Microsoft and Amazon are battling to become the number three player in the smartphone market (I can’t see Samsung nor Apple losing their top positions anytime soon). It is interesting to compare how these two Seattle tech giants decided to enter the market, from a marketing, business and financial perspective.
Microsoft, despite having hardware manufacturing expertise with Xbox, Surface, keyboards and mice, decided that they wanted to acquire market share and expertise, hence their Nokia acquisition (I still think that they should have gone after BlackBerry….). But the total cost is at least $13-15 Billion, including the purchase price of $7 Billion, $1.5 Billion in layoffs (you buy a company just to fire 50% of the workforce?), $3 Billion in annual and on-going operating losses, with no profitability expected in the short-term, not to mention other expenses that are harder to isolate/quantify. I guess with more than $50+ Billion in the bank, you can make big bets. And it is rumored that Microsoft spent this much for Nokia’s patents, just as it cost Google $10 Billion for Motorola’s intellectual property.
While Microsoft does promote OneDrive and automatic cloud backup of all photos with its Smartphones (nice touch but the same feature is available on Apple and Android), I am surprised at the lack of explicit and tight integration with Skype, XBOX and Bing. It is there, but you have to look for it and don’t hear much about it.
Amazon took a much different approach, in two main areas. First, they decided to build their own device and avoided billions in acquisition costs, given their Kindle hardware experience. Second, they strategically integrated the phone with their core retail and growing video/music business, through the Firefly technology (no wonder that Best Buy is struggling) and one-year of Amazon Prime, including free content and shipping. These marketing expenditures are a lot easier to justify when you don’t have to buy another company.
Both companies are admittedly struggling in the US market but this a long-term battle, with tremendous strategic importance. While there are questions/concerns about Microsoft’s approach – much bigger, riskier and expensive – this is just the first inning.