When Microsoft CEO Steve Ballmer fell onto a glass coffee table, shattering it and cutting his forehead, he let out a shriek. Upon hearing the noise from a closed conference room, nearby Nokia executives assumed Ballmer was reacting to their counter-proposal.
It was a reasonable assumption under the circumstances.
The negotiations between Microsoft and Nokia dragged on for weeks, with repeated meetings by both large groups and individual pairs of executives. Microsoft was pushing for the deal, and Nokia was pushing back.
Why? Because Nokia had other options and Microsoft did not.
On Memorial Day Weekend, when the coffee table incident occurred, Ballmer was meeting with Nokia executives in London at the offices of Microsoft's law firm. He was reportedly engrossed in the reading of a document and didn't notice the table.
Ultimately the talks resulted in Microsoft buying Nokia for $7.2 billion.
The whole accident serves as a perfect analogy for everything wrong with Microsoft. They’re always focusing on the wrong things, and can’t seem to see the looming disaster right in front of them.
Microsoft pushed hard to buy Nokia, and the reason seems clear.
Microsoft ruled technology in the 1990s because of its profitable dominance of PC operating systems and lucrative office suites. In the past 13 years, the focus in technology has shifted away from PCs and onto the Internet and mobile computing. Microsoft has tried to leverage its power and influence into these new areas, but with mixed success.
What these two companies have demonstrated is that in order to be successful in one realm (Internet or mobile), you need to also be successful in the other. A full line of devices plus a full line of services is necessary because controlling each part prevents partners and competitors from turning your products into commodities without value. This is why Google is now selling phones and tablets and why Apple is making its own mapping service and cloud service.
In order for Microsoft to succeed in either the Internet or in mobile, it must succeed in both.
The central failure has been in Microsoft's inability to get the Windows Phone to take enough market share and gain enough customer loyalty to function as a "gateway drug" to Microsoft's other platforms and services.
Microsoft dominated PCs in the 1990s in large part because the Windows platform had far more of the apps, hardware, peripherals and accessories people wanted and needed. Apple and Google dominate mobile for the same reason.
So Microsoft has tried to get major handset makers to build for Windows Phone. This challenge has been compounded by the fact that Android is free and open, whereas Windows Phone comes with a price and a contract.
In Nokia, Microsoft found a large company with a demonstrated track record -- just ten years ago, Nokia's 1100 line was the biggest-selling mobile phone in history -- a lot of patents and technology, many good people with good ideas and a strong desire to succeed without becoming another commodity Android handset maker.
So after extensive negotiations with Microsoft, Nokia's CEO Stephen Elop (a former Microsoft executive) announced in February, 2011, that it would dump Symbian and the MeeGo and become the world's leading Windows Phone handset maker.
It was at that moment that a Microsoft acquisition became inevitable.
Here’s why: There was no way Nokia could succeed with Windows Mobile at the scale and speed that Nokia would need in order to gain back any significant fragment of its former glory.
Nokia would eventually decide to do what it should have done in 2011: Make Android phones.
(Whether Nokia actually intended to sell Android phones is beside the point. If they hadn’t yet, they would have soon.)
Meanwhile, Microsoft couldn't survive the devastation of watching its main partner Nokia -- the basket into which Microsoft had put most of its eggs -- succeed with Android while failing with Windows Phone. That would have been the death of Microsoft's mobile OS. Without Windows Mobile, Microsoft couldn't succeed online or in mobile generally. And without the Internet and mobile, Microsoft's future would be bleak.
So that's why Microsoft had to buy Nokia -- to save Windows Phone and thereby save itself.
It's not over for Microsoft.
Other companies have re-invented themselves and in doing so positioned themselves for industry dominance. Specifically, Apple, Google and Motorola have all done it masterfully.
The company needs to do what Apple, Google and Motorola did in the following three ways:
1. Start over with a new company vision like Apple did. In the 1990s, when Microsoft was the most valuable company in history and destroying Apple in the PC market, Apple completely stripped itself down to nothing and started over with a new vision.