Microsoft-RIM Buyout: Messy, Problematic, Costly

Should Microsoft buy Research In Motion?

That question rears its head periodically but it is receiving additional focus after Microsoft CEO Steve Ballmer took the stage during this week’s BlackBerry World conference to announce the latest in a series of partnerships between the two companies.

“While Microsoft will support the top phone platforms with our cloud services,” Ballmer told the audience, “we’re going to invest uniquely in the BlackBerry platform in addition to our own Windows Phone platform.”

Bing Embedded In BlackBerry OS

Bing will become the “preferred” search and maps application for BlackBerry, he added, “with regular feature placement and promotion in the BB App World carousel”. Closer to the end of 2011, the two companies will apparently collaborate to integrate Bing on the BlackBerry operating-system level, making it a core component of RIM’s devices.

Microsoft and RIM have already made a deal to port the former’s cloud services, notably Office 365, onto the Blackberry and the new PlayBook tablet, with RIM’s BlackBerry Servers connecting “cloud to cloud” with Microsoft’s data centres to host Office 365 data on user’s servers.

But Microsoft’s relationship with RIM is not unique in its depth. Microsoft has initiated similarly intensive partnerships with Yahoo and Nokia, with Bing powering backend search for the former and Windows Phone 7 soon to become the smartphone operating system for the latter.

Yahoo Hullabaloo

That is not to say that Microsoft has not made a serious run at a king-sized acquisition before. The company was once willing to pony up $44.6 billion (£27.2bn) for Yahoo, before taking a different approach and inking-in a 10-year deal to backstop the Web portal company’s search. The deal allowed Microsoft to gain many of the benefits of an outright merger at a mere fraction of the cost.

Microsoft took a similar angle with Nokia, signing a deal in which it agreed to pay the manufacturer a billion dollars over five years to manufacture handsets running Windows Phone 7. In exchange, Nokia agreed to pay Microsoft a licensing fee for every copy of Windows Phone 7 installed on a smartphone.

So why purchase RIM if Microsoft can ensure via partnerships that the BlackBerry user base is given full access to its cloud wares?

The Windows Phone Dilemma

There is also another complicating factor in any potential RIM acquisition: Windows Phone 7 itself. Microsoft has devoted enormous development and marketing resources to launching the smartphone platform. Indeed, the company concentrated on creating a user interface unique from the other market leaders, with a consolidation of Web content and applications into subject-specific “Hubs”.

In addition, Microsoft has strictly imposed minimum hardware requirements on its manufacturing partners, who have nonetheless become a little creative with some of the devices and installed extras like speakers and physical QWERTY keyboards.

With that in mind, what would a Microsoft-RIM acquisition even look like? Would BlackBerry devices run Windows Phone 7? Would Microsoft keep the BlackBerry OS, segregating it away from its Windows Phone efforts? How would the company try to sell an acquisition like that to its shareholders, after spending so much political capital on insisting that Windows Phone is the “right” direction? What would happen to the PlayBook?

Stark Differences

In other words, the differences between RIM and Microsoft are so stark, on so many levels, that any outright acquisition would prove not only expensive (even a radically reduced valuation) but also insanely difficult from a logistical perspective. The odds are higher that Microsoft will keep to its partnership strategy, pushing its content via another company’s offerings but not taking the radical step of trying to digest that company whole.

To top it off, the jury is still out as to the possible benefits. Although Nokia holds a substantial portion of the worldwide phone market, the question remains whether porting Windows Phone 7 onto its hardware will translate into significant benefits for Microsoft in terms of market-share. Nokia has been struggling to hold ground against the likes of Google Android and Apple’s iOS, and its ability to hold even its current position is by no means assured.

RIM has been facing a similar assault on its user base and there’s no telling whether longtime BlackBerry users would see a Microsoft acquisition as a betrayal of their brand.

So, should Microsoft buy Research In Motion?

Not unless Ballmer and company like really thorny challenges with questionable benefits.