Will Microsoft buy Nokia? Should they?

Will Microsoft buy Nokia? Should they?

Summary: In the wake of Google's bid for Motorola, some analysts are arguing that Microsoft should snap up Nokia. But why would they want to do that?

SHARE:

Almost exactly three years ago, just before the Windows 7 beta made its public debut, I asked Should Microsoft get into the PC hardware business? Now I’m hearing the same question again—but this time it’s not about PCs. It’s about phones.

The smartphone category is growing at breathtaking speed and shows no signs of easing soon. Unfortunately for Microsoft, its share has eroded as the market has grown. For now at least, Apple and Google account for more than 80% of the market, according to just-released numbers from NPD. Microsoft has a credible contender to the iPhone and Android in Windows Phone 7, especially after its Mango update arrives this fall. But its market share remains microscopic nearly a year after it was launched.

So how does Windows Phone grow? The old-fashioned way.

For the Windows Phone business, Microsoft uses the same partner model it has refined over three decades with PC OEMs. Microsoft supplies the operating system software, and OEMs design and build their own devices on which to run that code. Those partner relationships bring in the bulk of Microsoft’s revenue, and even small changes can have tremendous consequences. Outsiders often underestimate just how powerful those relationships are, and how difficult (and dangerous) it is to change them.

That’s why it was a big deal when Microsoft and Nokia entered into a “collaboration agreement” earlier this year. The jointly developed “portfolio of new Nokia devices” should begin to appear later this year and accelerate through 2012.

If Microsoft wanted to begin manufacturing its own brand of phones, it could buy Nokia. In the wake of Google-Motorola, some analysts think that’s going to happen. I disagree.

The current Nokia-Microsoft deal is the nearly perfect test of whether Microsoft can evolve its business model without disturbing those sensitive partner relationships. When the deal was announced six months ago, some Microsoft partners, like HTC and Samsung, had to be nervous about Nokia’s special arrangement. Ironically, Google solved that problem for Microsoft with its acquisition of Motorola. Now, Microsoft looks like the one that has been sensitive to its partners by not becoming a direct competitor.

The Nokia deal has all sorts of advantages for Microsoft, not the least of which is Nokia’s vast worldwide reach and established billing networks worldwide. Back in April, in an interview at the MIX conference, Windows Phone General Manager Matt Bencke told me that the number-one benefit of the Nokia deal is that it will allow the Windows Phone platform to scale faster: “Nokia ships more phones than the top three PC OEMs all put together,” he noted. “They have supply chain and manufacturing in place in all major [geographic regions] and they have operator billing worldwide.”

Those are formidable advantages. And make no mistake about it: Nokia is huge. Its share of the smartphone market is larger than any competitor—five times larger than Motorola, for which Google is about to pay $12.5 billion. (See this New York Times infographic for a superb illustration of just how Nokia compares to its competitors.)

In addition, the partnership combines a truly enviable collection of patents. According to my colleague Mary Jo Foley, Microsoft is kicking in “payments measured in the billions of dollars” to Nokia, which in turn is making “substantial payments” to license Microsoft’s patents. ZDNet’s Larry Dignan notes, correctly, “It’s safe to say Nokia comes out ahead on the payment side of the equation.”

The cross-licensing essentially makes each company about as lawsuit-proof as you can get in our current, patent-crazed world.

Given the depth of that relationship, what could possibly motivate Microsoft to buy Nokia? What else would they get except the management headache of running a very large company and anger from their existing partners? Nothing.

Google is willing to risk alienating its Android partners. But that is a calculated risk for Google. It needs Motorola’s patents to defend the Android operating system that its partners get for free. Microsoft doesn’t need to buy the patents, nor can it afford to take a similar risk with its partners by buying Nokia.

See related:

Topics: Operating Systems, Microsoft, Mobility, Nokia, Software, Telcos, Windows

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

47 comments
Log in or register to join the discussion
  • RE: Will Microsoft buy Nokia? Should they?

    If anything were to cause Microsoft to buy Nokia, I think it would be some other entity threatening to do so.
    John Baxter
    • RE: Will Microsoft buy Nokia? Should they?

      @John Baxter

      I hope microsoft withdraws lawsuits against B & N and Motorola. And they are trying to be innovative instead. There we all win at
      Sultansulan
      • Dude it's their innovations that B&N and Moto are copying

        It's the copying without licensing that stops innovation. It costs too much to do to just let the competition steal it for free. If that wasnt stopped no one could keep doing it. Wake up!
        Johnny Vegas
    • RE: Will Microsoft buy Nokia? Should they?

      @John Baxter

      I hope microsoft withdraws lawsuits against B & N and Motorola. And they are trying to be innovative instead. There we all win at
      Sultansulan
      • RE: Will Microsoft buy Nokia? Should they?

        @Sultansulan - Dude, they're already innovative. Let El GOOG and B&N stop copying. Innovators doesn't need to withdraw suits, copycats only...!
        jinishans
    • RE: Will Microsoft buy Nokia? Should they?

      @John Baxter Totally agree. I hypothesized that Google could force their hand into buying Nokia: http://rurikbradbury.tumblr.com/post/8967439942/will-google-now-bid-for-nokia
      rbradbury@...
  • RE: Will Microsoft buy Nokia? Should they?

    Totally agree.

    May be a magnitude 9.5 earthquake has already happened, now waiting for the handsets and market share tsunami arrival...
    owlnet
    • Tsunami already hit, Nokia got wiped out

      July 2011: "Nokia today reported an operating loss of ?487 million for the quarter, a decline of ?782 million from the same quarter a year ago, when it made an operating profit of ?295 million. The declines seen at the handset maker were near-total, represented by a string of negative percentages down the balance sheet."

      I think the Tsunami already hit. Who wants to buy a handset with an OS that has already been declared dead by the companies CEO?

      So the idea that a world dominating Nokia will drag Microsoft to success, ignores the fact that Nokia aren't even top of their home market now!
      guihombre
  • RE: Will Microsoft buy Nokia? Should they?

    <i>"The Nokia deal has all sorts of advantages for Microsoft, not the least of which is <strong>Nokias vast worldwide reach</strong> and established billing networks worldwide."</i><br><br>What has the deal produced thus far?

    PS. Only conflict of interest for Nokia.
    Return_of_the_jedi
    • RE: Will Microsoft buy Nokia? Should they?

      @Return_of_the_jedi

      It hasn't produced anything yet, but the idea is more long term. In the long term, their OS wasn't going to cut it. In the long term, becoming another Android vendor wasn't a good idea either.
      Michael Alan Goff
      • RE: Will Microsoft buy Nokia? Should they?

        @goff256 <br><br><i><strong>"It hasn't produced anything yet ..."</strong></i> Case in point.<br><br>You could have stopped right there. You've answer the question. <br>The rest was either an explanation an excuse or both.<br><br>PS. Nokia-soft has produced a lot of blog posting tho.<br>You will read more post like this before you see a product.
        Return_of_the_jedi
      • Here... I even linked it for you...

        @Return_of_the_jedi

        <i>You could have stopped right there. You've answer the question. The rest was either an explanation an excuse or both.</i>

        It's called a <a href="http://answers.yahoo.com/question/index?qid=20081202200935AAVuazf">qualification.</a>

        It's a common practise used when stating a black-and-white argument would make you look like an idiot.. which in your case.. oh.. nevermind..

        I guess you'll just have to wait the couple of years to understand the entire qualified argument that it is a long-term investment (which is, in contrast, not a "get results right now" kind of thing - seems you were falling behind a bit there).
        daftkey
      • RE: Will Microsoft buy Nokia? Should they?

        The rest was me explaining something to you, a key value of business.

        Long Term planning trumps short term gain.
        Michael Alan Goff
    • Message has been deleted.

      William Farrell
      • I agree, Mr. Farrell

        @William Farrell <br>Too many denizens of this site appear to let their emotions over a simple cell phone get the better of them.<br><br>Illogical.<br><img border="0" src="http://www.cnet.com/i/mb/emoticons/plain.gif" alt="plain">
        Tim Cook
    • RE: Will Microsoft buy Nokia? Should they?

      @Return_of_the_jedi How's that Nokia N9 working out for you?
      Rabid Howler Monkey
    • RE: Will Microsoft buy Nokia? Should they?

      @Return_of_the_jedi What conflict of interest is there? In the words of Vader, there is no conflict. Nokia had two awful operating systems that they sunk billions into, that had no ecosystem, no developer support, and no interest from consumers. At least they now get a far superior OS that at least has two of those three covered.
      jhammackHTH
    • Its produced the oportunity for Nokia to regain its marketshare

      and some awesome new phones which will be on sale soon. What kind of stupid question is that?
      Johnny Vegas
  • RE: Will Microsoft buy Nokia? Should they?

    It would not make any difference. The perception with the consumer is going to be Nokia being the 'official' Windows Phone. Their actions in the last few months have indicated a mistress type relationship without marriage throwing the spanner in the works.
    idiot101
    • RE: Will Microsoft buy Nokia? Should they?

      @idiot101
      Was it Microsoft or Nokia portraying the relationship thus? If it was Nokia, I'd say no surprise they're talking up their 'special relationship.' As long as Microsoft doesn't sound off about it persistently, I don't think the other partners will be too concerned.
      WebSiteManager