MICROSOFT'S ACQUISITION OF NOKIA AND LINKEDIN IN BRIEF

As a business analyst it is always interesting to put your argument on the table pertaining to business decisions made by corporates. Please read the complete article before arriving upon any conclusion. This is pertaining to acquisitions done by Microsoft in the past few years - Acquisition of NOKIA and LINKEDIN

Acquisition has two meanings as a noun :
A. An asset or object obtained or bought by a museum
B. A purchase of one company by another

1.NOKIA'S FALL AND ITS ACQUISITION 

If you are feeling that meaning of A is making more sense in the case of Nokia's acquisition then you are right. Nokia innovation in hardware technology was not cascaded to its software side.
Stephen Elop became the CEO of Nokia in the 3rd quarter of 2010 and it all started with him and the then outgoing Nokia devices' head Anssi Vanjoki. When Nokia was stuck with a rigid Symbian OS which was making it difficult for developers to develop apps, it should have taken any one of these decisions :

- It should have looked inward and ideally gone ahead with the development and support of its linux
  based Mobile OS MeeGo operating system at least before it decided to rely fully on Windows
  Mobile OS. It was one of the first Mobile OS to work completely on swipe gestures without the
  need of a back-forward-home button. If you want to know more about MeeGo then check out for
  Nokia N9 videos on Youtube. Unfortunately it didn't go for this option. MeeGo development team
  later broke off from Nokia to commence their startup SAILFISH

- It could have looked outward and experimented with both Windows Phone OS and Android OS by
  launching a flagship device and a mid range device which runs both the OS similar to what
  Samsung did. This would have helped Nokia dump Windows OS for Android OS and this would
  have also helped them sustain their market share and develop their MeeGo OS simultaneously.
  This was a similar strategy that Samsung adopted, it used Symbian , then developed its own OS
  named TIZEN but it was not able to catch up. This made it switch to Android OS and it was a
  success but it still experimented with its TIZEN OS with lower end phones and now it has
  resurfaced again in the form of Watch OS for samsung Gear S2 in 2015. This shows the resilience of
  Samsung which is one of the key reasons it was able to penetrate the smartphone market.

The Fall of Nokia came in the form of :
- Bad support from Microsoft for Windows phone OS like a stab in the back
- Stephen Elop's biased decision making having his roots from Microsoft
- Steve Balmer's decision to acquire Nokia without having a solid mobile device line up ready

Microsoft eventually acquired Nokia to keep its Windows Phone OS alive by spending 7.6 Billion dollars in 2013 just to write it off as 8 Billion dollars in 2015 from its books as an acceptance of failure. The immense brand value and supply chain expertise which Nokia carried, all that was required was one elegant flagship mobile device, a tab and a couple of mid range devices. But Microsoft was not able to do that, it also lost the Nokia fans' trust once it changed the branding to Microsoft on its devices.
The biased decision making of Stephen Elop and the ego of Anssi Vanjoki (the Nokia devices head from whom Stephen Elop took over in 2010) brought Nokia to its knees by 2013 and Nokia's mobile phone story ended right there never to be sung again - for now.
Samsung and Apple only facilitated the death of 'Nokia devices' as it was already dying due to bad management decisions and internal rift. The below chart depicts the drop in Nokia devices market share.

Credit : Business Insider

This story reminds me of : Bears can only relish the honey from the Honey comb by breaking it, they can never make one. Honey bees though being robbed of their honey are resilient enough to build a new colony all over again. I am sure Nokia will be back into devices business post 2017 learning from their past mistakes and enjoy the success they once did.

2. ACQUISITION OF LINKEDIN

This story is a quite different one. Yes the price tag is mind boggling but the benefits what Microsoft might be potentially looking at will be as below :
- LinkedIn is a place having more actual data than any other online social place in the world for we will not publish false information to a large extent unlike what we might be willing to do in Facebook to seek attention of friends and family. So this amounts to huge amount of reliable data about real people from LinkedIn
- LinkedIn data can be integrated into cloud services of Microsoft such as Skype, Skype for Business
- Microsoft being more of a professional friendly solution provider unlike Apple which is more Creative Friendly, LinkedIn data will be apt to help Microsoft adapt to market trends and even get leads to sell their cloud based solutions, don't be baffled if you start seeing more of Microsoft sponsored adds on linkedIn
- LinkedIn data can be used in Microsoft CRM and ERP solution. Imagine a vendor portal and a customer portal in your ERP which can give you factual information from their LinkedIn profiles, advice you on potential customers and leads for your products. LinkedIn already has its own CRM product - LinkedIn Sales Navigator
- Imagine Cortana educating you about your invitees for a meeting and their professional links in your circle before you commence the meeting
- The potential to use all the above information to enhance machine learning and develop a more sophisticated artificial intelligence to help organisations and individuals on decision making is huge; Microsoft can pioneer this niche market by building a cloud based AI for its subscribers. Tay is an AI chat bot which Microsoft is developing and testing.
In this acquisition Option B looks more relevant.
It is a good deal but the humongous price tag of 26 billion dollars can be justified only if the synergy of Microsoft's professional solutions and LinkedIn's professional reach cum data is put to the right use.

BUSINESS INTEGRATION STRATEGY

Business Integration is a strategy of expanding a companies profile into manufacturing or retailing based on company's current portfolio. There are a few integration strategies which we will discuss in this topic as mentioned below :

1. Forward Vertical Integration
2. Backward Vertical Integration
3. Horizontal Integration

FORWARD VERTICAL INTEGRATION

This can be defined as a business strategy that involves forward integration where in the company expands into direct distribution and sales of its products. An equipment manufacturer wants to retail their products through their branded stores instead of giving them to a third party retailer is a good example for forward integration.
A manufacturer would take this strategy for the below benefits :
- Have complete control on inventory movement from manufacturing to retailing
- Increase profit margins
- Pass on the benefits of portion of the retailer margin to end customers by retailing goods on competitive price
- Remove middle men to improve supply chain efficiency
- To gain better control on market and product segment
- To improve customer experience
- To better understand and fulfil customer needs

This is very effective in retail when manufacturer wants to open Category Killer stores.
Please refer to blog on Types of stores to understand category killers

BACKWARD VERTICAL INTEGRATION

This can be defined as a business strategy that involves backward integration where in the an organisation expands into manufacturing of its goods. A retailer wants to manufacture their products is a good example for backward vertical integration.
A retailer would take this strategy for the below benefits :
- Cut on additional margin cost levied by the manufacturer
- Improve the quality of the products
- Improve control on supply chain and timely supply of goods
- Become more competitive in the respective product segment
- Gain better control at times of higher demand for products in market
- Ensure hindrance free supply at times of shortage of component parts or raw material

HORIZONTAL INTEGRATION

This can be defined as a business strategy that involves expansion of business by acquiring other players in the same or similar field or discipline. A company acquires huge stakes in a competitor's company or takes over the competitor's company for the below benefits is known as horizontal integration :
- Increase the market share
- Enter new market
- Create a monopoly
- Gain better control over the product segment
But this strategy is quite risky for both the organisation and the consumers. A successfully monopoly could lead to disaster because of increase in product pricing and lack of competitors to stimulate innovation in the product line. If the take over transition has frictions leading to loss of talents and resources, this can cause huge damage and financial loss to the parent organisation.