This is the first week back after the Labor Day weekend. Most of us just spent an extended weekend with friends and/or family quietly enjoying the last week of summer. Not so for the management teams at Microsoft and Nokia. Just short of midnight on the night of Labor Day, Microsoft announced its intent to acquire the mobile phone assets of Nokia.
For $7.2 billion, Microsoft will purchase all of Nokia’s devices, services business and license Nokia patents and mapping services. This deal had been rumored for quite some time now, as earlier this year speculation was raised that Microsoft had made a bid to purchase Nokia.
The acquisition is also a blow to Canada-based BlackBerry, as there had been some speculation that the two companies would find a way to work together, with Microsoft possibly acquiring all of BlackBerry. Now BlackBerry seems like the lone small player in a market of giants.
So what exactly does Microsoft get by buying Nokia? Both companies are struggling mightily in the mobile phone space. Windows Phone has less than 5% of the mobile OS share and Nokia has slightly better share than that in the smartphone market. Combining the two companies doesn’t seem like it will create any significant competitive advantage over what is in place today.
I’m sure Microsoft will tout the value of the “integrated platform,” but is that really an advantage? Let’s look at the other integrated platforms on the market today. There’s Apple, so that’s one in the plus column for the integrated hardware and software. Then there was BlackBerry, which had a huge lead on the industry at one time but quickly eroded despite owning both hardware and software assets. And how about Nokia? At one time, the combination of Nokia hardware running the company’s Symbian operating system accounted for just short of 50% of the smartphone market. But that also quickly eroded. Let’s take a look back at Microsoft. The Zune offered some integration with Windows. It’s fair to say that it had no impact on the market. Lastly, there’s the Microsoft Surface tablet - another “integrated” product that had no real market impact.
So now Microsoft will take the Nokia phone business and try to create something game-changing to become a real player in the mobile phone space. Personally, I’ve played with the Nokia Lumia 928, and I have to admit it’s a great phone with a high-quality camera. Windows Phone 8 is the best mobile OS Microsoft has ever had.
However, I also think it’s too late. The brand “Windows” has little appeal to the younger generation, and frankly little appeal to the traditional Microsoft-buying audience. As good as the Lumia is, it’s not so good that it’ll make people move off their Android and iOS platforms.
I think for Microsoft to succeed, it needs to figure out a way of creating some integration across all of its products, such as Surface, Windows Phone, desktop computing, cloud platforms, Skype, Xbox, the list goes on. Consider Apple – a few years ago, I never thought I would be one of those Apple guys, but the ease of integration across MacBook, iPad, iPod and iPhone combined with iCloud makes it iEasy to use.
One interesting point of the acquisition, though, is the role of Stephen Elop, the Microsoft executive-turned-Nokia CEO-turned-Microsoft Business Unit Leader. When Ballmer announced he was stepping down, Elop shot to the top of the draft charts as the next Microsoft CEO. Having him wrapped back into Microsoft certainly makes that easier. I think he would make a good CEO, but I would rather see the company do something edgy, like hire someone like Yahoo’s Marissa Mayer, who would come in and completely change the culture at Microsoft.
In summary, I don’t think the acquisition of Nokia was a bad move. The company used offshore cash, of which it has plenty. I just don’t think it was a game-changing purchase unless Microsoft can solve its larger integration challenges.