Microsoft board initially split on Nokia acquisition: Report

Microsoft board initially split on Nokia acquisition: Report

Summary: Microsoft's board wasn't gung-ho on the Steve Ballmer-backed idea of Microsoft purchasing Nokia's handset business, according to a new report.

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Bloomberg BusinessWeek has published a fascinating story on the backroom politics around former CEO Steve Ballmer's retirement as CEO.

nokiadevices

The part of the piece entitled "Microsoft’s Nadella Manages Legacy of Ballmer-Board Split" that I found most interesting is the drama around the decision to buy Nokia's handset business. According to reporter Dina Bass and colleagues, the Microsoft board initially was divided over the wisdom of the move, with Ballmer in favor and founder Bill Gates and unnamed other board members opposed.

Microsoft's current CEO Satya Nadella also was initially against the move, but later changed his mind, the report says.

"The board rejected the first (Nokia) deal as too expensive and complex, including not only the handset division but also a mapping unit Microsoft didn’t need," Bloomberg reported.

Later Ballmer got most of what he wanted, the report claimed, and Nokia's hints of plans to enter the Android phone space may have helped seal the deal. But the damage was done and the rift over Nokia was a key part of the reason Ballmer was encouraged to retire the CEOship earlier than he planned or wanted.

When I interviewed Ballmer about his legacy last November, I asked him whether he still believed Microsoft had made the right move in getting into making hardware, both by building its own Surface tablets and -- once its $7.2 billion purchase of Nokia's handset business is approved -- phones.

Ballmer told me that in spite of OEM pushback, he still was "very enthusiastic" about the decision to get into the hardware business. He said changing industry dynamics meant changing tactics.

While noting that he was not at liberty to discuss the Nokia deal directly because the transaction still had not been approved, here's what Ballmer said when I asked him if he thought the company had done the right thing by getting more deeply into the hardware business, with both Surface and Nokia:

"To say I'm enthusiastic about hardware is almost not the right way to say it. I think that the company has a great strength in software. And we, and particularly in what I would call tools that make people more productive, IT people, developers, and end users. That's where we grew up, tools that make people productive.

"And I might liken this to a newspaper. If you had asked somebody from the Journal what their job was 10 years ago they'd say we put out a newspaper. That wasn't right. What they really do is create high quality editorial and high quality factual news. And they used to express it in a newspaper. Now they express it primarily online.

"Well, we create tools that let people be productive and have serious fun. And users and in some cases IT people and developers, increasingly business, as well, businesses. Nice, okay, we sit here in 2012, 2013, are we a productivity company or are we a software company? Well, what we are is a company that knows how to create great software for productivity and serious fun, but the expression will be through services, and through devices increasingly.

"And maybe it always has been. Nobody ever buys Windows. They buy Windows PCs.

I mean the truth is you could say we've been in the device business ... probably since about the time of Windows '95 -- maybe a virtual device instead of a physical device. But, there's no question Windows defined a class of a device. The problem is in new classes of device it's hard to get leverage simply through the OEM model, whether it's phones or tablets, and so we're doing more first-party hardware than we used to. So yes, but we're trying to express our creativity writing software, particularly software that helps people be productive, communicate, and have serious fun."

With ValueAct's Mason Morfit poised to take a seat on Microsoft's board this month, the tensions around Microsoft's hardware forays may not be over. ValueAct is believed to be in favor of Microsoft focusing on its enterprise and software businesses, rather than on Surface, Xbox and Windows Phone. 

Nadella has said publicly he's onboard with the "One Microsoft" gameplan and believes, as now-board-member Ballmer and Microsoft board chairman John W. Thompson do, that Microsoft needs to be a player in both consumer and enterprise to compete in the evolving industry.

Microsoft execs have said they expect the Nokia transaction to be approved in the first calendar quarter of this year, but I wonder whether alleged Google/Samsung patent concerns may delay Chinese regulators' approval of the transaction beyond that date. Once the deal does go through, as it is still expected to, I'd think Microsoft brass will rush to integrate Nokia's products and new 32,000 employees Microsoft will acquire to try to head off any further board dissension. 

Topics: Steve Ballmer: The Exit Interview, Microsoft, Nokia

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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29 comments
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  • Ballmer's attitude is exactly what we learned

    in the Master's level Strategic Planning course I took. Businesses need to keep on eye on what they really do and pick the options that keep them relevant even when drastic changes occur in the world.
    grayknight
    • results

      however if you look at MSFT's position, going to war with the OEMs as google is courting them to ditch MSFT isn't really a good move.

      MSFT is simply lusting after the Apple profit margins. But no company can pull these off. Apple is truly one of a kind. MSFT should recognize that Apple is a paper tiger and google is the real Bear breathing down its neck with the Android take over of basically the entire windows market followed by the eventual assault on office and server spaces once google rules client computing.
      neonspark
      • You keep saying things like that...

        ... but I don't think you actually understand what you're saying.

        Android is NOT going to take over the PC market. Smartphones and tablets will NOT replace the desktop and notebook.

        That's like saying that sporks and knives will replace spoons and forks.
        ForeverCookie
        • You keep saying things like that...

          Sorry, I disagree. The data of the declining demand of PC proves the shift in hardware needs. Why buy a desktop when you can do everything in the palm of your hand.
          lenalfred DaredDarkurious
          • Or there's a different reason

            Laptops and Desktops are lasting longer, we're in the era of "good enough" computing.
            Michael Alan Goff
        • We don't know who will take over what

          Honestly, who can make predictions like that?

          If the last few years have taught us anything, it is that computer paradigms can change so rapidly that a computer US can entirely retain dominance in its niche... only to see its niche disappear.

          If a time comes when we entirely operate computers by Holodeck-like dictation or Minority Report gesture paradigms (like Siri or Kinect), it may well be the case that the dominant OS of that time period may not even exist yet! (And this is not a long distant time I speak of.)
          Mac_PC_FenceSitter
      • You are right

        There are quite a number of things Nadella is doing that seems great. Like the upcoming stuff I see which will be appearing in Office, and MS beginning to integrate music videos into its Xbox Live music service, leading to a richer and more engaging user experience. But this stuff about making Xbox Live, and in particular Office 365, available everywhere - presumably without limitations, scares the crap out of me. These actions rob Windows / Windows Phone client platforms of much of their uniqueness; and if these platforms are no longer unique, what will be the point of purchasing them by customers, and writing apps for them by developers? Apple became the most valuable company on the planet by providing exceptionally unique experiences across its client platforms. Now Nadella wants to rob Windows of much of its unique attributes? Why does he want to do this? Because some customers ask him? So that many of MS' detractors will think he is a nice guy? I don't understand. Most businesses realize that you accommodate customers up the point where it makes sense. How does seriously undermining MS' most fundamental platform, the platform its customers, enthusiast community, and developers are primarily attached to, going to serve MS' best interest? I can see things now. Office is available on the consumer dominating iOS and Android platforms. Apple and OEMs scramble to come out with their own versions of Surface, 2-in-1s, etc., and start beating their way into the enterprise. Developers begin noticing these platforms initial success, and start writing more and more business apps for iOS and Android. Within 2 years, Apple and Google finally have a beach head in the enterprise, then Windows in the enterprise begin to unravel, as it is being used on dated hardware in businesses, and is being seen more and more as dated and irrelevant. And of course, if Windows client goes, so will its developers, enthusiast community, and much of its customers. Who then will be around to support MS' cloud services?
        P. Douglas
        • This doesn't make any sense

          Amazon doesn't own a client (other than Kindle Fire.) It has the biggest cloud service ecosystem of anyone.

          Dropbox, Box.net, they own no client platform. They're huge.

          Microsoft will obviously want their client platform to succeed for its own sake. But the notion that their cloud platform depends on the client is just silliness, and would be a very insecure position for them to take. Azure, Skype, OneDrive, and the rest of it are strong enough to allow them a lot more confidence than that!
          Mac_PC_FenceSitter
        • And what's with the "Office 365 everywhere scares me" stuff all about?

          That's all coming whether you like it or not. And frankly, it is already substantially here. Office 365 is on the iPhone already, Office is on the Mac, OneNote is on the iPad and the rest is coming, and the web versions of Office 365 are so good you can hardly tell them from the binary applications.

          And yet somehow the sky never fell? How is this?
          Mac_PC_FenceSitter
        • No one brand is bigger than the company

          Windows and Office are both ultimately means to an end--making money for Microsoft so that the shareholders can get a good return on their investment.

          Windows on the desktop has historically been a solid performer, with around 90% of the market. Windows Phone, however, has not been quite so great worldwide. I imagine that plans to expand Xbox Live and Office 365 to other devices are being considered as a "Plan B" in case Windows Phone doesn't reach critical mass, since licenses that can't be used are licenses that can't be sold. There may come a time that tying Office too closely to Windows is maintaining one brand at the expense of potential growth in another, and the opportunity costs of going either way have to be considered for the long-term profitability of Microsoft at large.

          In sports, it's said that no one player is bigger than the team. The same may apply here--no one product is bigger than Microsoft.
          Third of Five
  • I am still puzzled

    Ballmer reorganized/refocused (allegedly) the company including buying Nokia and then was pushed out, leaving his replacement to execute on the Ballmer "vision".

    Ballmers vision has failed, which is why he is gone. Normally a company would let the new CEO develop the new vision/strategy, but MS saddled Nadella with Ballmer's legacy. I do not envy Nadella at all.
    Economister
    • Not so much "gone" as "kicked upstairs"

      He seems to be on the board of directors now. With him on the board, and Gates advising Nadella, I'm kind of curious as to how much is actually going to change by the time all is said and done.
      Third of Five
  • enterprise only MSFT has already proven a failure

    MSFT focused just on the enterprise too much and missed mobile and now mobile is increasingly pushing them out of the enterprise. Tons of business apps are snubbing the windows platform. How long until all the windows platform is good for is as a print server?

    Value Act, simply doesn't get that consumer and enterprise are forever joined at the hip. So I'm glad the rest of the board seems to recognize this, hopefully Overruling a party that is just interested in cashing MSFT out of the game and let it degrade while milking whatever profits they can. This is why wallstreet sharks like Value Act are the death of tech companies. Look at Dell. Barrely made it. And Apple is now tangled in the same mess where investors demand ever increasing short term returns at the expense of long term existence. After all, if you're an investor, you can just walk away anytime and let the corpse of MSFT behind.
    neonspark
  • Interesting peak behind the scenes

    I'm actually not surprised Gates was opposed and the board was divided.

    But all of this strikes me as reflecting a "War on Google" mentality, whereas I think MS should really focus on making and selling great software and not worry so much about the competition. Companies should be alert to what the competition is doing, but Ballmer obsessed about it.
    John L. Ries
  • What?

    Quoting "To say I'm enthusiastic about hardware is almost not the right way to say it."

    Almost? So it butts up against the right/wrong way line, but is found on the "right" side? So, it's the right way?

    And he doesn't tell us the absolute, unequivocal way to say it, but then spins off into a shaggy dog story about how it's really a productivity company.

    The newspaper stuff is a tad off the beam. I expect that other than the Managing Editors and Publisher, no one would say their job was to put out a newspaper, they'd say their job was to write and they worked for a newspaper. Newspapers had a sales staff who were vital to that newspaper's viability; would the sales people say their job was to put out a newspaper? Would Mr. Ballmer shock them when he said "Now you sell for internet distribution... your job is and was to sell ads!" Everyone looks up and those with offices swing doors shut and everyone goes back to calling leads.

    People want to do something and Microsoft sells, whoops, licenses stuff to do it. Productivity (and, and, uh, Serious Recreation, I guess?) or Software company? Software company. Soft-ware com-pa-ny. John Deere sells productivity, but those are tractors. Nepalese mountain guides sell serious fun, and it's not about 1s and 0s.

    When Apple sells an iPhone 5 or Samsung a Galaxy 5 or Nokia a 2520, they are not selling a device. Devices are worthless. More worthless than ideas, because they take up space.

    And, everyone, you'll know I've lost it when I buy something and herald it by saying "I bought productivity." Because I still have to turn it on and I still have to feed it data and information and I still have to figure out what's the end product that has value.
    DannyO_0x98
  • No surprise

    Microsoft should have doubled-down porting their important applications such as Microsoft Office (the expanded version with Outlook, Access, Visio and Project) to iOS and Android from the get-go.

    Microsoft's Signature program, where it partners with OEMs, is a better approach to hardware . Similar to Google's Nexus devices.
    Rabid Howler Monkey
    • Pick your apps wisely

      Some of those wouldn't make any sense. Visio would be useless on a phone, for instance. And you would want to rethink Project into a client server architecture rather than trying to make GANNT charts on a phone.
      Mac_PC_FenceSitter
      • MS Project has had server support for some time now

        That's how many organizations currently manage multiple projects with shared resources (i.e., staff).

        It's also been moved to the Cloud via Office 365:

        http://office.microsoft.com/en-us/project/enterprise-project-portfolio-management-in-the-cloud-project-online-FX103802026.aspx

        I agree wrt smartphones, but tablets, especially larger form factor tablets, would do nicely with these highly graphical apps.
        Rabid Howler Monkey
  • can't buy success

    I think ballmer thought / thinks he could buy his way to success in the mobile market. Keep throwing tons of money at the problem until something works. That may have worked with xbox but the mobile market has much stronger and much better competition than xbox had.
    xcelocity
  • OMG Thank goodness they got rid of the guy

    I liked Ballmer because of his loyalty and upbeat attitude, but this is the second time I am reading about his temper tantrum. Remember reading an alleged rumor he threw a chair at an engineer. Also, he lives in a bubble, the day I saw the iPhone in January 2007, I knew this was a game changer. Ballmer ignored it like it was just fad. I realized at that point he had some idiotic moments going on.
    adacosta38