Seeking Alpha
Professor, tech, energy
Profile| Send Message| ()  

Microsoft's (MSFT) success has always been about its alliances: Bill Gates lining up Basic licensees, the 1980 deals with IBM and Seattle Computer Products and (most importantly) licensing the IBM-funded DOS to all of Microsoft's competitors.

With declining PC revenues, Microsoft is using its $50+ billion cash hoard to buy friends. The Redmond company has created alliances with Nokia (NOK) and Barnes & Noble (BKS) in the hopes of gaining a footprint in smartphones and low-end tablets. But in doing so, both companies have (for better or worse) placed their platform bets on Microsoft's (thus far) losing hand.

As part of my studies of Nokia's smartphone strategy, I've been following the Microsoft-Nokia deal for several years. And Tomi Ahonen has done a great job of covering how badly things have gone since Nokia threw away its (declining) smartphone lead and cast its lot with Microsoft.

However, the Barnes & Noble story is a different one. It has been searching for a viable tablet strategy for years. When it signed its surprising $300 million deal a year ago, it was losing its decade-long battle with Amazon (AMZN) over books, online sales, tablets and everything else. The original 17.6% equity investment in the B&N spinoff of Nook Media was supplemented by a promise of $305 million in other payments.

Last week, rumors surfaced that Microsoft would pay $1 billion for the remaining shares of Nook Media. Barnes & Noble shares jumped on the news. This would be the only good outcome for B&N: Microsoft gets a portfolio of online assets to fight Amazon, Apple (AAPL) and Google (GOOG), and B&N gets some cash to prop up its dying retail business. To quote Steve Miller: "Go on, take the money and run!"

In the meantime, both Nokia and Nook Media are aboard the S.S. Ballmer without a lifeboat. Microsoft has known for 15 years that it needs a viable mobile strategy, and despite billions in R&D (and funds for products and alliances), has been unable to break single digit market share on either phones or tablets.

It's not for nothing that Ballmer was named the worst CEO by Forbes a year ago, saying, "Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company today." Ballmer was merely second worst in CNBC's 2012 rankings. Both were before the recent Windows 8 fiasco exploded in the company's face.

On Sunday, Al Lewis of Dow Jones cited yet another Ballmer critic:

Former Microsoft executive Joachim Kempin released a book timed to the Windows 8 launch last fall, called "Resolve and Fortitude: Microsoft's Secret Power Broker Breaks His Silence." In it, he, too, says Mr. Ballmer should be fired.

"He has no clue about technology," Mr. Kempin said in a telephone interview. "All the guys around him agree with him or they get fired."

Because of his long friendship with America's second richest billionaire, his job has been secure thus far. As long as Ballmer remains at the helm, Microsoft (and Nokia and B&N) shareholders should expect more of the same.

Disclosure: Author has holdings in MSFT.

Source: Aboard The S.S. Ballmer