Will Acquiring Nokia Help Microsoft Reinvent Itself?

Microsoft and Nokia certainly caught the tech world off guard earlier this week when Redmond said it was acquiring the core business of the struggling phone maker for $7.2 billion. And if you don't think this changes everything for better or worse, think again.

The notion of Microsoft buying any major hardware company, much less a phone maker, was once unthinkable by founder Bill Gates and lame duck CEO Steve Ballmer. Now Ballmer has effectively described this deal as the missing link to the "devices and services" company he wants Microsoft to be. The first thing to ask: Is that the path the board and the next CEO will see for Microsoft as well? Since they signed off on this deal, that appears to be the marching orders for now -- though we all know how things can change.

Apparently Microsoft investors don't agree Nokia is the missing link. The company's stock has been down since the deal was announced, basically erasing the surge in market cap Microsoft gained when announcing Ballmer's retirement.

Although the deal appeared to be dead after talks fell apart in June, Ballmer and his team have been negotiating all summer, according to a report in The New York Times on how the deal went down. So this is Ballmer's deal but he'll be long gone before he can accept credit or blame.

Critics of the deal argue it pairs two companies that are both afterthoughts in the mobile phone and tablet markets today. Two weak players don't necessarily add up to a strong one. Is this move indeed the missing link that can put Windows Phone and tablets running Windows 8 or Windows RT on the map or is it the ultimate act of desperation?

"I don't think Ballmer's vision matches up with reality," said independent industry analyst Jack Gold, of IT market researcher J. Gold Associates. "I just don't think Microsoft can pull this off effectively. I see it as a knee-jerk reaction to Apple and Google, rather than a real strategy to become a leader in the market."

Yet on a conference call Tuesday, Ballmer said he believes this deal will boost Microsoft's market share in the mobile phone market from 3 percent to 15 percent. An aggressive target, indeed, but depending on how Apple's iOS and the Google Android ecosystem play out, the deal would still render Windows Phone a much smaller player in the market. IDC Wednesday predicted Windows Phone's share will double by 2017 and will cover 10.2 percent of the smartphone market. Google's Android will be the dominant player with 68.3 percent and iOS will be in the middle with 17.9 percent.

Ballmer emphasized on Tuesday's call that acquiring Nokia's handset business will ensure Microsoft bolsters its share in the market -- which he deems critical. "We want to strengthen the overall opportunity for Microsoft from a devices and services perspective and for our partners as well," Ballmer said on the call. "We need to be a company that provides a family of devices ‑‑ in some cases we'll build the devices, in many cases third parties, our OEMs, can build the devices ‑‑ but a family of devices with integrated services that best empower people and businesses for the activities that they value the most."

The message is that not only does Microsoft gain the ability to take charge on how Windows Phones are designed, delivered and marketed, it gives the same capability to refine its Surface tablets and other hardware it decides to deliver.

As part of the deal Ballmer said Microsoft is buying the assigned rights in Nokia's IP license with Qualcomm and other key IP licenses. The company is also licensing, though not buying patents that can work with Windows Phone and other Microsoft products. Microsoft is also licensing rights to use Nokia's HERE mapping geospatial location technology, which it wants to use broadly in Microsoft products. According to various reports, Microsoft wanted to buy the patents and HERE technology outright but Nokia didn't want to part with it. Microsoft sees HERE as critical to breaking Google's hold on mapping.

Whether or not this deal makes you want to run out and buy a Nokia Lumina or have visions of using Bing more often once HERE is integrated, it changes everything about how Microsoft will develop Windows and deliver on its "devices and services" mission.

Do you like this deal or are you concerned about the direction this takes Microsoft? Share your thoughts below or feel free to drop me a line at [email protected].

Posted by Jeffrey Schwartz on 09/06/2013 at 2:33 PM