Many thanks to Ben Walsh for pulling together the data for this chart. The numbers speak for themselves, really: over the course of Steve Ballmer’s tenure as Microsoft (NASDAQ:MSFT) CEO, the company’s stock price has gone nowhere, its market share has plunged - but its headcount has more than trebled. And that’s before adding another 32,000 employees as part of the Nokia acquisition.
Ben Thompson has a very smart analysis of Microsoft’s move here:
Guy English has already characterized Ballmer’s disastrous reorganization as a straitjacket for the next CEO; adding on a mobile phone business that Microsoft probably should abandon is like attaching an anchor to said straitjacket and tossing the patient into the ocean. It will be that much more difficult for the next CEO to look at Windows Phone rationally.
As Henry Blodget notes, Windows Phone is now going to account for a good quarter of Microsoft’s employees; integrating those two huge and very different cultures is going to take an enormous amount of effort, with no guarantee of success. And as Thompson notes, this acquisition essentially forces Microsoft to double down on its strategy (which has signally failed to date) of competing head-to-head with Android and iOS.
There is really zero consumer demand for an alternative smartphone OS: even the ultrageeks fell well short of raising the $32 million they needed to develop a version of Ubuntu for phones. Microsoft is pretty good at giving big organizations what they want - Windows and Office, the two great powerhouses which have between them accounted for all of Microsoft’s profits over the years. And somewhere, deep inside its institutional memory, it knows that once upon a time it came late to the browser game, entered with a big splash, and ended up demolishing Netscape.
The problem is that this second-mover strategy doesn’t work against Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL). It doesn’t work in search, it doesn’t work in tablets, it doesn’t work in phones. (It has arguably worked in gaming systems, which is something of a Pyrrhic victory, given the way in which games are going mobile.) Nokia (NYSE:NOK) is a failing company - if Microsoft hadn’t swept in to save it, it would probably have gone bust pretty quickly - and one of the reasons that it’s failing is that no one wants to buy a Windows phone. And that’s especially true in the fastest-growing market of all.
Nokia’s fall has been most spectacular in Asia, a region that its phones once dominated. As recently as 2010, the company had a 64 percent share of the smartphone market in China, according to Canalys, a research firm. By the first half of this year, that had plunged to 1 percent.
With this acquisition, Nokia chief Stephen Elop becomes heir apparent to Ballmer. Elop knows how to navigate Microsoft’s poisonous bureaucracy, having worked there for many years, but he also counts as an outsider, able to bring in fresh ideas. He also - obviously - knows mobile, which is the single factor determining Microsoft’s future: if the company can navigate the move from the desktop to mobile, it will succeed; if it can’t, it will fail.
But the chart foretells how this game is going to play out: Microsoft is now simply too big to turn around. Elop saved Nokia in much the same way as John Thain saved Merrill Lynch, by selling a fundamentally worthless company to a much larger strategic buyer for billions of dollars. That strategy isn’t going to work for Microsoft. Probably, there is no strategy which would work out for Microsoft. The company’s heyday is far in the past, now; all that the new CEO can hope for is to maximize profits as it slowly, inexorably, declines.
Disclosure: Long Google.