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What If Elop Becomes Microsoft's Next CEO?

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Microsoft ’s stock surged 7% on news of CEO Steve Ballmer’s retirement, then immediately gave up 6% on news of the $7.2B acquisition of Nokia .  Critics describe the transaction as the “Merger of Losers” citing both companies’ smartphone market share of roughly 3%.   But what if Stephen Elop is chosen as the next one to lead Microsoft?  (Disclosure: I hold long equity positions in Apple and Google, mentioned in this article.)

Generally speaking, most large companies ask top potential employees to take on different functional roles within a company to gain broad experience.  Elop just completed a three-year stint as Nokia CEO.  What could be more important to Microsoft at this juncture than mobile?

Prior to Elop’s arrival at Nokia, the previously largest cell phone maker in the world was struggling with smartphones.  Under his stewardship, Nokia introduced the Lumia 800, an impressive smartphone with a terrific user interface, alluring form factor, and a much-improved Windows operating system that gave Nokia a spark of life in the smartphone race.  Despite the Lumia’s praise, it still was priced like an Apple iPhone or Samsung Galaxy, not giving consumers much of an incentive to switch, and it fell short in the app numbers war against iOS and Android.  Nonetheless, the Lumia illustrated a very important point in support of a Elop-led Nokia:  Lumia showed that Nokia could design a smartphone that created real interest in the market and was compared in the same ball park as iPhones and Galaxys.

For Elop, prior to his tenure at Nokia, he was President of Microsoft Business Division, including the cash-cow Office suite of products.  And prior to that, Elop was CEO of Macromedia, the software and Flash developer acquired by Adobe (where he became head of Worldwide Field Operations post-acquisition) and  and COO of Juniper Networks.   If one were playing Bingo with Elop’s background, one could could cover Consumer, Enterprise, Mobile, Networking and Web Developent making Elop’s background very solid and comprehensive for the next battle round in mobile technology.

Would Elop be able to make the Microsoft-Nokia combination stronger than a “Merger of Losers”?  Naysayers would cite the dominant market share of Android plus iOS calling it a two-entrant horse race, particularly given the relative lack of mobile apps in the Microsoft-Nokia ecosystem.

On the other hand, it is probably worth mentioning that of the hundreds of thousands of apps available on Android or iOS, really only a handful dominates the user experience.  So while apps do matter for smartphones users, it is more that a smartphone offer certain apps as opposed to the greatest quantity of apps.

Naysayers would also site the entrenchment of iOS or Android ecosystems, meaning if one has an Apple tv, iMac, and iPad, it is hard to switch away from an iPhone.  And, likewise for the Google Play, Drive, etc for the Android ecosystem.  Microsoft-Nokia benefits from the two-entrant horse race here.  Both Apple and Google are working so very hard to break down the switching costs between the smartphones and making some integration with the rest of the ecosystem less painful.  The more they each break down these barriers, the greater opening they provide for another contender.

On the positive, Microsoft has been dedicating resources to a retail strategy.  And the stores are very nice.  As mentioned before, they resemble Apple stores.  And, one cannot forget about the opportunity of leveraging the installed base of Microsoft Office users – an age-old discussion point that still has merit.

Elop at the helm could make enormous sense for Microsoft, as he knows the strengths, weaknesses, assets and liabilities of both companies. Two years ago, Elop issued the "burning platform" memo to employees acknowledging the challenges ahead at Nokia.  The same could be applied to Microsoft.  And while it is hard work to revive a previously-market dominant company(ies) by turning the battleship around, we have seen such effectiveness before in technology:  IBM.  Putting up Elop as CEO could be the most strategic pick and one that could make the Microsoft-Nokia story very exciting to investors.  For proof, just look at Yahoo’s performance since Marissa Meyer became CEO.