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.