Big announcement from Microsoft late Monday night, but not exactly surprising. Microsoft has said it will purchase Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping services for EUR 5.44 billion (roughly US$7.2 billion).
Nokia, which according to IDC is the second largest mobile phone manufacturer in the world (after Samsung) has been struggling for awhile and had been looking for someone to help it out. Microsoft had been in talks previously, but reports in late June said the talks fell apart. Apparently not.
To me, it looks like Microsoft is trying to become more like Apple and Google (remember when it acquired Motorola?) by taking control of the hardware side of its mobile business. And truth to be told, it isn’t a bad idea.
In the few years that Apple has been on the market it has been able to do something that no other vendor has been really able to do. Its hands-on approach to hardware/software has resulted in very high quality products and that has driven it to become the market leader. On the other hand, Google allows anyone to use its Android operating system and you see it available in different flavors across a variety of smartphones and tablets. But in Android’s case, Samsung (the market leader in mobile manufacturing) dominates the space. With such an overwhelming market share Samsung has quite a bit of leverage over Google.
Then you have Microsoft. Microsoft chose to focus on the software side of the business and resell its software through many channels. Unfortunately, it has resulted in the loss of control over the end product. (If you have ever bought a computer from the myriad of far east manufacturers like Asus or Acer, you will find nuisances like bloatware, device driver incompatibilities and an overall uneven experience.) So Microsoft is really at the mercy of any mobile manufacturer to help ensure its software is successful.
According to CNN Money, Nokia made 82% of the Windows Phone devices sold last quarter, even though Microsoft has deals with Samsung, HTC and others. It’s possible that Microsoft could have decided that Nokia is basically to it what Samsung is to Google and it is better to have Nokia in the fold, than have the same situation as Google.
I skimmed Microsoft’s strategic rationale for the acquisition and it makes sense. Aside from the fact that Microsoft does have plenty of money parked overseas (which it says it’s using for this deal), Microsoft sees this as a way to increase market share quickly and help protect Windows Phone’s future. Sales of the new Nokia Lumia Phones are quite good, touting the best camera in the world. I’m not completely sure it makes sense to talk about BlackBerry in their reasoning (Microsoft recently overtook BlackBerry in smartphone sales), considering it made a fatal error that has pretty much doomed it into oblivion, but I’ll let that slide.
Microsoft sees big revenue opportunity in this deal, stating that by 2018, worldwide smartphone shipments are expected to be around 1.7 billion. It sees its share of that market at around 15%, bringing in around US$45 million in revenues. It also believes this is deal with drive down devices and services costs and be a viable alternative to Apple and Google.
The deal has to go through some big hoops to get finalized, but it may just be the thing Microsoft needs to continue to move forward in the mobile market.
#windowsphone #mobile #microsoft #Nokia