Wither Microsoft?

By Mark Roberti

The tech giant has shed Nokia's handset business, but is the company ready to make a bet that could transform its future?

When Microsoft purchased Nokia's mobile-phone handset business for $7.2 billion in September 2013, I told friends and business associates that it would "go down in history as possibly the stupidest business decision of all time." I was exaggerating—slightly—of course, but less than two years later, Microsoft's new CEO, Satya Nadella, has decided to write off the investment completely. The financial charge led the tech giant to announce a loss of $2 billion for the quarter that ended on June 30.

I thought the decision to invest in Nokia hardware was a mistake because the mobile-phone market already has a gorilla (Apple's iPhone) and a lot of chimps (the many companies that make Android-based cell phones). The chances of Microsoft taking that market away from these established players were slim to none. (The terms "gorilla" and "chimps" were coined by Geoffrey Moore, the author of Crossing the Chasm and other notable books about technology adoption.)

Nadella is clearly a very intelligent CEO and has done a great job running Microsoft so far. He is making the right moves because he is focusing on the future and not the past. He's investing in Microsoft's cloud-computing business, for example, while not trying to compete with Apple in the mobile-phone market.

But to be a truly transformational CEO, one must bet on a new market and create a new category. Steve Jobs did that with the personal computer, the MP3 player, the smartphone and the tablet. Microsoft hasn't been able to do the same thing, but Nadella has an opportunity with RFID, which could be transformational for his company.

It's true that Oracle, SAP and other software businesses could also win big by betting on RFID. But those firms are doing well in the business software market, while Microsoft is getting squeezed in the personal computer space by the switch to mobile devices. And Microsoft, in my view, is in the best position to become the gorilla in RFID software. It has software that can run on fixed and handheld readers. It has middleware—BizTalk Server—that can be the platform for RFID applications to run on. And it has the cloud infrastructure—Azure—to make RFID data available anywhere, anytime.

It is difficult to understand why Microsoft would not make such a bet. It could invest $100 million during the next two years—an enormous sum by the RFID industry's standards—to create and promote this platform. If RFID doesn't take off, this write-off would be negligible. Wall Street wouldn't notice it. But if the technology does take off and Microsoft emerges as the platform for readers, edge servers and the cloud, the revenue potential is enormous.

Perhaps Nadella has identified RFID as a big part of Microsoft's future and a skunkworks team is already developing the platform, but I doubt it. Jobs is the only CEO in my lifetime who was consistently willing to make big bets on unproven markets. What I expect will happen is that after RFID starts to really show potential, the tech giants will jump in. They will buy existing software players and then battle for market dominance. That's the expensive way to go, however, because once a market is growing rapidly, you have to overpay for acquisitions that provide access to it (since everyone is bidding for those companies) and you then need to advertise like crazy in order to beat your competitors.

It will be interesting to watch how things play out. Twenty years ago, I could have purchased Apple stock for $10 a share. The company was dying. Its vaunted operating system had become slow, bloated and full of bugs. No one was writing software for the Mac. Then Jobs turned the company around—with incremental products at first (the iMac), and then with transformational products. I'm hoping Nadella can do the same for Microsoft.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.