Should Microsoft buy Nokia?

Moderated by Jason Hiner | May 6, 2013 -- 07:00 GMT (00:00 PDT)

Summary: Two years ago, Nokia ditched Symbian and adopted Windows Phone. What's next for these mobile partners?

Jo Best

Jo Best

Win-Win

or

Lose-Lose

Ben Woods

Ben Woods

Best Argument: Win-Win

56%
44%

Audience Favored: Win-Win (56%)

The Rebuttal

  • Great Debate Moderator

    Welcome

    ...to our Great Debate. This week, we're arguing whether Microsoft should buy Nokia - or not. Are the debaters ready?

    Posted by Jason Hiner

    I'm ready


    Jo Best

    I am for Win-Win

    All set here


    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Most needy

    When the deal was first made between Nokia and Windows Phone two years ago, who needed it more and why?

    Posted by Jason Hiner

    Microsoft

    It's difficult to make the call objectively given all that's happened in the last two years, but at the time, I'd say Microsoft needed the deal more. Nokia at the time was still the biggest handset maker shifting hundreds of millions of feature and smartphones, had an alternative to Symbian in the form of MeeGo, and was a brand name to be reckoned with in both mature and emerging markets. Sure, it had suffered at the hands of Android and Apple, but it was still a huge force in mobile. It knew it to make a bold move if it wanted to keep on top, but Microsoft wasn't its only option.

    Microsoft, however, had released Windows Phone a year previously and while it had persuaded a handful of mobile makers to use the OS, none of the devices they brought out set the world on fire. The initial Windows Phone lineup - Dell Venue Pro, the LG Optimus, the HTC HD7, HTC Mozart, HTC 7 Trophy, and the Samsung Omnia 7 – was not an august one, and even those makers' interest in the operating system was on the wane. Microsoft needed a big partner, or would have to watch its mobile dreams go the way of Windows Mobile for second or third time.

    Nokia was at the head of the Premiership, Microsoft was looking on from the mid-table of Conference (note to US readers – that's a football metaphor). There's no doubt Microsoft needed the deal more.

    Jo Best

    I am for Win-Win

    Neither

    You could really argue this one either way. At the time of the deal, Microsoft needed it more than Nokia, as a result of dwindling market share and quickly ageing Windows Mobile platform.

     On Nokia's side, the company was actually doing okay – better than its performance on paper since, at least – but its outlook wasn't great at the high-end of the market. While Nokia fans will (and loudly have) bemoaned the switch away from Symbian as its primary smartphone OS, it too was quickly ageing, and despite shipping in huge volumes was getting left behind by its rivals in usability and ecosystem stakes.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Who benefited more?

    Looking back, who has benefited more from the deal, Nokia or Microsoft?

    Posted by Jason Hiner

    Again, Microsoft.

    Under Windows Phone's stewardship, Nokia's market share has dropped and Lumia sales have failed to reach the heights that its Symbian range once did. For a while, Nokia was at least benefiting financially from the pair's arrangement with Microsoft agreeing to pay Nokia for using its OS. Those payments are now at an end, and Nokia is giving Microsoft a licensing fee of around €500 million ($776 million) a year.

    Windows Phone has a tiny percentage of the smartphone operating system market – around six percent – but without Nokia, it would have an even smaller chunk. It's difficult to get a handle on how much of Windows Phone devices sales are Nokias, but around 80 percent seems to be a fair guess, leaving it with just over one percent share. Ouch.

     

     The next biggest Windows Phone maker after Nokia is HTC with 14 percent of Windows Phone sales, and I doubt Microsoft wants to be pinning its hopes on them being a long-term prospect right now.

    With Nokia on board, and the company's future doubtless tied to Windows Phone's for some years to come, Microsoft has the security that Windows Phone will remain a contender, albeit one fighting for the scraps from Apple and Samsung's table.

    Jo Best

    I am for Win-Win

    Too early to tell

    I think it's still a bit early for looking back. Both companies have benefited so far, but neither one to any great extent. Nokia has provided a solid, reliable stream of new Microsoft-based hardware, which helps Microsoft get started on gaining market share.

    From Nokia's viewpoint, it now has a smartphone platform for the future that can (just about) compete with the current crop, and to sweeten the deal it also receives $1bn per year from Microsoft. However, Lumia sales are now for the first time taking Nokia over the threshold where it actually pays more in licensing than it receives in platform support – which is a good thing, as it means its phones are now selling.

    However, there has been considerable backlash from the press and smartphone buying public over Nokia's decisions and despite its flagship launches receiving largely favourable reviews it has failed to score that one 'hit' phone.  As it stands right now, Microsoft has benefitted more.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Does the public care?

    From a purely product standpoint, have Microsoft and Nokia successfully partnered to create competitive smartphones that the public wants to buy?

    Posted by Jason Hiner

    Not by the numbers

    If I was being glib, I'd say the numbers would suggest not.

     However, Lumias are doing well in some markets – a fact Microsoft hasn't been shy of trumpeting at every opportunity – and the lower-end Lumia 520 and 620 have been well-received. With the latter two devices, Microsoft seems to hit the right price point, offering a solid smartphone to those who might not want to pay top whack but still want a smoother experience than a low-end Android might deliver.

     But it's with those that do want to pay top whack that the Microsoft-Nokia tag team appears to be struggling. The higher-end 920 and 820 have met with decent, if not spectacular, reviews but don't seem to be shifting in large enough volumes to worry Apple or Samsung. More high-end Lumia handsets are on the way, so there should be some more news on that side of things in a couple of weeks' time.

    Jo Best

    I am for Win-Win

    There's potential

    From a purely product standpoint, Microsoft and Nokia have partnered to create competitive smartphones that the public should want to buy. Running the Microsoft OS at least makes Nokia stand out (rightly or wrongly) and there are some nice touches in the software. That said, apps are still lacking and the OS isn't as refined in some areas as the competition.

    On the hardware front, Nokia has continued to do what we all know it can do: build solid, reliable, well-designed hardware. Whether you liked the look of the first or second generation Lumia's or not, you can't say they look like every other phone on the market.

    However, Nokia has essentially been tweaking old chassis designs and putting new hardware inside, thus far and while in some examples it's ahead of the curve (wireless charging and cameras, for example) it still hasn't released a Windows Phone that could be described as sleek.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Better off Android?

    If Nokia had also (or instead) made a deal with Google to become an Android vendor, would it have been better off today?

    Posted by Jason Hiner

    Impossible question

    It's pretty much impossible to say whether Nokia would have been better off as an Android shop or not, but it's worth highlighting that Samsung is pretty much the only vendor making serious money off Android smartphones – other Android handset makers are getting low single digit market share.

    If you're optimistic, you could say that Samsung proves you can shift units using a commodity operating system without your own dedicated app store (let alone your own apps) – its differentiation has been based around hardware and branding, both areas Nokia has traditionally been strong on. Nokia also has the added advantage of having its own software efforts to help differentiate itself from other players that use the same OS – perhaps something that would have helped it if it had chosen to go Android.

    If you're pessimistic, you would have to point out that every other Android seller bar Samsung is having a tough time of it, and if Nokia had gone down that route, it would have lost the considerable cash Microsoft has stumped up to sweeten the Windows Phone deal. In short, a deal with Google could have gone either way for Nokia.

    Jo Best

    I am for Win-Win

    No

    No, it would be dead or dying. Perhaps Microsoft (or someone else) would already own it but either way it would have been the wrong move.

    Look at the current state of the market for other Android makers, it's only really Samsung that's had real success delivering handsets that use the Google OS.  Nokia could easily have taken a similar route as HTC (incidentally, one of the other few Windows Phone makers – so it likely could see this issue looming large, too) but it would likely be struggling to stand out from the crowd in the same way LG, Motorola, HTC or any number of other handsets makers are currently.

    The companies that are surviving are the ones that set themselves apart through software and services, and while Nokia is getting better in this area, it's strength has historically been in hardware.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    The right choice?

    If Microsoft hadn't signed its deal with Nokia, would it have been better off by strengthening partnerships with Samsung and HTC?

    Posted by Jason Hiner

    Limited opportunites

    The question implies that either would have been interested in a deal in the first place. I doubt Samsung would have bitten – its Android devices have been flying off the shelves, and it's been pumping out a Google-powered device per week. Its Windows Phone efforts have been somewhat more muted, with a device here and there, and smack more of appeasing Microsoft than any obvious interest in the platform.

    Would HTC have gone for it? More likely. HTC's been having a hard time of it of late, and could possibly have been swayed by the offer of financial and marketing support that a deal with Microsoft would have brought. Would that partnership have worked out better than the one with Nokia? Unlikely. HTC doesn't have the history of innovation that Nokia does, nor the reach, nor the same heavyweight brand. Perhaps a Microsoft agreement would have helped it stabilise after a run of bad results, but it's unlikely that it would have brought Windows Phone the market share that Microsoft craves.

    Jo Best

    I am for Win-Win

    It's not clear

    It's hard to guess at where the smartphone market might be now if things had been done differently, and with the benefit of hindsight and Samsung now leading the charge among Android handset makers it would be easy to say partnering with Samsung would have been the right thing to do.

    Let's not forget, Samsung (and HTC) still makes Windows Phone handsets but it doesn't seem to have led to any great impact on the platform as a whole or a surge in sales of the devices, so it'd be strange to think of it having a greater effect if Nokia was out of the picture.

    That said, if Nokia wasn't around Microsoft would still have needed to partner with someone to give Windows Phone any chance.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Nokia's shaky future

    Nokia is obviously struggling financially. How badly does the company need a merger or an acquisition over the next year in order to survive?

    Posted by Jason Hiner

    Nokia wouldn't agree

    Is it? Nokia would dispute the Chicken Licken projections of doom that lazy hacks like to project onto it, and I'd counsel also a more balanced view of the company's financials are needed.

     Sure, its last five years of financials show it move from profit to loss, but that's against the background of a massive change in strategy (Symbian, MeeGo, Meltemi to Windows Phone), operations (30,000 job cuts, selling its HQ, cutting business units) and economic climate (a nasty, ongoing recession). It's far from impossible that Nokia can reverse that trend once its weathered those storms, and its latest set of quarterly results show its already turning things around to some degree, cutting its operating loss by 90 percent year on year. It's also still got €4.5bn of cash in the bank, so it's in no need of a rescue in the next year, or even the year or two after that. It's also working solidly at expanding beyond the world of mobile phones, into services – a canny play that will benefit its bottom line.

     Of course, it's not all kittens and candy floss. Lumias haven't reached Symbian shipment levels and its Series 40 devices are having a sales wobble. There's no doubt Nokia can survive, grim financials or not. Whether it can survive as anything more than a mid-tier player known for the illustrious history behind it is another matter.

    Jo Best

    I am for Win-Win

    Problems are exaggerated

    While it's no Samsung or Apple right now, the company isn't struggling as much financially as some reports might have you believe, with more than €4 billion ($6.21 billion) cash in the bank there's no immediate concern of needing a buyout in the next 12 months.

    Things could look very different a year or so from now though, if it fails to rectify or replace the cash it has previously received from its activities at the lower end of the handset value scale -  it really has been this that has kept the Finnish handset maker lumbering along. Its Lumia sales are now improviing, but the question will be whether they can rebound fast enough to make up the difference.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Why team up?

    What are the other key factors that are pushing Microsoft and Nokia toward a buyout that would make the Finnish phonemaker part of Microsoft?

    Posted by Jason Hiner

    Cheap pick up

    Its shareholders, for one – after seeing their dividend dwindle to nothing over the last few years, I'm sure they'd relish the chance to make some cash off their investment.

    A buyout right now also would give Microsoft a chance to pick up Nokia for cheap, and put a nice pair of golden handcuffs on the company to stop its head being turned by Android, Tizen, Sailfish, Firefox, Ubuntu or any of the growing number of mobile OSes that are making the smartphone operating system market both more interesting and more competitive.

    With PC sales heading south, Microsoft has clocked that it needs to step up its tablet and mobile efforts. It's already made some tentative steps in that area with its Surface line, and there's the promise of more to come from the range. Having a pet hardware operation would Microsoft help in that respect, but it would also help Nokia too: getting into the tablet business – which it has so far shied away from doing – would offer it a way of expanding into a segment that is growing viciously and moving away from domination by a duopoly. That's not something you could say about the mobile market right now.

    Jo Best

    I am for Win-Win

    Bottom line

    Pressure from stockholders is one factor that could pressure Nokia into entering willingly into a merger or acquisition from Microsoft (or anyone).

    Another factor that could play a part in a buyout, which could again be in part due to pressure from shareholders, is the need for both companies to make more of a splash in the tablet market than either are doing. However, one and one doesn't always equal two, so putting a decent hardware manufacturer with a decent software maker isn't necessarily going to turn out a tablet that's a financial success. Nokia has been wise to resist the pressure to release a tablet before now.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    A boost to Windows Phone?

    How would a Microsoft buyout of Nokia make Windows Phone more competitive in the smartphone market?

    Posted by Jason Hiner

    Possibly

    I'm not altogether sure it would. It would possibly make Nokia and Microsoft more competitive in the smartphone market, by encouraging tighter integration and joint product roadmaps.

    However, by guaranteeing at least one big name continues with Windows Phone through a Nokia acquisition, it may risk putting off the other manufacturers that have signed up to use the platform – when Microsoft similarly forced hardware partners to compete directly with it when it launched the Surface tablets, it didn't meet with a warm reception.

    Where it might make a difference is in the low-end. Microsoft may get a little tired of Series 40 in the longer term, bumping it in favour of going after Series 40's emerging market territories with its own offering: a stripped back, lower cost Windows Phone OS maybe. It's been said that Windows Phone itself is the most expensive component of a Windows Phone bar the screen – so bringing costs down would make it more appealing to handset makers in a shot.

    What's more, Android is expanding in the sub $100 market, but it's not always been a pretty experience there. If Microsoft can play its cards right, keep Windows Phone costs low – and bringing Nokia in-house would help with that –  the OS stands to benefit in emerging economies.

    Jo Best

    I am for Win-Win

    No difference

    A buyout would provide stability, or at least the illusion of it, for Nokia's future which some people doubt as things stand right now.

    I don't believe it would make the Windows Phone platform more competitive in the market, it would have the same number of hardware makers on board, it would have the same level of opportunities for integrating core services into the hardware. It simply wouldn't make any difference to Windows Phonesmartphone market share for Windows Phone.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Biggest loser

    Who has the most to lose in a Microsoft buyout of Nokia, and why?

    Posted by Jason Hiner

    Nokia

    I'm not sure either has a huge deal to lose, but perhaps Nokia will see its situation change the most. Acquirees tend to see 'synergies' that result in job cuts, and Nokia has already seen quite a few of those already.

     

    Microsoft has nothing to lose but a few billion – and it can spare them – while Nokia has nothing to lose but its autonomy (and some would argue with an ex-Microsoft exec in charge and a multi-year deal to use Windows Phone in place, it doesn't have a huge degree of that right now anyway.)

    Bar Xbox, Microsoft has historically not had a great deal of success with hardware, and mobile hardware in particular. Nokia will doubtless be hoping, under an acquisition, that it will be rubbing off on Microsoft, not the other way around. Industry watchers may point to Palm-HP as a sign of what can go wrong, but Microsoft has too much at stake with mobile to let Nokia go the way of WebOS.

    Jo Best

    I am for Win-Win

    Definitely Nokia

    Nokia clearly has most to lose in any such deal. If Microsoft bought Nokia it still has the breadth of the rest of its business to rely on in the event that it all goes belly up. What would Nokia have in that situation? It would be tied to a platform that had already proved itself unable to compete. And if Microsoft bought Nokia and made Windows Phone a market leading success, Nokia as a business would likely miss out on a lot of the benefits that could provide, if it was a standalone company.

    Nokia would also lose its heritage as a stand-alone company – it hasn't always been 'just a Windows Phone maker' and Finland would probably lose its sizable contribution to GDP that Nokia brings in. Add in the patents that it still holds – again, not an inconsiderable consideration considering how much R&D you can get done in nearly 150 years, and Nokia would clearly be on the losing end of any such deal.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Last question: The dangers of doing nothing

    What's the danger of the two companies not doing a deal and simply forging ahead under the current partnership?

    Posted by Jason Hiner

    Nothing ventured, nothing gained

    As the adage goes, if you always do what you've always done, you'll always get what you've always got. So, if Nokia and Microsoft carry on as they have done over the last couple of years, they'll be scrapping over third or fourth place in the smartphone market – a place neither of them relish being.

    Jo Best

    I am for Win-Win

    Needs excitement

    The danger for Nokia of the two companies ploughing ahead as they are is that Windows Phone fails to ignite or excite the mobile market any more than it already has done – and it really hasn't yet. In this situation, Nokia's future is tied to Microsoft's OS for the foreseeable future so if it tanks, Nokia tanks.

    However, while we don't know the terms of the deal (in respect to the duration) Nokia would still have the option of extricating itself from Microsoft and opting for a different platform, as long as it can survive that long. There's no reason, even with the deal in place, that it is obliged to build Microsoft-based tablets and spreading its products across different platforms isn't something the company has completely written off.

    The same factor is likely the biggest danger to Microsoft too: there's very few hardware makers building new Windows Phone partnerships and its two highest profile releases have come from Nokia and HTC, rather than Samsung or Huawei –which both build Android handsets too. If Microsoft loses Nokia, it loses any chance of making any impact on the mobile market in the coming year or two.

    Ben Woods

    I am for Lose-Lose

  • Great Debate Moderator

    Thanks to everyone

    We definitely had a Great Debate.

    I should have pointed out earlier that both Jo and Ben are stationed at ZDNet UK in London which accounts for the extra "s" instead of a "z" on occasion, € signs, and "Chicken Licken" references.

    Come back for the final arguments to be posted on Wednesday and my choice for the winner which will be posted on Thursday. Please talkback and vote for your choice.

    Posted by Jason Hiner

Talkback

82 comments
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  • Kiss Nokia's Innovation Goodbye...

    Not that Nokia's been doing anything major lately, but if M$ buys them out, innovation will crushed out.
    hunter-seeker
    Reply 1 Vote I'm for Lose-Lose
    • not if MS knows when to be hands off?

      But yes I understand your utmost doubts.... I only voted for green because I'm done w/ Nokia's current all eggs in one basket approach anyways. Might as well let MS get fuller than full access (if that's not happening already..), look at their options and ante up WP and probably Surface phones properly.
      7th_Hayreddin
      Reply Vote I'm Undecided
      • Nokia died two years ago...

        ...and that's why it's all the same if M$ bought it or not. Not many years ago Nokia got 40% of both mobiles and smartphones. Now - 3%. At the same time Android has conquered

        1. Smartphone market........... 75,6%
        2. Tablet market.................... 56,5%

        Best men and women have already left Nokia... some to Jolla.... some to other IT-companies ...some to public service sector. Some of them are so tired of unstable IT that they are re-educated themselves to teachers, nurses, media etc....
        Napoleon XIV
        Reply Vote I'm Undecided
  • Best move ever by Microsoft

    Nokia Lumia running Windows 8 are the best smartphones out there today.

    1. Nokia designers are the only ones in the industry that have some imagination. Compare a Nokia Lumia 920 or 720 with a Samsung, HTC or the ageing iPhone.

    2. Nokia develops the best cameras for smartphones. Read the reviews or ask users.

    3. Nokia knows mobile system design best.

    4. Best mobile patent portfolio on the planet.
    The_observer
    Reply 12 Votes I'm for Win-Win
    • Too early.

      Agree with your points, altough I cannot state them that enthusiastically because I got one of the early batches of Lumia 920 which are riddled with manufacturing defects.

      I don't agree that the 2 of them merging would be a benefit, tough. The Microsoft brand is too polarizing as a consumer brand, and the Microsoft haters would harm the Nokia brand more than they do now, if Nokia were owned by Microsoft. Microsoft benefits from Nokia primariliy because of their consumer brand, which is worth several billion $ to Microsoft, but that value would shrink if Nokia were acquired.

      Since I have Nokia shares I would not mind a Microsoft buyout, tough.
      Sacr
      Reply 2 Votes I'm Undecided
      • Nokia Brand

        The Nokia brand is huge in some countries, but Microsoft can buy Nokia and keep the Nokia brand. Also, Microsoft buying Nokia would give people the confidence that Nokia will be there for tech support, warranty claims, and keeping the HERE services and all of the Nokia apps functioning with continued future development.
        rmark2
        Reply 4 Votes I'm Undecided
        • Nokia is big only in memories...

          ...but in real hectic life there are just a small kiosk now.

          Android: 75,6% vs. Lumia 2,9%

          Read the numbers and think about how was it possible that company like Nokia collapsed so heavily before and after Microsoft captured it. Because in reality - Nokia is owned even now by Microsoft. It's not at all independent company.
          Napoleon XIV
          Reply Vote I'm Undecided
    • Been There, Dropped Them

      This is the Google/Moto discussion all over again.
      Botom line, where is the ROI for MS?
      Not seeing it.
      Aside from that, would US regulators even allow it? Then there is the big EU question.

      Personal opinion: Noka devices are gimmicky and second rate in my eyes. I am still firmly in the Win7/Android camp.
      rhonin
      Reply Vote I'm Undecided
      • My Nokia 920 has NEVER crashed.

        Six months of use and not one crash or dropped call. Cannot say the same about the previous Android (AT&T Captivate, Android 2.1), which was a horrific mobile device. The iPhone before that was not as bad, but no where near the quality of the 920.

        MS / Nokia the way it is, is not broke, and needs no fixing.

        There is no advantage to either in a merger. MS is already doing everything possible (e.g. financial, technical) to help Nokia succeed with the WP platform.

        While WP is a tortoise in the mobile race, they still have what history proves to be required to win whereas APPL and GOOG do not.

        Think Ford-Toyota, Leitz-Nikon, Smith Corona-IBM Selectric, Fairchild-Intel, Apple-IBM, Novell-MS, Lotus-MS, Ashton Tate-MS, Yahoo-Google.

        History proves that early adopters and first successful market implementations of technology almost (cannot think of one, 3M?) NEVER win a long term race.
        Patrickgood1
        Reply 1 Vote I'm Undecided
    • The BEST doesn't alway breed a winner ...

      ... (but you probably don't remember Betamax). Microsoft certainly has the resources to keep Nokia afloat but such an acquisition would put Microsoft in a position to compete against HTC and Samsung. HTC is a Windows Phone 8 partner and Samsung is not only a Windows Phone 8 partner but also a Windows 8 partner. Plus, Samsung and HTC are more stable vendors who do not have all their eggs in one basket.
      M Wagner
      Reply 2 Votes I'm Undecided