Microsoft and Nokia: A credible challenger to Android and iOS?

Businessman in suit & tie wearing red boxing gloves

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services.”

These were outgoing Microsoft (NASDAQ: MSFT) CEO Steve Ballmer’s comments today as the software giant announced a renewed attempt to break into the lucrative smartphone market with the acquisition of Nokia, the world’s second largest mobile phone maker (but a laggard in smartphones and profitability.)

Under the terms of the agreement, Microsoft will pay EUR 3.79bn to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65bn to licence Nokia’s patents, for a total transaction price of EUR 5.44bn in cash – transferring 30,000 staff from Nokia to Microsoft.

Fallen giant Nokia has watched its near dominance in the mobile phone market drop year-on-year as the company refused to embrace open operating systems like Android, continuing to develop the ill-fated Symbian and its own proprietary interfaces. In 2007, Nokia had more than 50 percent market share in mobile phones, according Yankee Group, and today has less than 14 percent with a much lower percentage of the high-end smartphone business.

“For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” says Risto Siilasmaa, chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO.

The deal does not touch Nokia’s telecoms business which it recently strengthened following a buyout of the Nokia Siemens Networks (NSN) joint venture. In fact, Nokia now has a war chest which may allow it to buy into aligned markets such as MDM – although that is sheer speculation.

The deal has generated a number of comments from commentators across the industry. Victor Basta, managing director of M&A advisor to the technology industry, Magister Advisors, believes Microsoft effectively ‘acquired’ Nokia several months ago when it entered into a deal to licence Windows Mobile to Nokia, making Nokia entirely reliant on Microsoft’s software for its mobile future.

“Nokia’s value has eroded progressively since, making the actual deal to acquire the mobile business even more attractive now for Microsoft. In the meantime Microsoft has had the chance to work with Nokia and learn about the business, so this now looks like a safe deal for Microsoft. The burning question, of course, is whether Nokia's gradual erosion – in market share, value and perception – can be reversed,” said Basta.

In the eyes of the market, however, a 45 percent share price jump on the news suggests that many in the industry believe the acquisition is positive move.

The deal solidifies Microsoft’s position as #3 in terms of smartphone user market share behind Google Android, and Apple IOS – solidly ahead of Blackberry.

Channel Pro view

Nokia’s decision to sell off to Microsoft has been on the cards for a while and finally gives the world’s largest software vendor a credible hardware platform for the creation of new smartphone and mobile devices.

The first generation Lumia products created by Nokia using the Microsoft Windows 8 platform are pretty slick with good build quality and technology. But more importantly, the “Microkia” phones have a lot of features that business users crave but have been frustrated by Google and iOS-based devices such as seamless Microsoft Office and Exchange interoperability. In addition, there is likely to be a lot of pre-loading of Microsoft software and service hooks such as Skype, Skydrive and Lync as a benefit to business users. Blackberry should be worried.

For the channel, the deal provides no medium-term change. The current Nokia phones are still inferior to Android in terms of feature set and less user-friendly than Apple’s family. The development curve will probably ramp up after a period of seat swapping but within 12 months, some truly ground-breaking products may well emerge that provide a key business advantage in the same way that Windows and Office are seen as the de-facto products.

However, the BYOD trend and the openness of Google’s open source-based platform offer a counterpoint to Microsoft’s walled garden approach. But with skin now in the game, we can expect more support to ISVs, more industry partnerships and potentially some exclusive deals in the way Microsoft secured with Xbox – with Halo being a great example.

Despite its tardiness, Microsoft is still a magnificent channel company; it understands the channel much better than Google and Apple and still has a loyal customer base that grew up on Windows and Office.

The ink is not yet dry but the next 12 months will mark the start of a real four-way rumble for the hearts, minds and wallets of businesses, consumers and the channel.

Christine Horton

Christine has been a tech journalist for over 20 years, 10 of which she spent exclusively covering the IT Channel. From 2006-2009 she worked as the editor of Channel Business, before moving on to ChannelPro where she was editor and, latterly, senior editor.

Since 2016, she has been a freelance writer, editor, and copywriter and continues to cover the channel in addition to broader IT themes. Additionally, she provides media training explaining what the channel is and why it’s important to businesses.