Microsoft buys Nokia’s handset business–the Editorial

I am sure there will be hundreds of editorials written about the Microsoft-Nokia  deal, and here is ours.

Some say the purchase was inevitable as soon as Stephen Elop was appointed more than 2 years ago.  Certainly Nokia throwing their full weight behind Windows Phone demonstrated a relationship which was different in character from the one Microsoft had with HTC, Samsung and LG.

Some say Nokia made the wrong decision and should have gone Android.  We can certainly not say whether the company would have been successful or not – on Android they would have had the advantage of a strong brand name and a OS which would run (badly) on even the lowest-end handsets.

On the other hand the company was not as vertically integrated as Samsung, and it seems likely the ones who could make screens, RAM and processors cheapest of all would win out in the end, meaning going Android would have just delayed the inevitable, and there would not have been any sugardaddy to rescue Nokia in the end.

Nokia did however go Windows Phone and we now know how that turned out – with Nokia’s phone business being transfer wholesale to Microsoft, unexpectedly turning Microsoft into the world’s second largest handset OEM.

We wont go into whether the $7.4 billion was adequate compensation for Nokia’s troubles over the last 2 years, but will note the company also received an additional $2.5 billion over the 30 months the deal has been running.

Looking to the future now, what is the implication of the deal for Windows Phone.

Lets start with the bad:

1. Windows Phone will lose the Nokia brand, which in some regions like Latin America and India has been extremely valuable.  While Lumia is on the ascent, we wonder how many buyers will buy a Microsoft Lumia vs a Nokia Lumia, and wished Microsoft had arranged to use for brand for another 2 years. As it is now Nokia will be available for 10 years for the feature phone brand, and will expire for the smartphone brand with the current set of handsets.

2. Nokia’s attempt to survive as an independent company made them very hungry – we do not know if the company will feel the same competitive urge as a Microsoft division.

3. Nokia pushed Microsoft to be competitive with other handset OEMs, accelerating the implementation of HD screens and Dual-core processors, and more recently 1080P screens, Quadcore processors and Bluetooth Low Energy.  Without Nokia Microsoft’s annual update  time scale would have left Windows phones extremely uncompetitive.

4. The move to low-cost handsets, which also paid off so handsomely for Windows Phone, was also motivated by Nokia pursuing their traditional markets – will Microsoft still understand this need when Nokia is no longer independent?

5. Similarly Nokia did a lot of work software-wise to increase the competitiveness of Windows Phone, including even fixing bugs such as the Other Storage bug, or creating apps Microsoft could not, like the YouTube Uploader.  Will Nokia’s engineers, now working for Microsoft, still have the freedom and motivation to go above and beyond the Windows Phone team’s efforts themselves?  I suspect not.

6. Nokia had a global focus, including Europe and Emerging Markets, while Microsoft is pretty fixated on the US market (see Podcast Support for a pretty bad example of this fact).  Will Microsoft be able to support and nourish a global smartphone ecosystem?

7. In the last quarter other OEMs still contributed more than 1 million Windows Phones.  Will this now dry up?

Of course its not all doom and gloom.  Here’s the good bits.

1. The handset division will no longer be constrained by the profit motive and can, like the Microsoft’s Online Division, lose money in exchange for strategic gain.

2. Much of Nokia’s experienced executives will be joining Microsoft, meaning there will not necessarily be a bumpy transition with knowledge lost. This may even include Stephen Elop becoming the new CEO of Microsoft.

3. By purchasing the division Microsoft is removing inefficiencies from the system, including the $10 royalty payments per handset Nokia had to pay to Microsoft, which means close to a $100 million saving right of the bat. This can be re-invested in creating cheaper or more competitive handsets.

4. Hopefully being part of Microsoft will remove some of the uncertainty surrounding the future of Nokia, and increase the confidence of enterprise purchasers in adopting Windows Phone.

Our readers will notice the list of bad things is longer than the list of good, and this reflects out concern about the deal, which I feel is somewhat premature.  Do our readers share my concerns? Let us know below.

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