It is starting to seem like Microsoft (MSFT) cannot get out of its way. After fumbling with the necessary and delayed launch of Windows 8 and the Surface tablet it seemed like the foundation was starting to set. Nokia (NOK) sold about 4.4M Lumia phones and it has sold about 60M licenses of Windows 8. Then, word came out that it might be party to the LBO team for Dell (DELL). I wish with all my bones that this is a baseless rumor because if it is not it will crack an already fragile ecosystem and surely be the end of Steve Ballmer. Look at it this way:
- A = Google (GOOG) wanted to find a way to get Microsoft's OEM partners to consider deeper adoption of its operating system, free software and Android
- B = Microsoft's overture towards Dell pushes their OEM partners to consider partnering with Google to hedge their bets against Microsoft
- C = Google would have been willing to pay for this scenario if a price had been named
- D = This price is what Microsoft pays to be part of the Dell deal.
If A=B, B=C and B=D then Microsoft is paying on behalf of Google for Microsoft's OEM partners to try an alternative that comes with no licensing fees and that could destroy its relatively assured source of revenue.
I am part of the crowd that believed in the strategy to deploy a Windows 8 maximized for touch and similar across all platforms. I also very strongly believed that the Surface Tablet was a necessary destabilizer for Microsoft's OEMs who seemed to be sitting on their laurels as Apple took their launch to feed the birds with. I did not anticipate adoption to be as much of a struggle as it has been but after 60 million licenses sold it cannot be called a failure. Eventually, adoption on consumer devices would bleed across platforms and ultimately corporations would catch on. But, getting in the deal with Dell? What the heck. This would not pass the smell test with the likes of HP (NYSE:HPQ), Lenovo (PINK: LNVGY), Acer, Asus (ASUUY.PK) and to some extent Vizio which is starting to look like Dell when things were good.
What can such a deal possibly do to Microsoft if not antagonize to the nth an already edgy partner base? What exactly does the PC division of Dell bring to the table at this juncture other than logistics? On the surface it looks like Vizio has more wind in its sails and is pretty aggressive with product launches. I hope that these rumors are totally false because if they are not Microsoft might get into a marriage that will do for it what the acquisition of Palm did for HP which is nothing. Maybe Microsoft needs to ask Google the value of Motorola without the patents. Hardware will continue to be commoditized and if Microsoft can corner the software platform and occasionally launch is all that it needs to keep its hardware partners on their toes.
- Ecosystem Distortion: Microsoft and Intel both missed the mobile opportunity and Intel will not be happy if Microsoft fragments the current PC base. Even though Intel did not come out to say so, it must have been unhappy when Microsoft launched the ARM powered Surface RT many months before the Surface Pro. Already declining PC sales further hampered by OEM's spending less on R&D to create new products forces Intel to spend more on R&D on a smaller base. Microsoft will not win unless it has already decided that it will vertically integrate to do both hardware and software.
- Make software more relevant - If Microsoft had any doubts that hardware was a commodity it has not been looking closely enough at Apple (AAPL). With good software Korean and Chinese firms will compete on capability, design and price. The formula is to make the software so good that the hardware becomes an accessory. The approach with Surface tablets was more than adequate as a foray into hardware. Combining Dell, X-Box/Kinect, Perceptive Pixel, and rumors of a Microsoft phone re-orients Microsoft's portfolio into an area where it has traditionally had good ideas and consistently not performed to potential.
As controversial as the decision to manufacture an in-house tablet was I believe that the Surface was meant to be a catalyst not to become a market leader. You could say the same of its acquisition of Perceptive Pixel which seemed like a play to enhance the capabilities of Windows 8 in conjunction with Kinect and in collaboration with OEM partners. The race for mobile domination is too early and Microsoft cannot get desperate. It should not touch Dell with a 12ft pole at this time because that will do nothing but kill any momentum it was starting to build and clear all doubts in the minds of a suspicious vendor base. If the deal goes through it will surely be the end of Steve Ballmer.
Disclosure: I am long MSFT.