After a long weekend due to labor day, Microsoft and Nokia hit the press with the intention to acquire Nokia's smartphone business and licenses by Microsoft. Which was a rumor many times in the past - but nonetheless a surprise that it (still) came through now (at last).
A surprise - or not?
There have been numerous rumors before, that Microsoft would buy a smartphone maker, and those rumors were often around Nokia, HTC and Blackberry. So now the rumors have come to an end - with the new Microsoft & Nokia combination.
At the end of the day Microsoft needed to correct its weak position in the smartphone space - after all it competes with Apple and even more with Google - who either have an integrated device business - organically built or bought from Motorola. Understandable that the decision makers in Redmond did think that they could not compete.
What does Microsoft get?
Microsoft gets Nokia's smartphone business, Steven Elop and some executives and licenses key patents for 10 years and will license also the mapping and location services of the HERE division of Nokia for the next 4 years. .
Nokia - a shadow of itself
The once darling and clear mobile phone market leader - only 10 years ago - and a true smartphone pioneer - is only a shadow if itself now. I remember using the Nokia Communicator and the shock and awe its fax capability had back then - amongst many other then cutting edge features.
Nokia now is merely three divisions with NSN (network infrastructure), HERE (maps and location services) and Advanced Technologies (development and licensing). Some of my contacts in the intellectual property circles already started to call the new Nokia a potential patent troll - we all should hope it will not come to that.
Organizational Implications
With Elop talking over the devices and bringing its team over from Nokia - it questions the role of Larson-Green who will report to Elop and was one of the rising stars of Microsoft executives, even a potential Ballmer replacement. We do not expect that Larson-Green will play a diminished role for long, the question is only will it be at Microsoft or at another company.
And Ballmer's email to employees also described the alignment of the Nokia marketing, support, etc functions with the new organizational model, meaning they will be moved to the respective functional leaders. Something we see critical - see our view on the CEO succession here.
Devices - no matter what
One has to admire (to a certain point) the guts of the decision makers in Redmond. Despite record write down on inventory of the ill fated Surface tablet - they seem not to have enough of the device business. The belief of these decision makers must be that to succeed in the device space, Microsoft needs to have very tight control over software and device.
Microsoft had that with the Surface and did not / has not succeeded there. Now it will be more of the same - the question is - what will be the secret ingredient to make the device strategy a success now?
Was there friction?
The easiest explanation for the intended acquisition would be, if there was still some sort of friction between Microsoft and Nokia. That this wasn't personal is shown that the Nokia executive team, that was involved with smartphones, is moving over to Microsoft.
A potential reason could be that the architects of this acquisition know, that Nokia was not funded well enough to make a difference in the market place (aka marketing spend). That's an argument one could buy in.
The other possibility is, that the lines of communication between software in Redmond and hardware controlled in Espoo where too long and not effective. If this is the case the acquisition also makes sense - but will be a point of concern to the other Windows Mobile partners like HTC etc. Needless to say Microsoft has already addressed these concerns and its also clear that Windows Mobile will only become a success in the market place if - at least for the next 2-3 years - there is a successful multi vendor strategy.
MyPOV
The merger of two weak players does not make a strong one. But it certainly gives Microsoft more direct control and the chance to invest at will into the smartphone business. The appetite for more device business and exposure is baffling - it was never Microsoft's strategy, the company has become market leader with the help of partners and the recent issues of the Surface tablet would not have encouraged many boards to do more device business and risk more of the same. You certainly cannot proclaim a lack of guts by the Microsoft board.
The next quarters will tell what held Nokia back - was it Nokia - or was it Microsoft. Exciting times.