Microsoft’s 5 Costly Mistakes Besides Nokia

by CXOtoday News Desk    Jul 09, 2015

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Just one year after Microsoft paid $9.5 billion for Nokia’s handset unit, the company says it has lost $7.6 billion of that value. This came along with a hefty writedown, and the tech major’s plans to cut as many as 7,800 jobs, a majority of them related to the purchase of Nokia.

The Nokia acquisition was one that Steve Ballmer, the former CEO at Microsoft, pursued over the initial rejection of his board and protests from several of his top executives. Satya Nadella, the current CEO, was reportedly among those who opposed the buyout.

But the Nokia deal happened… one of Microsoft’s costliest mistakes. But there are some more blunders Microsoft had made over the years. Let’s take a look.

Windows Vista blunder

Steve Ballmer, the former CEO of Microsoft, has admitted in several interviews that Windows Vista was the “biggest mistake” he made, not just during his 13 years tenure as the CEO of the company but also in his entire time at Microsoft.

Windows Vista, an operating system developed by Microsoft, was announced on July 22, 2005, and was known by the codename “Longhorn”. Development of the operating system completed in November 2006 and it was released in January 2007.

The operating system was the successor to Windows XP, and was released more than five years after the introduction of its predecessor, which was the longest time span between successive releases of Microsoft Windows desktop operating systems.

Windows Vista received high criticism. The operating system required high system requirements, it had more restrictive licensing terms, it lacked compatibility with some pre-Vista hardware as well as software, and was no where close to Windows XP in terms of adoption or satisfaction rate

The AQuantive blooper
In 2007, Microsoft paid $6.3 billion for digital marketing company aQuantive — at the time the largest acquisition in the software giant’s history. AQuantive the com was supposed to change everything for Microsoft, creating a viable rival to Google and establishing the Redmond company as a force in online advertising. 
 
Five years later in 2012, Microsoft took a $6.2 billion write down for the acquisition. Microsoft CEO Steve Ballmer’s initial promises to use aQuantive to “help maximize the digital advertising opportunity for all” have made the company a ‘loser.’
 
Bing: The search problem

Search has become a billion dollar business. Microsoft was aware that the internet is a huge space and winning the browser war was not an easy task. When Microsoft had to spend years fighting off antitrust suits in its Internet Explorer, it missed out on the internet’s actual money-spinner, search. It was much later that Microsoft started delving into this space. By then, Google already had a monopoly is search and that its success was coming from search-based ad sales. 

Microsoft’s Bing launched in 2009 was undoubtedly an effort to compete with the Google, and also garnered good reviews, but Google continues to rule the search world with a much greater share. According to a recent report by comScore, while Google grabbed two third of the market share, Bing managed to get less than one fifth of the pie.

The lesson here for the tech companies is to get on the bandwagon sooner.

Tablet PC slipup

The Windows 8 operating system and the Surface RT, both launched in October 2012,  did not work well with traditional Windows applications and was expensive. It was widely shunned by potential customers due to its limited functionality and frighteningly expensive components. This represented a missed opportunity for Microsoft whose subsequent offerings certainly haven’t had the impact of the iPad, believe experts. 

Ballmer revealed its mistake, stating, “We built more devices than we could sell,” he told The Verge. The company made $853 million on Surface tablets since its launch. However, Microsoft debuted e-book software in 2000, long before Amazon and Apple did.

Anshuman Das, an independent IT analyst said that it failed to take off because a product needs a great hardware configuration, alongside software, for greater user experience.

Ignoring Android

Ever since the iPhone debuted in 2007, Microsoft has struggled to adapt to the quickly changing smartphone world. “There’s a lot of things, like cellphones, where we didn’t get out in the lead very early,” Gates said in an interview aired on CBS. “We didn’t miss cellphones, but the way we went about it didn’t allow us to get the leadership. So it’s clearly a mistake.”

Microsoft was very late to adapt to change as Apple’s iPhone and handsets loaded with Google’s Android mobile operating system exploded in popularity. 

A Business Insider story aptly puts it, Ballmer missed Google’s mobile software — Android. Really, Android is what Windows Phone should be. It should be on 80% of the mobile phones around the world. Instead it’s on (about) 3% of phones.

What next?

Unfortunately, The Nokia deal was the last in a string of bad deals struck by Satya Nadella’s predecessor, Steve Ballmer. “Tough choices” are coming in Microsoft’s impending fiscal year.

“We will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value,” Nadella said.

Nadella, who took over as CEO in February 2014, has been trying to salvage the company’s fortunes. Since then, the company has shifted its focus on cloud and enterprise software capabilities from hardware. But investors remained doubtful as the shift had not been offsetting weakening sales of Windows and Office and a shattering phone business.

“Overall, we believe Nadella’s proactive approach at cleaning up the Nokia acquisition is a positive “tipping of the hand” around Microsoft’s future focus on software,” FBR Capital Markets analyst Daniel Ives mentioned in a note

Although Microsoft’s chief didn’t elaborate on those ‘tough choices’, tech enthusiasts will hope for Microsoft’s better days and fewer mistakes in the years to come.