A few friends have asked what i think of the speculation about Microsoft buying RIM. It is certainly an interesting proposition. Let me offer a few pros and cons. Keep in mind that RIMM is a company built of three main areas: an operating system and software stack, device design and manufacturing, managed service operations (NOC).
Why it could happen:
- At current value, RIMM is cheap, at least compared to what it was worth six or twelve years ago. Not a lot of money.
- Microsoft is a very competitive organization. Steve Ballmer is hyper-competitive. To an extent, you could say Microsoft is obsessed with winning. They hire type-A persona lites, they like to win. Not being able to beat RIM hurts. Buying your competition is not exactly beating your competition but it eliminates the competition.
- Microsoft would instantly have a much larger share of the smartphone market and would have a better chance at driving consolidation in a crowded space (iPhone, Windows Mobile, BlackBerry, Symbian, Android, Access PalmOS, OpenMoko, etc.)
- Microsoft would gain some unique hardware design and usability skills that the company could use.
- Microsoft is already in the device business. A similar thing happened in the music player business: Microsoft tried a partner-based approach by licensing Windows Media to creative, Sony and other electronic manufacturers and when it became evident the strategy was not working the company launched its own device, the Zune, while maintaining the licensing model for Windows Media, DRM and the player platform. Microsoft has proven it can be good at consumer electronics and hardware with the XBox and with the keyboard and mice business. With the acquisition of Danger Microsoft is already in the smartphone hardware business.
- Sure, the platform is incompatible – so what? It did not stop Microsoft from buying Danger. DataViz offers a J2ME ActiveSync client that could sit on top of the Danger and the BlackBerry to get both platforms connecting directly to Exchange servers.
Why it will not happen:
- There is no glory in buying the competition. Microsoft could not never say they beat RIM, they don’t “win”. The acquisition would build upon the bully/monopolistic image of Microsoft rather than the innovator image they are trying to build.
- The technology is incompatible. BlackBerries are built on a proprietary OS with Java on top. To make it work, Microsoft would have to migrate the entire software stack to Windows Mobile and .Net which would take a lot of time, take a lot of resources and skeptics would say in the process Microsoft would kill all the goodness of the BlackBerry platform. Not because of this goodness is tied in any way to Java or because of lack of capabilities in Windows Mobile (in fact, I believe the Windows Mobile architecture, developer platform and tools are an order of magnitude better), simply because porting a full smartphone stack while leaving it intact from a customer experience perspective is pretty much impossible.
- Microsoft would become a hardware manufacturer becoming a competitor to all the 45+ Windows Mobile licensees and pushing them to accelerate their Android/Linux investments. Alienating your partners is not a good business practice.
- Microsoft is not very good at building devices – XBox succeeded because it is a separate division with its own culture and in a different market. The Zune has not yet failed to capture a significant share of the market (even though it is a great product, I love mine). Hardware design is not one of the core competencies at Microsoft.
- Microsoft has been touting the inefficiencies of a NOC, which I agree on. The iPhone, palm OS devices, Sony Ericsson, Nokia and other players licensing ActiveSync signal the death of middleware. It would be difficult for Microsoft to justify a platform based on a NOC model.
- The culture is too different. The business model is too different. RIM’s model is fundamentally to please the wireless carriers, give carriers control (with the NOC) and support the carriers as the main channel in selling devices plus service. The Microsoft model is about giving IT organizations control, less middleware, and about partnering with multiple device manufacturers. RIM’s strategy is about controlling the user experience with a proprietary platform end to end while Microsoft’s strategy is to provide a platform on top of which device manufacturer partners, software developers, and carriers can innovate.
Let me clarify that while I used to work at Microsoft in the Windows Mobile team, I have no insight about these discussions at Microsoft. These are conversations that would happen a level or two above where I was.
My guess is that it won’t happen. But who knows? this is what makes the industry so interesting, anything could happen. Especially in this economic climate. It is reasonable to expect smaller, underfunded and companies who have lost significant market cap to be acquired by the big guns. Isn’ t it amazing that Microsoft could buy GM (at current market cap of $2.6B) with the equivalent of roughly two months of profits?