Microsoft Should Hire Vestberg, Dump Nokia
Ericsson chief executive Hans Vestberg is an intriguing candidate for the top job at Microsoft: His actions and strategic beliefs so far have been almost the exact opposite of the outgoing Redmond CEO's.
Steve Ballmer wants Microsoft to be a "devices and services" company. To that end, he pushed through, among other things, two major acquisitions in Vestberg's home region: Swedish-founded Skype and Finnish-based Nokia's mobile handset business. Ericsson, the only company for which Vestberg ever worked, fit Ballmer's definition as early as the 19th century: It made its first telephone in 1878, and soon expanded into running telephone networks -- the services part of its early business. It was during Vestberg's tenure as chief executive that the company got rid of the devices component. In late 2011, Sony agreed to buy out Ericsson's part of the companies' mobile handset-making business.
In Vestberg's view, making phones was no longer an Ericsson core competence: He wanted the company to concentrate on making mobile network equipment and managing networks."You couldn't sell a network without having a handset, but now that has changed," he told Financial Times last year.
Vestberg believed Sony would do a better job making smartphones because it had access to plenty of content that could be delivered to them. "They have TVs, they have film, movies and music," he explained to ce.org. The main reason for the divestment, however, was that Ericsson, and then Sony Ericsson, handsets were not doing well in the marketplace. "When you start losing market share it's tough to gain it back," Vestberg said. Despite the emotional pain of giving up one of the company's oldest lines of business, it was a necessary decision. Ericsson shares now trade about 10 percent higher than at the time of the Sony announcement. The Japanese manufacturer, in turn, is still struggling in the mobile handset business with just a 2 percent share of the general market and 3.7 percent of smartphone shipments.
Microsoft acquired Nokia's handset business while the latter was rapidly losing market share, going down from about 36 percent in 2008 to 14 percent last year. As Vestberg pointed out, returning to growth is tough. In the smartphone market, Nokia is growing, but slowly and painfully, from 2.9 percent in late 2012 to 3.4 percent a year later. In this critical market, Nokia is doing worse than Ericsson's former joint venture. Where Vestberg saw the need to divest, Ballmer was willing to spend $7.4 billion on a major acquisition.
Vestberg is a great believer in the Internet of Everything, an interconnected world in which objects communicate with people and with each other over wireless networks. The chief executive sees Ericsson's role in this revolution as the ultimate, "device-agnostic" infrastructure provider. "We do the infrastructure with all of the gadget things," he told ce.org. Microsoft had similar ambitions when it dominated the PC industry, but times have changed, and Vestberg's vision is as far from Ballmer's end customer-oriented plans for the company as it can get.
If Vestberg is selected as Ballmer's successor, he won't necessarily stick to the vision he has advocated at Ericsson. Yet working with corporate customers is his forte: Ericsson, for example, is the number one supplier of equipment for the U.S. LTE networks. The Redmond company, for its part, has been doling better in B2B than in B2C lately, the share of revenue generated by the commercial segment increasing to 58.6 percent in 2013 from 56.2 percent the year before. One can easily imagine a Vestberg-led Microsoft playing to its strengths.
While the matter of succession at Microsoft is far from decided, Vestberg's presence on the short list opens up the possibility of a decisive break with Ballmer's costly and risky strategy of trying to win on the consumer market, now dominated by the company's rivals such as Google and Apple. A more corporate-oriented Microsoft could perform better for its shareholders, as a corporate-oriented Ericsson has done.
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Leonid Bershidsky at email@example.com