Microsoft?s Network of Sinking Ships: Barnes & Noble, Dell, Nokia

By Tom Gara

Say what you will about Microsoft , but the software giant that once dominated the computer industry can?t be accused of deserting sinking ships. Instead, it seems more inclined to plant its flag proudly on their bows.

As the WSJ?s Rolfe Winkler points out in his Heard on the Street column today:

Microsoft keeps hitching its fortunes to lame horses. It shows how rickety parts of the software giant?s business are.

Barnes & Noble Best Buy Nokia Yahoo and Dell all face very difficult circumstances of their own. While Microsoft?s deals with most of them make sense, its relatively unpopular products and a changing competitive environment mean they may not prove particularly fruitful.

Microsoft is still earning good money, as its operating system and software remains the default in the business world. In its most recent quarter, it made $6 billion in profit, up 19%. But in its battle for a piece of the lucrative tech markets of the future ? mobile, tablets, internet services ? it has teamed up with technology players with real troubles of their own. A brief summary of Microsoft?s difficult partnerships:

Barnes & Noble: The book seller recently announced it would give up on making its own tablet computers, choosing instead to find a third-party manufacturer to produce a co-branded product. Nook Media, the Barnes and Noble unit that owns its digital business and college bookstores, still produces a dedicated e-book reader and runs an electronic bookstore. Nook Media as a whole is struggling, and Microsoft owns 17.6% of the business, after investing $300 million in 2012. In May, TechCrunch reported that Microsoft was looking at taking over the digital side of the Nook business.

Yahoo: In 2009, Yahoo gave up on running its own search engine, signing a 10-year deal with Microsoft to use its Bing service across its online properties. Microsoft did the deal to boost the share of searches going through the struggling Bing, getting a 12% share of any search advertising revenue earned by Yahoo. But Bing is still struggling to gain traction, and Yahoo is now under the turnaround leadership of former Googler Marissa Mayer, who reportedly wants to drop the partnership, and likely has a more proven search engine in mind as the replacement.

Dell: With PC sales in freefall, the computer maker is in the process of ?being taken private by a consortium of investors including its founder, and Microsoft has agreed to chip in $2 billion in the process. Why? To stay close to a central player in the Windows PC ecosystem is the obvious answer, but also to keep Windows at the heart of the corporate IT systems that Dell is increasingly focusing on. Michael Dell has said the company needs to make big changes to avoid becoming a casualty of the declining fortunes of the PC industry, and those changes are most likely to happen as a private company, free from the pressure of quarterly earnings releases. Microsoft appears to be on board with that assessment.

Nokia: Since teaming up with Microsoft and its Windows Mobile operating system, the Finnish mobile maker?s fortunes have continued to decline, and the situation is looking grim, with increasing rumors of a buyout or sale of the company?s handset business. Nokia recently spent $2.2 billion billion buying out Siemens from their mobile network equipment joint venture, in another sign of where the company sees its dwindling cash pile best invested. Microsoft?considered buying the Nokia handset business, but stepped away from the deal due to a disagreement over how much it would be willing to pay.

Source: http://blogs.wsj.com/corporate-intelligence/2013/07/08/microsofts-network-of-sinking-ships/?mod=WSJBlog

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