Microsoft & Failures of Self-Perception

I’m a few days late on this, but somewhat bemused about the news that Microsoft is buying Nokia.  Completely aside from the predictably bitchy and snarky tech-press reactions, it still doesn’t quite make sense on fundamental grounds.  Yglesias cites Ballmer claiming the main benefit will be “shorter names”, which is ridiculous but gets at the non-ridiculous underlying reason.

Ronald Coase (recently passed) pointed out that vertical integration makes sense when certain transactions are more efficiently handled in a non-market manner versus done by negotiation.  So M&A makes sense when one company can do things more efficiently than two; it might be making a better product, it might be selling product more effectively, and it might be centralizing back-office functions and saving money through economies of scale.

However, only one of those reasons seems to apply to MSFT-NOK.  There probably aren’t major cost savings on the horizon – I don’t know Finnish labor law, but mass layoffs are almost certainly harder than in America.  As for products…their joint products, the Windows phones, are already fantastic products.  A bit bulky, but high-powered, beautiful, and a pleasure to use.  So we get at the major remaining reason, which is to sell product more effectively.  The “shorter names” Ballmer mentioned is part of that, and points at the real reason: Microsoft executives believe that their superior marketing will unlock value that Nokia can’t realize today.

Microsoft has many strengths, but marketing fun stuff to consumers isn’t one of them.

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