In his book Hit Refresh, Microsoft CEO Satya Nadella admits that he advised his predecessor not to purchase Nokia, the struggling smartphone maker. He later wrote off the entire $7.5 billion acquisition, and plotted Microsoft’s two-year exit from the smartphone market.
“The Nokia deal [was a] painful example of this loss [in mobile],” he writes in the book. “We were desperate to catch up after missing the rise of mobile technology … Nokia fell from the market-share leader in mobile to number three.”
Nadella then documents then Nokia-CEO Stephen Elop’s decision to partner with Microsoft in 2012 on Windows phone, and their resulting success: “Double-digit market share in some European countries.” But Windows phone always remained a distant third in the market.
Microsoft purchased Nokia because it had to: Had it not, Nokia would have adopted Android and potentially abandoned Windows phone. But either way, that move would have doomed Microsoft’s mobile efforts.
Curiously, this is not how Nadella tells this story.
“The hope was that combining the engineering and design teams at Nokia with software development at Microsoft would accelerate our growth with Windows Phone and strengthen our overall devices ecosystem. The merger could be the big, dramatic move Windows needed to catch up with iOS and Android in mobile.”
At the time, Satya Nadella was on then-CEO Steve Ballmer’s senior leadership team. And Mr. Ballmer, unsure about the acquisition, asked each member of the team to vote on whether it made sense.
“I voted no,” Nadella writes. “I did not get why the world needed the third ecosystem in phones, unless we changed the rules … But it was too late to regain the ground we had lost. We were chasing our competitors’ taillights.”
Microsoft’s halfhearted strategies over the next few years, under Satya Nadella’s leadership—swamp the market with barely-differentiated low-cost phones, mostly—didn’t help. But in 2015, Mr. Nadella wrote off the Nokia acquisition, eliminated nearly 18,000 jobs, and announced Microsoft’s plans to exit the smartphone business.
“Buying a company with weak market share is always risky,” Nadella explains. “We should only be in the phone business when we have something that is really differentiated.”
That sounds like a hint at future “Surface Mobile” devices, but it’s not clear, as he notes that Continuum and Office running across all mobile platforms were how Microsoft followed up on this “key insight.”
Anyway, interesting stuff.