Nokia: an offer MS couldn't refuse?

Sep 16, 2013

As we said at the time, "the real reason Microsoft stumped up a premium price (yes, $7.2 billion was actually more than the business was worth) was that it had been made clear that a radical move [by Nokia] was in the offing: either a switch in strategy (a move to Android, perhaps), or a sale to another manufacturer (which would probably have come to the same thing).... was a deal that Microsoft just had to make - the alternative was to see Nokia sail off to who knows where crashing completely the tiny market share that all that spend and effort on Windows Phone had finally brought. A Nokia defection would have been unthinkable." (see - Two days, two deals. What do they tell us?)

And now comes the confirmation. The New York Times has the unsurprising news that Nokia had been prepping an Android phone capability as a hedge against continuing Windows non-performance.

"A team within Nokia had Android up and running on the company’s Lumia handsets well before Microsoft and Nokia began negotiating Microsoft’s $7.2 billion acquisition of Nokia’s mobile phone and services business," says the article "according to two people briefed on the effort who declined to be identified because the project was confidential. Microsoft executives were aware of the existence of the project, these people said. "

As the New York Times points out, on one level this is totally unsurprising. In fact it would almost be a dereliction of duty not to fiddle about to see if such a marriage could work. But this was more than a hack to put Android on the Lumia (a trick that's already been accomplished). This was a 'project' and as such its existence was no doubt carefully leaked to key MS execs as a reminder that, by mid next year, Nokia could legally drop the Windows deal and move to Android, should it want to.

For both companies Windows Phone has been a disaster, but for Nokia it has been a huge disaster. It had exchanged a 32 per cent market share in Symbian smartphones for a share of three or four per cent with Windows - it doesn't get more disastrous than that.

And Microsoft? In theory, far from Symbian being just a "burning platform", Nokia's big share and heritage should have been a brand springboard for Lumia. It wasn't.

There are many reasons for this - the biggest being the Windows Phone Catch-22 of having a slim apps library. The best smartphone in the world is a Chocolate Teapot if it doesn't have the app its user wants it to have at any particular moment... as my 14 year old has found out. She bought hers because it was cheap - she's now agitating for an iPhone and I bet that story is being repeated across the globe.

There was and is no sign of this market share improving markedly, no matter what PR marketing patter is trotted out.

So the idea, seemingly held by many in our industry, that the MS purchase of the Nokia handset business, albeit somewhat forced by circumstances, was a solid and considered move that will afford Microsoft and its mobile effort the advantage of close integration between OS, apps and hardware is.... let's just say, "highly unlikely".

Microsoft has built its business on licensing its desktop OS. It desperately wants to extend Windows into the mobile domain so that as applications and content - especially enterprise applications and content - become more cloud-based there will be Windows clients available on all the mobile and fixed platforms to support the MS cloud-vision - that is, applications happily humming away and available through a plethora of different device types. More than this, as mobile becomes more important - dominant even - Microsoft just has to be in there making its influence felt.

Will this objective be furthered if Microsoft decides to 'do an Apple' and align itself to an own-brand hardware strategy? Consider: if the trumpeted high level of integration twixt hard- and software is such a winner, why would any company want to license the technology to compete with the happy couple?

No. The buy was clearly forced upon Microsoft as the least worst option available to it. Now it has to figure out what to do from here.

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