Foley on Microsoft

Why Does Microsoft Keep Partnering with Underdogs?

Microsoft has a lot riding on partnerships with Yahoo!, Nokia and Barnes & Noble. Mary Jo Foley wonders why, and what the impact would be of any of these go under.

There's a largely accurate adage about Microsoft that states 'Softies are at their best when they are -- or at least believe themselves to be -- underdogs.

Examples: It took market share erosion after years of owning of the Windows Web-browsing world to get the Internet Explorer team to finally step up its standards implementation and delivery cadence.

After more than a decade of completely dominating PC OSes, the Windows team got serious about "reimagining" Windows only after Apple began making mindshare and market share inroads with Mac OS and then, more significantly, iOS.

And it took Google Docs nibbling away at the Office productivity-suite monopoly for Microsoft to finally make much-needed moves toward a Web-based Office.

But what happens to the underdog rule when more underdogs are introduced into the equation?

Some Microsoft underdog groups have been forging relationships with underdog companies in those same markets. Back in 2010, the Microsoft Online Services unit entered into a multifaceted and complicated deal with Yahoo! in an attempt to put more of a competitive hurt on Google in search and advertising. In 2011, the Microsoft mobile team allied itself with Nokia in the smartphone space to attempt to bootstrap the Windows Phone platform in an increasingly iPhone- and Android-centric world. Last month, Microsoft formed a pact with Barnes & Noble to take on Amazon in the e-reader and slate space.

The problem for Microsoft is none of these partners has pockets as deep as the 'Softies do. All of them have been skidding financially and are in the midst of implementing salvage plans, simply hoping to keep their companies afloat.

Almost all of Yahoo!'s eggs have been in the search and advertising basket, yet the company is now attempting to refocus and realign as a content company. Nokia, which is all about phones, is rumored to be contemplating a patent sell-off to generate needed operating funds. And Barnes & Noble is separating its digital assets from its brick-and-mortar ones -- and doing a deal with the Android patent nemesis (Microsoft) -- in an attempt to survive in the rapidly shifting book business.

Microsoft made a conscious decision not to purchase any of these underdogs. (It almost made a multibillion-dollar mistake with Yahoo!, but in the end got most of what its executives wanted with its search agreement and continued talent raids.) Instead, Microsoft has opted to prop up these companies with deals that involve investments, royalty payments and other schemes to provide much-needed cash infusions. It's unclear if the 'Softies will need to come back with stronger measures to keep these flailing partners alive.

The real question is what happens to Microsoft's products and plans if any of these underdogs fail. If Yahoo! goes down, can Bing continue to make inroads against Google? If Nokia's phone business falls apart and takes down the whole company, what happens to Windows Phone, which is banking on Nokia providing the hero devices for the Microsoft mobile OS? And if Barnes & Noble's digital Hail Mary falls short, what is Microsoft's answer to the Kindle Fire and other "consumption-focused" tablets going to be?

Maybe Microsoft's plan B in all of these cases is that failure by any of its underdog partners is simply not an option. If so, does that mean Microsoft will end up buying one or more of these vendors -- or at the least, divisions or products from them? Or will Microsoft cut its losses and drop out of search and advertising, smartphones, and tablets and slates?

I really don't know which way the 'Softies will go if and when any of their underdog partners go belly-up. I thought Microsoft was in all of these key new businesses for the long haul, but lately, I'm not so sure.

About the Author

Mary Jo Foley is editor of the ZDNet "All About Microsoft" blog and has been covering Microsoft for about two decades. She has a new book out, Microsoft 2.0 (John Wiley & Sons, May 2008), about what's next for Microsoft in the post-Gates era.

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Reader Comments:

Tue, Jul 17, 2012 ibsteve2u Commonwealth of Pennsylvania

Microsoft is displaying that fast buck now, somebody else can worry about tomorrow attitude that afflicts so much of Corporate America. You see, getting the new relationship with the underdog to WORK isn't where you make your money. Underdogs offers the "synergies" the M&A and other Wall Street types who seized responsibility for innovation and technological leadership away from Corporate America a couple of decades ago are so fond of: According to the theory, you can combine functionality now realized in one, two, or more disparate countries by one, two or more disparate corporations in order to relocate production somewhere where you can hire more hardware/software 'talent' for less money. That immediately puts that margin into the pockets of the esuite and makes those who profit from churning stocks on Wall Street happy....and THAT was the goal....the ONLY goal. Ya see somebody decided that engineers, mathematicians, scientists...the STEM types....are also just "human resources" with no innate talents, drives, or variations in ways of thinking that might lead one set to be more inherently valuable than another set. I suppose you might safely assume that the attitude that only MBAs and whatever else "entrepreneurs" call themselves are who are behind that rumor, given that they are the only people who spread it and are the only people who benefit from it. And it is really simple to conceal the fact that grabbing the underdog and forcing its technology and talent into obsolescence doesn't make anybody but Wall Street and Corporate America's esuites money: You just do it again, and everyone will talk about what you're doing NOW rather than how many times you've blown it in the past, 'cuz the CEOs and MBAs - the "entrepreneurs" who have redefined destruction as success - get to grade their own papers.

Thu, Jun 7, 2012 William Sydney, Australia

You might recall that they propped up Apple too for a few years and made commitments for Office on the Apple desktop. That worked out pretty well for Apple. I am not sure if the stake was a loan or shares, but if it was shares they should have kept them.

Thu, Jun 7, 2012 Thomas

Apart from Yahoo!, there is strong support for these underdogs from key industry actors as well. The mobile operators fear an Apple monopoly or an Apple/Google duopoly, so are keen to see Nokia succeed. This is especially true in Europe, where the mobile operators have formed a consortium to monitor Apple and Google for anti-competitive behaviour, and have a history of strong co-operation with Nokia. In the book/e-book sector, publishers are even more panicked than the mobile operators about an emerging Amazon monopoly.

Wed, Jun 6, 2012 Bob

It keeps partnering with underdogs because it continues to severely underestimate competitors while overestimating its own market position or abilities. That invariably leads to a major competitive loss, which the company typically spends a year or more in denial about. Sometime during year 2 it finally realizes how much trouble it's in and starts anew, which takes all of year 2 and most of year 3. Unfortunately by year 3 it's so far behind that the only people left to partner with are losers, because winners already partnered with those who did the disrupting (Apple and Google). Rinse, repeat.

Mon, Jun 4, 2012 darrenwbaker Seattle

I happen to love the Barnes & Noble Nook line and bought the Nook Color when it first came out. I have a large investment in Nook & ebooks, and want to see it succeed where Borders failed. Amazon has a lot of money behind Kindle and Kindle fire, but cant dominate the market itself. I'm glad to see Microsoft put some money behind B&N to help speed up Nook development (running Windows 8 instead of android), or at least a Nook app for Windows 8.

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