Moving Beyond Product Innovation
The much anticipated acquisition of Nokia's mobile phone business by Microsoft is a stellar example of the prediction in my recent book, Innovation Zeitgeist, of the importance of moving beyond narrowly defined product innovation to service and solution innovation.
Basically, smartphones are increasingly similar with differentiation becoming harder to achieve. Motorola's well received launch of its MotoX line is demonstrative of this trend. Mid-range hardware features (i.e. it's not worth competing on screen resolution or processor speed any more) with innovation along the user interface dimension.
By acquiring Nokia's business, Microsoft is doing what many companies do in a highly competitive market, using vertical integration to deal with low margins. Owning two layers in the value chain increases the value capture.
By acquiring Nokia, Microsoft also sends an important signal to those contemplating developing apps for the ecosystem. Microsoft is committing in a big way to its future in mobile devices and attempting to stake a claim to being one of the surviving ecosystems.
From a product perspective, Microsoft's mobile operating system was not growing sufficiently quickly to match Android's growing success or Apple's historical success. Redefining what constitutes a product from an operating system to a complete mobile solution, changes the game in the direction of a solution, rather than a horizontal slice that is part of a solution.
Even more importantly, Microsoft's fundamental strategy is not about mobile devices, rather it is about having a portfolio of capabilities that enable both individual and corporate users to use the device of their choice to interact with the data of their choice without necessarily having to actively manage the movement of data and content. This overarching strategy takes advantage of Microsoft's success in the living room with XBox and in corporations with a wide variety of integrated software. Whether you are using a PC or laptop, an ultrabook or hybrid tablet, smartphone or phablet, Microsoft's goal is to enable a seamless experience.
Microsoft is not the only company pursuing this strategy using the Internet and cloud storage/syncing to simplify users life, but it has a huge number of capabilities it can integrate.