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Comment by throwawaykf05 | Hacker News Reader

1. Nokia was pretty much the only real manufacturer of Windows Phone. Did they really have a choice? Microsoft does not seem to be the type to give up on their bets easily, and it sometimes pays off. For instance, as I recall, that's where they started with Xbox and Bing, and both products are doing well now.

2. Even though their relative market share is low, keep in mind the market is huge and so in absolute numbers, they are selling quite a few Lumias. Millions of devices every quarter is a pretty decent number, and something that could be leveraged in various ways. Not a direct comparison, but note that until 2007 Apple ran their entire business on products that had minority market share.

3. Not very familiar with the aQuantive deal - how was it doomed to begin with?

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1. Yes, they did have a choice. They had no realistic chance of catching either Apple or Google as an OS provider -- both Apple and Google had more mature products, better consumer brands and the platform lock-in from their app stores. If you're a billion dollar company and you can't be #1 or #2, you shouldn't bother entering the market. What they do have is the world's largest business computing platform, and they could have leveraged it into a BYOD powerhouse by making it easier to integrate Apple and Google products into the Microsoft platform. Selling to businesses is Microsoft's strength, and if they weren't so focused on selling to consumers, they could have done much better.

2. Apple's product strategy is vastly different from Microsoft's. Apple makes most of its profits from he sale of consumer electronics. Microsoft makes all of its profits from the sale of software licenses to large corporations (they make revenue elsewhere, but I don't think any of their consumer products are actually profitable). It's just not a good market for Microsoft because it doesn't fit with how they operate as a company.

3. Microsoft vastly overvalued its online properties and was playing in a space it had no business being in (media and advertising). Microsoft's core business revolves around selling software licenses to large businesses through reseller channels. While the advertising world has some similarities structurally, Microsoft just didn't have the relationships or corporate culture to make it work.

> They had no realistic chance of catching either Apple or Google as an OS provider -- both Apple and Google had more mature products, better consumer brands and the platform lock-in from their app stores.

With the possible exception of platform lock-in, all of that applies to everything Microsoft became a leader in too. Why would there be no realistic chance?

Several reasons:

1. Apple and Google are (and were at the time of the Nokia acquisition) larger companies than Microsoft. Microsoft's usual tactics are to throw their weight around, which they can't do when they're the smallest dog in the fight. What's worse, mobile represents a huge amount of revenue for both companies, so they have both the incentive and the ability to outspend Microsoft. Microsoft doesn't have a lower cost base (if anything, it's the opposite) so they have no basis for a sustainable advantage. Mobile was never a huge revenue number for Microsoft, so they always have the option of walking away.

2. Apple and Google also have the vast majority of the market covered from a value proposition standpoint. Apple goes after the high-margin top end, and Google uses an arms-dealer model to go after the middle and low end. What value proposition does Microsoft have that is substantially different? If you can't differentiate your product, and you have the disadvantage of being smaller in a market with strong network effects, you have no basis for a sustainable advantage.

3. The market had already started to mature by the time Microsoft bought Nokia. While you can get in early in a growth market and out-grow the competition, it's an uphill battle if you're as late as Microsoft was. Your competition will still outpace your gains even if you outspend them by a significant margin.

4. Building a niche product (i.e. if you can't be #1 or #2) can still be a profitable strategy, but it is a bad idea for a company like Microsoft. If nothing else, it's a distraction from their core moneymaking activities. Their first instinct would be to leverage their existing platforms to build user share, which would be a negative thing for Microsoft's existing platforms by creating opportunity for competitors as Microsoft's users search for alternatives (see Office on iPad). And because Microsoft has a decentralized power structure, there's not much they can do to prevent this. They're better off not playing in the mobile space at all than aiming to be a niche #3 -- let a smaller, more focused player with a lower cost base take on that role.

At some point, Microsoft will realize that mobile is a game they will never win. While they would be in a much better strategic position if they had a strong mobile presence, wishing that will happen won't make it so. IMO their optimal move is to get in bed with both Apple and Google and make BYOD really awesome if your company uses Microsoft as a back office. Apple would do it because they have little to no presence in the enterprise tech space, and Google would have to do it because otherwise Apple would become the de-facto standard in corporate mobile phones. That position leaves Microsoft with other options and leverage over the industry, which they currently don't have sitting at the bottom and looking up saying "me too!" It's also very hard to do any of this if you're in direct competition with Apple and Google on the OS/handset side.

Let me rephrase the question. Why was there a realistic chance of succeeding with Excel?

As I see it, you seem to be trying to prove that things that actually happened were impossible, but no one noticed.

Excel won if for no other reason than Lotus losing their ability to write new, working software after their first version. While Apple is having problems in that area, Microsoft nowadays seems to be as challenged or more, and I gather Google still does this very well.

Yes; with Excel there was a realistic chance because PCs were an exploding market at the time, and network effects (speaking in a business sense) were far weaker due to the fact that PCs weren't able to communicate. The market also took a lot longer to mature than the smartphone market did. Microsoft has always taken a "fast follower" approach to emerging product categories, but this time they were just too slow. I'm not saying they never had a chance, but the writing had been on the wall for a long time when they made the Nokia acquisition.

Also, Microsoft was a very different company in the 80s. They were a scrappy startup that had to prove themselves, and didn't have any legacy products, cost structures or business models dragging them down.

I'm not saying it's impossible for a company to be successful in the smartphone space as a solid #3, just that it's a bad idea for Microsoft to try to be that company. It's too far from their core competencies, and it clouds the strategy for their cash cow products.

IMO the majority of the value of Microsoft as a company at this point is their enterprise sales network. The relationships they have there are essentially a machine that lets them print money year after year. Consumer electronics (like cell phones) don't let them take advantage of their most valuable asset.

Instead of trying to chip away market share from Apple and Google, Microsoft should be going for the jugular against IBM and Oracle in the enterprise space by getting Microsoft enterprise applications on every phone, tablet and browser they can. Because that's the part of the company that makes money, and what they've done over the last 10 years is essentially try to leverage their high-margin enterprise software business to create a low-margin consumer electronics division. It's insane, and while I understand the need for products like Surface to create a baseline for quality with their OEM partners, it also doesn't make sense to sacrifice your profitable businesses to try to make those other products a success.

> network effects (speaking in a business sense) were far weaker due to the fact that PCs weren't able to communicate

But Excel's huge win was developing the ability to save a spreadsheet in Lotus format so your coworkers could open it.

Yeah, I'm not saying network effects were non-existent... but it's hard to change your document format and lock your competitors out if every software update has to be shipped physically on a floppy disk. The world is different now; platform network effects are much stronger because the platforms can adapt themselves on the fly to competitive pressures.

1. That would essentially be walking away from the mobile market, which does not seem to be a real option. Integrating Apple/Android devices with Microsoft would require building apps on others' platforms. This is a decent alternative strategy, but cannot be the only one. MS made their fortune by controlling the platform everyone built apps on during the PC revolution, and they know very well indeed what can happen if you're not the one controlling the platform.

2. Agreed, Apple's product strategy is very different. I was just making the point that minority marketshare is not the show-stopper many think it is. Note that Microsoft has been making decent profits in various non-software license businesses for the past few years, including consumer electronics (XBox, Surface Pro), Azure and recently, even Bing. Their revenue streams are a lot more diverse than people give credit for.

3. This sounds reasonable, and gels with the detailed comment above from calbear81: https://news.ycombinator.com/item?id=9852898

Little bit of a tangent here: Is Bing doing well? We all agree that XBox is a huge success, but given that Bing just gave away its display advertising to AOL all to gain trivial market share, and is still paying users $5/month to use Bing, you have to wonder if Bing is really successful or just held up.

I actually don't "hate" Bing. I find their answers to questions directly in results slightly better than Google's version of the same. But I still use Google as they have more historical search data to utilise so results remain more accurate (and will almost indefinitely). Bing also seems to choke on technical queries and special characters more often.

Bing may he a failure but it may hold on to certain niche searches like adult content.

Bing is powering Yahoo, Bing/Cortana and Siri. With Windows 10 having baked in Cortana, Bing will a lot more footprint. Bing is the farthest thing from failure, they are making money as of now, the whole sinking money into bing and xbox is really really old news.

That depends on Windows 10 being a huge success, and they are kind of fucking it up. Aside from the interface still apparently missing the point, I don't think a lot of people appreciated the ad/nag showing up in their system tray. I will put off getting W10 for at least a year for that alone.

(Candy Crush isn't helping much, either.)

And AOL too after the deal last week. "In a second part of the deal, Microsoft’s Bing search engine will replace Google on AOL for the next 10 years."

http://thevarguy.com/business-technology-solution-sales/0707...

> We all agree that XBox is a huge success,

Do we? Aren't people constantly speculating about them spinning it off because it's a loser?

Is Xbox even out of the red already?

They allegedly were losing around $2B/year before the last model. The XBox One launch cost them $400M in the first 8 months.

http://www.gamesindustry.biz/articles/2013-11-07-huge-xbox-l...

http://www.ibtimes.co.uk/xbox-one-has-raked-400-million-loss...

No one is going to beat google , until they manage to put their own search engine on peoples home page and replace Google.Until that day comes , Everybody know google is almost unbeatable ( does not matter how much you push , google will not defeat , because their income resource is somewhere else ).Microsoft realized that very soon , that because they created their own search engine.and abandoning Bing is almost will end up Microsoft's death.Every body know google wants everything , And they will come after Windows(Microsoft last line defense) with their ChromeOS or specialized version of Android(which will be cloud based).

Anyone can beat Google as soon as they produce better search results. More than once I have had a device / software switch to another search engine and the difference is really obvious even if the UI is not.

This was exactly my point , Maybe because my English people got me wrong. Google's (as company) lives depend on Google Search. and as soon as better search engine emerge , Google will be defeat badly .

> No one is going to beat google , until they manage to put their own search engine on peoples home page and replace Google

IE is still very popular and defaults to Bing. Firefox is very popular and now defaults to Yahoo or Yandex or Baidu depending on the country you're in...

> does not matter how much you push , google will not defeat, because their income resource is somewhere else

The majority of their revenue is advertising, and the majority of the advertising revenue comes from search ads, so search is exactly where their revenue is coming from.

> and abandoning Bing is almost will end up Microsoft's death

huh? I don't see how that could possibly be true.

>IE is still very popular and defaults to Bing. Firefox is very popular and now defaults to Yahoo or Yandex or Baidu depending on the country you're in...

That's not true . (maybe IE is more popular in some corner of the world , or among some users but) We all know in search engine market share , google is ruler and leader, without even a serious competitor. (recently maybe bing become a little more viable). Does not matter you (as company) put yahoo or anything else in your browser default homepage , most people will use/switch to google. Need for search engine will be increase with Internet and population growth.And I think this will end up with Google's exponential growth in compare with Apple or Microsoft linear growth.

> The majority of their revenue is advertising, and the majority of the advertising revenue comes from search ads, so search is exactly where their revenue is coming from.

Yes , exactly , because of that they don't care if they create some "free" OS better than Windows. Like what they did with Android. They just want better IT industry , better OS , better PC. Because with increasing IT users , their revenue will increase.

>huh? I don't see how that could possibly be true.

I see this problem in reverse order , with Microsoft giving up on bing, Google will end up without any serious threat to its income and core market share. And recent years already proved my , Google wants everything , after a while their ChromeOS will be viable replacement for Windows.They will push gaming on Android. and etc etc etc , and after years mayble Microsoft will end up where Companies like Novel are today .

But these are my view , I could be wrong.

Re: the aQuantive deal, Microsoft was never in a great position to leverage the assets that they purchased (ad serving platform Atlas, digital ad buying and creative agency Avenue A | Razorfish, and DrivePM (performance retargeting platform).

Atlas was really all Microsoft wanted since Google had bought DoubleClick and Atlas was at the time one of the few other large ad serving platforms. The ad serving business basically consisted of a way to track campaigns, impressions, clicks, conversions for large media buys for Fortune 500 companies. There was also synergy with the Avenue A | Razorfish business since clients like Nike, Best Buy, Hawaiian Airlines, and MSN would use Atlas to track their large campaigns across the web. The expectation from Microsoft at the time was that they could build a large display network across the internet using data from users that visited MSN or Bing just like Google does with it's search.

AA|RF was a bad fit because Microsoft was not in the advertising agency business so they quickly dumped that to Publicis. I worked at AA|RF in client services for a few years and were growing quickly at the time. We were doing things like multi-channel attribution and tackling view-based conversions years before they became a mainstream topic in the display ad world. A lot of those folks have gone on to lead at other places like Bob Lord, President of AOL, who previously led AA|RF!

DrivePM was a retargeting business that leveraged custom cookie pools that could be created based on both user's ad viewing/clicking behavior and tracked behavior on a client's website. So for example, you could say I wanted to target only people who viewed my ad in the last 2 days and visited my checkout page but did not complete their purchase. I think with investment, this business could have grown to take advantage of the surge in RTB and programmatic buying. One of the most interesting programs they had was a "recyling" product that basically took wasted impressions and resold them to other advertisers to reduce media costs. This involved doing a study to see what the optimal number of impressions was per user and the conversion rate dropoff curve per additional impression. Once you had that number, you would set a rule that said if this user has already seen the maximum number of ads from one advertiser in a given time frame, don't show the ad and instead show an ad from the recycler network.

Hope that helps!

"Did they really have a choice?" Well, yes, sunk costs are sunk, and they'd have been better off not wasting another 7 billion. That being said, for a fraction of that money, they could have gone Nexus route, and paid someone to adapt a hero model, that highlighted the best of their operating system.

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