Please ensure Javascript is enabled for purposes of website accessibility

Microsoft's New Balancing Act

By Travis Hoium - Sep 4, 2013 at 9:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now that Microsoft will be making smartphones and tablets, it puts the company in direct competition with its own customers.

Now that Microsoft (MSFT 1.70%) has agreed to acquire Nokia's (NOK 0.00%) device business, the company can't dance around the fact that it makes devices that compete directly with the customers it's trying to sell Windows 8 to. Mobile versions of Windows 8 are used by Acer, ASUS, and Dell in tablets and Samsung and HTC in smartphones, creating a conflict of interest for Microsoft following this Nokia acquisition.

It's possible that buying Nokia's device business will be genius in the end for Microsoft, but it undoubtedly creates a balancing act for management.

Is Microsoft isolating itself?
Microsoft hasn't exactly had a welcome reception from device makers for mobile versions of Windows 8. Google's Android is still the operating system of choice, accounting for 79% of all smartphones and 62.6% of all tablets sold in the second quarter, according to IDC. What we may be able to read into Microsoft's Nokia acquisition is that it's willing to eschew its normal partners in PCs and go it alone in developing smartphones and tablets. It's a strategy that's worked well for Apple, and Microsoft had to buy some of the expertise to catch up.

But Microsoft runs the risk of isolating itself by competing directly with its customers, even though Nokia was by far its largest smartphone customer, selling 80% of the phones running the Windows Phone OS. Will Samsung or HTC really put a lot of effort into the next Windows smartphone when Microsoft is putting all its efforts into Nokia? Will new partners even bother to come aboard if the deal takes off? 

In smartphones, an isolated Microsoft may not be a bad thing. But when you begin talking about PCs and convertibles, there's real risk in Microsoft's strategy. Acer, ASUS, Dell, and Samsung all make PCs and convertible devices that run Windows 8, and having to deal with Microsoft itself as a competitor has to be a bit troubling. Investors will need to watch how Microsoft positions itself over the next year or two because expansion into tablets beyond a weak Surface could be seen as a threat and make device makers look to Google or elsewhere for an operating system.

The future of Microsoft
On his way out the door, Steve Ballmer definitely set up Microsoft to go hard after the hardware space to create a "devices and services" company. For a company that's always partnered with others to build the actual hardware, that's a risky proposition, especially this late in the mobile game. Only time will tell if Microsoft-Nokia is a genius move that can put Microsoft on par with Apple, or another disastrous acquisition for the tech giant.

Fool contributor Travis Hoium owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
$291.91 (1.70%) $4.89
Nokia Corporation Stock Quote
Nokia Corporation
$5.21 (0.00%) $0.00
Alphabet Inc. Stock Quote
Alphabet Inc.
$121.68 (2.39%) $2.84
Apple Inc. Stock Quote
Apple Inc.
$172.10 (2.14%) $3.61
Dell Technologies Inc. Stock Quote
Dell Technologies Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.