Microsoft learns R95 billion math lesson in its Nokia blunder

31 Jul 2015 | Author: | No comments yet »

Microsoft learns R95 billion math lesson in its Nokia blunder.

That’s the amount Microsoft wrote off on Nokia’s phone unit, which it bought a little over a year ago for what it said was $9.5 billion. Mozilla isn’t happy with Microsoft over the Redmond giant’s decision to make its new Edge the default web browser in the Windows 10 operating system, and the company is making its feeling public.If you have been lucky enough to upgrade to Windows 10, then the chances are you noticed the Edge browser has become you default on the shiny new operating system.

Considering that the deal included $1.5 billion in cash, the write-off means Microsoft now values a business that once controlled 41 percent of the global handset market at just a small fraction of the purchase price. In an open letter to Microsoft CEO Satya Nadella earlier today, Mozilla CEO Chris Beard has accused Microsoft of what he calls an “aggressive move to override user choice on Windows 10”. It was only the third loss in its history as a public company. “If you were talking about any other industry, this would be considered a catastrophe that’s the equivalent to a natural disaster,” said Horace Dediu, who spent eight years at Nokia during its heyday and is now at the San Francisco research firm Clayton Christensen Institute, which studies disruptive technologies.

The shift will happen even when a user is upgrading on a Windows 7/Windows 8.1 computer on which they had previously set Mozilla Firefox or Google’s Chrome as the default browser. “The update experience appears to have been designed to throw away the choice your customers have made about the Internet experience they want, and replace it with the Internet experience Microsoft wants them to have,” wrote Beard. Beard has a point, especially since a small tweak like this could wipe out Mozilla Firefox from a lot of systems. “We appreciate that it’s still technically possible to preserve people’s previous settings and defaults, but the design of the whole upgrade experience and the default settings APIs have been changed to make this less obvious and more difficult. This being the technology business, Microsoft’s still relatively new chief executive, Satya Nadella, gets credit for swiftly confronting reality and taking the hit to earnings. Mozilla announced they are rolling out support materials and a tutorial video to help guide everyone through the process of preserving their choices on Windows 10. “Mozilla exists to bring choice, control and opportunity to everyone. Back in 2009, the European Commission had asked Microsoft to add a “Choice screen”, allowing users to choose among the various web browser options available then.

He “strongly” urged Nadella to “reconsider your business tactic here and again respect people’s right to choice and control of their online experience by making it easier, more obvious and intuitive for people to maintain the choices they have already made through the upgrade experience”. “Please give your users the choice and control they deserve in Windows 10.” Amazon wrote off an even more modest $170 million in October, acknowledging that its Fire phone was a flop. “We try to learn from everything we do as we launch new opportunities,” said Amazon’s chief financial officer at the time, Thomas J. The reality is that with Edge in Windows 10, Microsoft has finally made a web browser that’s not just a massive improvement compared with its ageing predecessor, the Internet Explorer, but is at par with the likes of Chrome in terms of speed and performance. But far more was at stake for Microsoft than for Google or Amazon, since the main point of the Nokia deal was to support Microsoft’s Windows operating system, which, in turn, was a crucial element in Microsoft’s “mobile first” strategy.

According to numbers released by web usage tracking website NetMarketShare, which it released in June before Windows 10 was rolled out, 54% PC users still stick with Internet Explorer. Now both handset operating systems and hardware are pretty much global duopolies, with Google and Apple dominating software and Samsung and Apple dominating hardware. Microsoft’s “grand scheme was to have a single platform that ran on PCs, laptops, tablets and phones, and to be able to sell applications that run Windows,” said Nicholas Economides, an economics professor at the Stern School of Business at New York University who specializes in network economics and electronic commerce. “That failed.” Dediu said it was hard to put all the blame on Microsoft, since so many others had met a similar fate. “Most people didn’t believe that such a catastrophe could occur this fast,” he said.

Microsoft “just couldn’t imagine that a company that was once as strong and dominant as Nokia could have virtually no value.” He compared the swift rise of Apple and the withering fortunes of Nokia, BlackBerry and other once-thriving manufacturers to the arrival of an infectious virus. “We tend to think the strong will survive,” Dediu said. “But a virus is a very small thing that kills big things.” He continued: “It’s easy to say Microsoft was foolish and blame the chief executive. When I asked Microsoft what it had gotten for its money, its spokesman, Shaw, agreed that the speed of the changes in the industry had taken the company by surprise. “Everything always looks different with the benefit of hindsight,” he said. In an email to employees this month explaining the shift, Nadella said, “We are moving from a strategy to grow a stand-alone phone business to a strategy to grow and create a vibrant Windows ecosystem.” Shaw stressed that Microsoft would continue to manufacture Windows phones and other products, and that it would introduce a new line of Lumia phones this fall. But they will be differentiated products tailored to narrower market segments, like business customers concerned about security. “One thing we learned is that if we offer differentiated products that focus on the things we do best, those products do well,” Shaw said. “Instead of just thinking about our products running on our devices, we’re thinking about how we reach people, no matter what device they’re using.

Our goal is to bring them home to Windows, where they’ll have a better, differentiated experience.” Perhaps most important, Shaw said Microsoft recognized a pressing need to innovate: “If you miss the first wave, you have to hang on and then drive or anticipate the next wave.

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