: They ditch the past and build a modern system. This would have saved Microsoft a lot of time and RIM shareholders lots of money. Instead, Microsoft mocks the iPhone and brags that the venerable (to be polite) Windows Mobile will own 40% of the market by 2012.
Things don’t quite work as planned. Early 2010, Microsoft wisely abandons Windows Mobile for the more modern Windows Phone 7 (a moniker that combines the Windows Everywhere obsession with a shameless attempt to make us believe the new smartphone OS is a “version” of the desktop Windows 7).
And things still keep not working as planned. WP 7 doesn’t get traction because handset makers are much more interested in Android’s flexibility and, particularly, their price. Android’s Free and Open pitch works wonders; the technology is sound and improves rapidly; OEMs see Microsoft as the old guard, stagnant, while Google is on the rise, a winner.
All the while, Nokia experiences their own kind of “domination blindness”. In 2007 Nokia is the world’s largest mobile phone maker, but they can’t see the technical shortcomings of their aging Symbian platform, or the futility of their attempts to “mobilize” Linux. iOS and Android devices quickly eat into Nokia’s market share and market cap (down 80% from its 2007 high).
In 2010, Stephen Elop, formerly a Microsoft exec, takes the helm and promptly states two brutal truths: This isn’t about platforms, we are in an ecosystem war; technically, we’ve been kidding ourselves. Nokia’s new CEO sees that the company’s system software efforts – new and improved versions of Symbian or Maemo/Moblin/Meego – won’t save the company.
Having removed the blinders, Elop looks for a competitive mobile OS. Android is quickly discarded with the usual explanations: We’d lose control of our destiny… Not enough opportunities for differentiation… The threat of a race to the bottom might have entered the picture as well.
This leads Elop back into his former boss’ arms. Microsoft and Nokia embark on a “special relationship” that involves technical collaboration and lots of money. It’ll be needed: By the end of 2011, WP 7 has less than 2% market share. Nokia’s just-announced Lumia smartphone is well received by critics but will it demonstrate enough superior points to gain significant share against the Android-iOS duopoly? I’ll buy one as soon as possible in order to form an opinion.
The “MicroNokia” relationship isn’t without problems. Many Nokia fans are outraged: Elop sold out, Nokia’s MeeGo was unfairly maligned, the company has lost its independence… See Tomi Ahonen’s blog for more. (And “more” is the right word. Ahonen’s learned, analytical, and often rabid posts range between 4,000 and 10,000 words.)
The Nokia faithful have a point. In my venture investing profession, we call an arrangement such as the MicroNokia partnership “buying the company without paying the price.” Right now, Microsoft appears to control Nokia’s future since, at this stage, Nokia is as good as dead without WP 7.
But doesn’t that mean that Nokia also controls Microsoft’s smartphone future? “Statements of direction” aside, there are no notable WP 7 OEMs. (Samsung and HTC ship a few WP 7 phones, but their share is infinitesimal compared to their Android handsets.) With Android growing so fast, why would a smartphone maker commit to WP 7 while Nokia holds a privileged status on the platform?
Microsoft is making smart moves against Android by using their patent portfolio to force Android handset makers to pay (undisclosed) royalties. With LG as the latest licensee, Microsoft appears to have snared 70% of Android OEMs. The (serious) joke in the industry is that Microsoft makes more money from Android than from WP 7.
But success with patents doesn’t translate into more WP 7 OEMs, which leaves us to wonder: Will Microsoft consummate the relationship and acquire Nokia, whether the entire corpus or, at least, the fecund (smartphone) bits? For years, Microsoft has claimed they’re all about choice, and when it comes to the PC, that’s true: Businesses and consumers have a wide choice of PCs running Windows. But their customers have no real choice when it comes to WP 7: It’s Nokia or…Nokia. They might as well tie the knot and call it what it is: Microsoft or Microsoft. It works wonders for Xbox and Kinect.
Going back to RIM, we hear it’s ‘’in play’’, that they’ve hired investment bankers to “look at their strategic alternatives”. In English: They’re looking for a buyer.
But who? Microsoft is otherwise engaged. So is Motorola. And forget Samsung.
With RIM’s market share dropping precipitously, and no sign of a rebound with spanking new models until the second half of 2012, who would want to risk billions in a market that’s controlled by competitors who manage to be both huge and fast-growing? Sure, RIM is still in the black, but its cash reserves are dwindling: the Cash and cash equivalents line went from $2.7B last February to $1.1B in November 2011. What’s left will evaporate quickly if revenue and profits keep dropping, as they’re likely to do for the foreseeable future.
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13 Comments
Just a nit, you say “cash equivalents line went from $2.7B last February to $1.1B in November 2001.”
I think you mean November 2011.
@ jehrier: You’re right, sharp eyes, thanks, we’ll get it fixed on the site. The link points to the correct info, that is the quarter ending in Nov 2011, that is Q1 FY 2012.
(Fixed by FF, thanks!)
RIM could have been a good alternative for Amazon. The true war in the mobile space is about ecosystem apple vs google vs amazon, the problem for Amazon is that they share the Android platform with google, without using google services, something I think goolge will try to stop in the future.
I think for MSFT to really succeed and stay relevant they have to invent /reinvent a category / app spaces and create a market. That early lead is simply invaluable. Apple has mastered that aspect. Simply answering with their “me too” (phone, music, search) products is not going to help them. Their profits still come from products that are more than a decade old.
Buy neither.
Wait for a vulture capitalist or two to buy both these companies and watch them tear apart the meat for the juicier parts of these companies.
MSFT can build their own share the hard way because Google’s failure is around the corner – Android is a failed system pretending to be an iOS competitor. MSFT should wait in the wings to step in.
Hmmm. Three loci of value in RIM: its Enterprise messaging business, still heads and shoulders above the competitors (although arguably, merely better than “more than good enough,” and so not as valuable as before. Second, its BBM business, the medium of choice for bankers and their clientele in Indonesia, for teenagers in South America, etc. And third, its handset business, meeting the need for an inexpensive, reliable gadget on which to talk and exchange text.
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I’d think that the Enterprise business could stand independently of the others, but it’d take new ownership — vultures — to carve it off and link it up with WP7′s, Androids and iProducts. I suppose some developing world telecomm or consortium would be happy to have the very customer relevant BBM, but without some sort of moat that network risks being torn asunder by the many freeware/99¢ messaging apps, country by country. But the most visible piece, the handsets, would seem to have no cachet in a world headed for smartphones.
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Oh, there’s a fourth piece: QNX and the Playbook. Except there’s not: first publicly announced in October 2010, it’s still woefully incomplete on the software front, mostly supporting Adobe AIR and having no critical mass or must-have apps.
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So out of 4 pieces, two could have value to firms that would NOT continue the identifiable business in North America and Europe.
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LBOs and similar bottom-fishing are hardly my specialty so there could be some other way to squeeze some value out of this carcass, but it looks to me that RIM has let its core competencies rot away into irrelevance: why would any firm already in handsets buy the demoralized, old-fashioned or even obsolete assets, and why would any firm NOT already in the business not just start with a clean sheet of paper, as Amazon has?
And with regard to the Nokia/Microsoft relationship: Nokia seems to have specifically aimed its 3 devices for the US at 2009-era standards. Although the Lumia 900 has LTE, the others are a little optimistic in calling themselves “midrange,” given that they feature quite modest hardware and extremely limited expansion into functions such as video/photo edits, games that demand a bit more technically than Cut The Rope, and even things like screen resolution is well back from competitors’ offerings.
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Surely, Nokia and Microsoft both know that WP is far from competitive in many ways, so they have not tried to attract enthusiasts at the high end, the way that Motorola and RIM tried, and failed badly for their weak efforts, doing.
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The current state of affairs for Microsoft is weak across the board:
* Software (a very nice basic UI that lacks multi-tasking and likely has relatively weak support for developers’ more challenging tasks);
* 3rd-party apps (a smallish count, and no reason for a developer to try cutting edge or niche apps;
* no history of muscle in relations to the powerful duopoly that is today’s US carrier situation.
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So Nokia has met Microsoft’s not-there-yet package with some hardware that may not turn heads but is fully good enough in a CYA sense (only). Why Microsoft says they are banking on Nokia is beyond me; either there is some other shoe about to drop or Microsoft is ceding the phone business; if Ballmer is half the manager everyone thinks he is, we will see something dramatic inside of six months. Or we will see something dramatic around six-twelve months.
Mobile was never a priority for Microsoft. I am convinced that WinMo consistent failure over the years was seen as positive for the company’s image as it distracted the attention away from their core monopolistic PC business, Windows/Office.
It all worked well as long as there was a steep divide between the PC and mobile worlds.
It all dramatically changed in 2010 with the arrival of the iPad, bridging PC and mobile. Microsoft’s business is now challenged from above by the Cloud, and from the bottom by tablets.
Cloud + Tablets is a potentially lethal combination.
The tremendous challenge for Microsoft is the tablet, not the phone. Meaning Microsoft has no interest to buy a phone manufacturer.
Nokia has done a tremendous, deadly and final mistake in partnering with Microsoft. They had to embrace Android with enthusiasm and speed.
Nokia is left with phones doubling as torchlight and hammer for remote Indian villages.
Eventually, RIM and Nokia are worth what their patent portfolio is worth
Insightful analysis.
the purchase of rim would be a joint effort by microsoft and nokia not one or the other. microsoft will absorb rim while nokia will improve hardware and implement an ios of microsofts design with nokias imput.
the next blackberry will be the nokia blackberry with windows mobile 8. 2 versions will hit the market. one with hard keyboard will be similar to the e6 and the other large touchscreen will be similar to the 900.
of course nothing i said is true but it does make more sense.
There is also the “conspiration theory” : Elop’s a Microsoft’s mole, which mission it to bring down Nokia and make it puppet slave or a weak foe for Microsoft acquisition.
Such point of view is relayed in some articles, such as : http://www.osnews.com/story/25480/Microsoft_To_Acquire_Nokia_s_Smartphone_Division_
Sound too far fetched ?
Well, unfortunately, such tactics were already employed in the past. Gemplus is such an example.
RIM has strange culture and self distruct political environment.
In RIM if a new hired person figure out major problem and introduce efficient approach, both manager and his buddy group member will proof their wrong approach works. just like someone point out driving a car is right way, pushing a car is wrong way, then both manager and his buddy group member will hate you, and proof that 3 person can also move the car by pushing it. cheating email will be sent to some vice president, saying like: see, the car moving, pushing a car is a natural part of the process, in order to deny new hired contribution of introducing skill of drive a car, they have to deny merit of driving a car.
It is very strange company culture and strange company political environment, it promote stealing and cheating skill. RIM’s management may be a typical instance in MBA course.
This culture deny or steal hardworking team members’ contribution/innovation, generate strange political environment, destroy RIM.
so will someone buy it?
and RIM is a low effecient software company, lived on OS, if it live on device like moto, it will die thousand times, that why 10 moto will be sold but no one will buy RIM.
microsoft would further sully it’s reputation by buying rim. ‘two wrongs don’t make a right’.
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