Satya Nadella just undid Steve Ballmer's last big mistake

Satya Nadella has spent a lot of his first year and a half as Microsoft CEO undoing some mistakes of his predecessor, Steve Ballmer.

Today, he undid the biggest one of all by essentially declaring the acquisition of Nokia’s smartphone business a $US7.6 billion mistake and moving on.

The acquisition was first announced September 2013, one month after Ballmer had announced his retirement, but before Microsoft had figured out who would replace him yet. The deal was contentious inside Microsoft, leading to a shouting match during an internal meeting, according to Bloomberg. Nadella and founder Bill Gates spoke out against the deal, but Ballmer managed to get his way.

They were right. Ballmer was wrong.

Buying Nokia might have been a reasonable move in 2011, when Nokia first abandoned its homegrown platforms and decided to adopt Windows Phone exclusively instead.

But by 2013, it was pretty clear that Windows Phone was an also-ran platform. The Nokia deal did help it cross 10 per cent market share in some European countries by November 2013, according to Kantar Worldpanel, but its overall global market share was still stuck stubbornly below 5 per cent, as it’s been throughout Windows Phone’s entire existence.

That tiny market share meant that developers were slow to build Windows Phone apps, which in turn kept people from buying the phones, which in turn kept developers away, and so on.

There was nothing Microsoft could have gotten from owning Nokia that it didn’t already have from its distribution deal with Nokia.

Plus, it was clear that Nokia’s smartphone business was a disaster — between the time the Nokia deal was signed in Feb 2011 and the acquisition announcement in Sept 2013, Nokia’s global market share of handsets fell from about 25% to less than 5%, according to data from Statista.

In other words, Ballmer convinced Microsoft to drop over $US7 billion on a “declining asset,” as Microsoft’s CFO once described Yahoo after Microsoft walked away from that attempted acquisition in 2008.

Nadella has made a lot of changes at Microsoft in the last year. Some, like shifting focus away from selling on-premises software and to cloud services, started under Ballmer and he should get some credit for them.

But others, like releasing Office apps for the iPad and Android, and publicly embracing platforms like the Mac and Linux (whose open-source model Ballmer once likened to “cancer”) never would have happened under his predecessor.

With today’s move, along with the elimination of other non-core businesses like selling display advertising, Nadella finally sheds the past once and for all and can concentrate on the future. It’s a sad day for the up to 7,800 people — mostly former Nokia employees — who will probably lose their jobs, but it’s the right thing for Microsoft, and shows once again that Nadella is his own leader.

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