The Microsoft-Nokia divorce is official. What's next for the two companies?
Microsoft and Nokia have made it official. The deal offering Nokia's devices and services divisions to Microsoft for $7.2 billion has been finalized, bringing a tumultuous partnership to its logical conclusion after years of declining revenues and market shares. Nokia is now free.
The companies partnered up to create Windows Phone devices in 2011. That alliance helped make the operating system more popular in emerging markets, but it also caused Nokia to lose the vast majority of the market share it held just a few years prior. Microsoft still didn't match the popularity of other platforms, but the Nokia partnership brought it closer than ever before.
Acquiring the teams responsible for the most popular Windows Phone devices makes sense for Microsoft. The company has traditionally focused on offering the software that runs physical products from other companies, but that's no longer an option -- if it wants to make Windows Phone something more than an also-ran, it needs to exert even more control over the platform.
Steve Ballmer, the company's former chief executive, recognized this. He reportedly fought for the Nokia acquisition despite the board's hesitance at making Microsoft a hardware company (the Xbox video game consoles notwithstanding) and ultimately got his way. It just so happens that the conflict with the board led to his ouster, despite the acquisition's clear advantages.
Now Microsoft is a hardware company and Nokia is tasked with finding a future that doesn't involve parasitic relationships with large companies that use its centuries of experience to help their own products become popular. Whether Ballmer should be treated like Microsoft's savior or the pariah he became while he was fighting for this acquisition will soon become apparent.
Reactions from around the Web
The Verge considers the difficulties Microsoft will have now that it's a hardware company:
Bloomberg reports on Nokia's future plans:
Perhaps the biggest challenge Microsoft faces with its Nokia deal is the risk to Windows Phone. Microsoft is now in a rather unique position dominating Windows Phone hardware, while also producing the software that runs on rival devices from phone manufacturers like Samsung and HTC. Microsoft is desperately trying to convince other phone makers to use Windows Phone, and the company recently made the software license free to encourage adoption. Windows Phone 8.1, the latest software update, includes some changes designed to allow phone makers to easily reuse Android designswith on-screen software buttons and better chipset support.
Re/code weighs in on the acquisition:
The proceeds will also help Nokia invest more in research and development and potentially acquisitions, Nordea’s Sarkamies said. After the sale, Nokia will get about 90 percent of its revenue from base stations, antennas and other network equipment as well as related services it sells to wireless carriers. Competitors include Sweden’s Ericsson, China’s Huawei Technologies Co. and France’s Alcatel-Lucent SA.
Nokia is seeking partnerships similar to a pact it has with Juniper Networks Inc. to expand its networks business, Suri said in an interview in February. Last year, Nokia considered buying the wireless-equipment unit of Alcatel-Lucent, people familiar with the matter have said.
In addition to network gear, Nokia has a digital-maps business and a unit that licenses its patents.
In one sense, not a whole lot is changing. Nokia was already the dominant maker of Windows Phones and that will remain the case with the business transferring to Microsoft. At the same time, Microsoft had been working with other companies, such as Samsung and HTC, to make Windows Phones and the company has said it hopes to continue licensing Windows Phone to others.
But in another, also real, sense, the Nokia acquisition marks a big shift for Microsoft. The company has made some hardware for a long time, dating back to mice and keyboards, through the Xbox and, more recently, Surface. But those efforts will pale in comparison to being a global provider of cell phones ranging from inexpensive basic phones, through Asha feature phones, the recently introduced Android-based Nokia X family and, of course, Lumia Windows Phones. Pando weighs in
Former Pando contributor Farhad Manjoo wrote that Nokia would "die" this year... in 2012:
Nokia is entering its death spiral. It’s running out of cash, it’s running out of time, and it’s running out of options. A year ago, incoming CEO Stephen Elop made a brave decision to break with the past. He ditched Nokia’s Symbian operating system and decided to focus all of the company’s high-end development on Microsoft’s Windows Phone platform. At the time, it looked like a risky but potentially high-yielding bet.
If Nokia had gone with Android, the best that it might have achieved was to become an also-ran—another in an endless stream of me-too commodity smartphone makers. Windows Phone, on the other hand, offered Nokia an outside shot at restoring its former glory. Here was a gorgeous OS in need of beautiful hardware. If Nokia could deliver wonderful devices for the platform, it might be able stand out in the marketplace as offering something unique: A coherent line-up of attractive, user-friendly phones at all price levels. Pando editor Adam Penenberg called Ballmer “the worst CEO ever” and years earlier wanted to write a story about it:
Several years ago I attended a magazine editorial meeting and pitched what I thought was a slam dunk story idea.
‘Picture this,’ I said. ‘The cover of the magazine with a photo of Steve Ballmer looking all huffy and mad. The caption: The. Worst. CEO. Ever.’
Nervous laughter faded to silence. Finally an editor said, ‘Um, Adam, Microsoft is a big advertiser.’ Pando contributor Kevin Kelleher was less certain that Ballmer’s departure would be good for Microsoft:
When Ballmer leaves, the centrifugal force that held the disparate divisions together may well go with him. Microsoft’s board may claim it will continue in the direction Ballmer started, but it could also be that Ballmer’s departure is the first in a series of developments that will end up with the company broken up.
Breaking up Microsoft is an idea that has floated around for years, even in the monopoly days, but it’s been gathering steam on Wall Street in recent months. Microsoft’s cheap valuation (3 times future sales, 11 times future earnings) is low enough to draw the attention of activist investors. In April, a Goldman analyst suggested a breakup as a possible scenario. A couple of months later, a Nomura analyst made a good case for it to happen.
The jump in Microsoft’s shares Friday might say less about the post-Ballmer era and more about the value of Microsoft in pieces. And so Microsoft’s next CEO may not be someone skilled at uniting its myriad businesses, but rather in selling them off. Or it could be a number of CEOs. Frustrated Microsoft investors are getting what they’ve wanted for years: A Microsoft without Ballmer. That post-Ballmer Microsoft, however, may look very different from what many have imagined. I wrote that Microsoft was acquiring the only other company that cares about Windows Phone:
Microsoft fared better. Its mobile presence has grown over the last few years largely because of Nokia’s products, which are said to represent 81.6 percent of all Windows Phone device sales.
It shouldn’t come as a surprise, then, that Microsoft today announced its intent to acquire Nokia’s devices and services business for $7.2 billion. (It will also license Nokia’s patents and mapping service.) There simply isn’t much of a Windows Phone market without Nokia-built smartphones; now that Microsoft is responsible for those products it’s able to exert further control over its mobile efforts.
By acquiring Nokia’s handset business, however, Microsoft has removed the only independent manufacturer truly committed to Windows Phone’s success. Companies like HTC and Samsung still produce Windows Phone devices, but their Android smartphones are much more popular and receive more attention than their Windows Phone counterparts.