Technologizer

My First Nine Questions About Microsoft’s Nokia Acquisition

What does it mean for Microsoft? For Google and Apple? And -- most important -- for consumers?

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Simon Dawson / Bloomberg / Getty Images

Nokia CEO Stephen Elop (left) and Microsoft CEO Steve Balmer shake hands at the announcement of the companies' strategic partnership on February 11, 2011

In theory, all the interesting questions about the notion of Microsoft buying Nokia’s phone and services business should have been asked a long time ago. Still, the news that the long-standing rumor is going to become a $7.14 billion reality makes its potential impact far more tangible, which gives the questions an urgency they never had before. This is happening, folks.

A few hours after the news broke, here are some of the things I’m wondering about…

1. What will the phones be like?

Microsoft already makes a good smartphone operating system. Nokia makes nice hardware. And the combination of the two has been quite pleasant. But its impact on the smartphone business, dominated by iPhones and Samsung Galaxy handsets, has been modest. If the phones the merged operation produces are pretty much like the ones the two companies would have come up with if they’d stayed independent, there’s no reason to think they’d have a radically different profile in the market. Microsoft needs to make phones that large numbers of typical consumers choose over the big players, and that means they can’t just be slightly improved versions of Nokia’s current models.

2. How will Microsoft software people and Microsoft hardware people work together?

On the surface, this acquisition looks very much like Google’s 2012 acquisition of Motorola Mobility — another case of a smartphone operating-system company buying a phone maker while continuing to license its OS to other companies. Google operates Motorola as a stand-alone division and says that its employees aren’t any more plugged into Google’s Android development than those at Samsung, HTC or other makers of Android devices. In a blog post about the Nokia deal, Terry Myerson, Microsoft’s new operating-system honcho, seems to promise something similar: “We collaborate with our Microsoft hardware teams in the same way we partner with our external hardware partners: we discreetly discuss technical and business opportunities, make shared bets, empower each other to do great work, and then operate closely together to delight our shared customers.” But I hope he’s not saying that the Windows Phone software developers and Windows Phone hardware designers will be siloed off from each other. Aren’t they far more likely to make great phones if they operate as one big team?

3. What happens to other Windows Phone makers?

Even now, pre-merger, Nokia sells close to nine out of ten Windows Phones. That means that the other models — from Samsung, HTC and Huawei — haven’t exactly been blockbusters. Even if Microsoft sincerely wants to continue to work with third-party hardware makers, will they want to collaborate with a Microsoft that’s also competing with them? It might not seem worth the effort.

4. What does this mean for Surface?

Xbox aside, Microsoft’s most newsworthy attempt to put its own software on its own hardware to date has been its Surface tablets. Its poorly-selling Surface tablets.  With rumors already flying that Nokia is readying a Windows RT tablet, will Microsoft turn over all of its computing hardware efforts to its ex-Nokia operation, or continue to manage Surface as a stand-alone business?

5. What does this mean for PCs more generally?

Even if Microsoft’s own Windows Phones are a smashing success, they won’t solve all of the company’s problems or clarify every aspect of its future. Actually, it’s even more important that it figure out how to restore the ailing PC industry to health, thereby assuring that its massive profits from licensing Windows don’t dwindle away. Will the company stick with its current strategy, which involves trying to make Windows 8.x palatable, mostly on machines manufactured by other companies, but with a smattering of Microsoft-branded Surface devices? Or will it adopt a strategy more like the one we now know it’s taking with phones, emphasizing Microsoft-branded devices over others, thereby prompting companies such as HP to take Android more seriously? (And hey, is there a chance that Microsoft could end up buying a PC manufacturer?)

6. What does this mean to Google and Android?

In a dense PowerPoint deck on the deal, Microsoft says that it’s doing it, in part, to help it be more competitive with Android. But it seems to me that it’s at least possible that this will help Android, not hurt it. The more time Microsoft spends making its own phones rather than aggressively trying to license Windows Phone to other manufacturers, the less of a real alternative most phone makers have to Android. It could encourage even more industry-wide dependency on Google.

7. What does this mean to Apple?

Probably not a whole lot, initially — Apple’s arch-rival in the phone business will remain Samsung. But unless BlackBerry pulls off one miraculous turnaround, Microsoft will be the Apple competitor with the most Apple-like approach to the smartphone market — its own software and its own services on its own hardware.

8. Does this end Microsoft’s CEO search?

When Steve Ballmer announced his retirement a week and a half ago, he said Microsoft might take a year to find his replacement. But former Microsoft executive Stephen Elop, who became Nokia’s CEO, is returning to Microsoft to head up its device business, and the Twitterati, at least, seem to be assuming that he’ll be named Microsoft’s CEO. If so, it would be a good idea to make that happen quickly rather than let the search process and general air of uncertainty continue on.

And I have one final, overarching question:

9. Is there any reason to think this will work?

I’m not predicting disaster. It would be fun if it led to a golden age of Windows smartphones, and good for consumers. But I can’t think of any past examples of anything similar happening and turning out well. (Let’s not even bring up HP’s acquisition of Palm. Oops! Just did.) In the tech industry, mergers don’t have a great track record, period. And mergers of companies in weak positions have no history of being game-changers, with one legendary exception: Apple buying Steve Jobs’ NeXT.

Then again, this deal doesn’t necessarily need to change everything to be worth a try. Microsoft has plenty of cash, and the cash it’s paying Nokia consists of overseas profits it wouldn’t otherwise bring home to the U.S. for tax reasons. Windows Phone is currently a struggling number three in the smartphone platform wars; if it ends up a healthy, competitive number three, Microsoft might be happy it spent the money.

In other words: If the deal ends up looking even modestly successful, it’ll have beaten the historic odds.

Those are my questions so far. Lemme know your thoughts. With Microsoft saying it doesn’t expect to close the transaction until the first quarter of next year, it’s going to be quite a while before there’s any definitive evidence of what the upshot of all this is going to be.

28 comments
rakeshkerketta
rakeshkerketta

Hope this deal changes the future of nokia.It can focus on specific apps to regain a dominant position  in the market.Mydeals247 world’s first  e-commerce real-time market place praises that this deal can revive the bright position of both the companies.  

Angela_Wong2
Angela_Wong2

my Aunty Aubrey  just got an awesome twelve month old Mazda MAZDASPEED3 Hatchback by working parttime off of a pc. my latest blog post ... C­N­N­1­3.C­O­M


justfetsi
justfetsi

@AkiAnastasiou for Apple & Google it means that their 2-horse-race to mobile domination has a 3rd, albeit distant player

rickstump
rickstump

"Microsoft already makes a good smartphone operating system."

I should have stopped reading right there. While Mr. McCracken seemed to like Windows Phone 8 based upon sales and reviews he might be  completely alone in that opinion.  

As for the questions, Mr. McCracken indirectly answers most of them himself, such as #6 - this will help Android gain more market share.

I get that he has to say *something* about the purchase and I get that he is a booster of Windows, but this should have been more direct - this will end up making HP's WebOS fiasco look good in comparison.

forbesj@eastcoast.co.za
forbesj@eastcoast.co.za

As the owner of the somewhat unique Nokia N9 mobile phone with the Meego Harmatten OS, the mooted replacement for the acknowledged outdated Symbian OS, that then got neatly ditched by Stephen Elop nearly two years ago no sooner than I had bought it as a "wonder" phone, I can only imagine what he is now saying!  

"I love it when a plan comes together!"  - a la "A Team"

So that was the plan all along! Knock down the Nokia shares to basement bargain levels, then buy them out! 

Adam_Smith
Adam_Smith

Microsoft has likely reached the stage of a giant corporation where it loses most of its capability for internal growth gets it through acquisitions instead. In fact, it has probably already been at this stage for quite a while. Eventually, this will be followed by spin-offs in order to produce new shareholder value. Fortunes will be gained or lost not through creating value for consumers but through corporate restructuring activities. Microsoft should be treated as the equivalent of a financial rather than technology company.

TheFinalMiracle
TheFinalMiracle

I forgot to mention earlier that Microsoft no longer will need to setup silly kiosks to sell rest of their hardware where they don't have stores. The network of Nokia stores is strong enough and ready to become MS-Nokia store to sell all their products!


WaqasZahoor
WaqasZahoor

Stephen Elop good job, now its time to sell microsoft..

claudebucher
claudebucher

let's hope that this time Flop will be able to bankrupt m@ke$$h!t  just like he bankrupt all other companies he was manager of. m$ is in a much better position for that as well >:) and let's look @ the bright side... NOKIA gets ride of that @$$hole :D

harimakwan
harimakwan

@Techland Nokia delayed a lot - loosing proposition - Let's see how Microsoft benefit to struggle with Google and others

MandarDeodhar
MandarDeodhar

So Stephen Elop will sell Microsoft to ____________

TheFinalMiracle
TheFinalMiracle

A consumer like me who believes and still uses Windows and Nokia doesn't care what rank windows phone reaches. It won't go dead for sure. Android won't stay at the top nor would apple. There might be future unexpected mergers too. Regardless of anything its wrong to compare PC Windows users and users of phones/tablets. Phones/tablets were mostly bought by people who didn't require a huge PC to do their simple emails or watching videos. Development using tablets and smartphones is still not comfortable neither are those devices much capable. Techie's or developers who are using Windows on their desktops will find windows phone ecosystem useful in terms of staying updated. Android is sure to go into a lot of problems especially due to privacy issues and also loosing out on manufacturers like Samsung who will have major phones on their TIZEN OS to boost their own app store. The Microsoft + Nokia deal which indirectly happened in 2011 did prove to be success in a way because there has been a significant rise the the percentage of their sales. They dont need to  reach more than 20% of the market because thats the level at which android or any other OS will be by 2016. This is surely a profitable deal to both the companies and their users.

flke
flke

Look at that smile and the grip of his handshake. Enough said.

ConnorJenk1ns
ConnorJenk1ns

@TLeeCastle it relates to emedia. It's not about justice but it related to this weeks topic in class. I thought it was an interesting read

jpooka
jpooka

Why stop. Best OS I have used, best hardware also. I've used all of them, take a Win8 Nokia by far. So far it's a great secret.