Forget cracking the US: Microsoft and Nokia have more important things to worry about

Forget cracking the US: Microsoft and Nokia have more important things to worry about

Summary: As part of the US giant it may be tempting for Nokia to focus on chasing success in its new home market. But if it wants to be the 'devices plus services' giant of tomorrow, it needs to be looking elsewhere.

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Nokia's X range: key to its emerging markets future? Image: CNET

The sale of Nokia's devices and services business to Microsoft will be completed this week. First announced in September last year and supposed to close in the first quarter, the deal is now all but done: Nokia will carry on as a Helsinki-based networking and patents company, and the handset business passes to Redmond.

The last few years have seen Microsoft and Nokia facing a similar challenge — how to maintain their dominance in markets they once defined, but which have since moved on without them.

In Microsoft's case, the desktop OS market that made its fortune is being eroded by the rise of tablets; for Nokia, despite creating the smartphone market with its Symbian handsets, it now trails way behind most well-known handset makers.

A union between Microsoft and Nokia seems inevitable in retrospect. Microsoft needed a handset maker dedicated to Windows Phone after so many others former supporters have fallen away, and Nokia's mobile business needed a safe haven.

Nokia was Europe's tech success story — its brand is still solid on the continent, and that is reflected by  moderate uptake for Windows Phone in several countries. It may not be the biggest mobile maker in Europe, but it still has a presence Microsoft can build on.

However, even in its heyday Nokia never really cracked the US. While globally it was outselling every smartphone and feature phone maker you could name, that lack of US success didn't seem overly important. And even now, while Redmond is likely to bring its full marketing and channel might to bear on shifting mobile units on its home turf, chasing US market share may not be the best use of Microsoft and Nokia's combined resources.

Nokia has always made a good showing in emerging markets, customising its phones to suit the local environment with tweaks such as a heavy emphasis on durability and a data-compressing browser aimed at tackling challenges that Western consumers didn't face.

Despite recent wobbles in its non-smartphone business in developing markets, Nokia is still a force to be reckoned with in many of them. It's done well in growth markets with cheap, reliable feature phones, and it must now seek to keep hold of that position in the face of cheap, reliable Android smartphones. It's still displaying that same local sensitivity though, making sure its emerging market-focused X range come with BBM installed — the service remains hugely popular in the likes of Indonesia, for example, one of the world's largest mobile markets.

In many growth markets, Samsung and Apple are minority players, and smartphone penetration is low even in the face of comparatively high mobile uptake — so there's plenty of room for Nokia to grow here. And in areas where individuals' mobile phones are their first, and often only way, to access the internet, focusing on emerging markets will give Microsoft a chance to establish a consumer presence where previously it may have had little or none, and lock users into its ecosystem early.

Chasing the US market is understandable — who doesn't want Apple levels of margin, or Samsung levels of shipments, in the world's third largest mobile market? But it's an unforgiving one, locked up by Samsung and Apple's high-end devices. China, however, could represent a more interesting prospect. The rising star in the country is Xiaomi, whose mix of low prices and decent features means it's bigger than Apple in the world's largest mobile market.

In countries where price has a huge impact on the buying decision, Nokia has smoothed out the cost differences between its high-end Nokia Asha device, low-end Nokia Windows Phone handsets, and the company's Android-based X phones — meaning for anyone that wants to trade up from a feature phone, there's a Nokia device in the right price bracket.

For those that don't want to or can't afford to, Nokia is still cranking out dumb-phone workhorses that will last for days without charge — handy in areas where power supply is erratic.  

In many ways, Xiaomi represents the ideal for Microsoft: a company that sells solid devices cheaply, and makes money out of services — very much the vision Microsoft is working towards with its 'devices plus services' strategy. While emerging mobile markets in general, and China in particular, may not represent huge services revenue streams today, they're only going to go one way.

Microsoft has repeatedly stated that it wants to be a devices plus services company. Nowhere is the opportunity for it to do that greater than in emerging markets.

Read more on Nokia and Microsoft

Topics: Mobility, Nokia, Smartphones

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  • True

    True enough, but since they are currently locking people out of Cortana if they are using English (US) as language on non-US devices, it seems they are still aiming for the Zune strategy. Or the Surface 1 strategy. Both of which worked so well for them.

    Not sure why they think non-US customers don't like up-to-date tech. Maybe Satya will change that mentality.
    Sacr
  • MS should axe the Nokia X ASAP

    In my opinion, MS needs to axe the Nokia X phones as soon as it acquires Nokia's handset business, because they are more negative than positive. Users identify primarily with a device's OS, not its services. Users are going to be asking about Android apps and services, more than they are going to be asking about MS services. Then they are going to be asking about Android this, and talking about Android that. It will be a joke. If it has never been a good idea throughout human existence to have your customers focusing on your competitors' products and services, why on earth do you think things will be different this time around?

    I believe the way for MS to gain high margins, is to set up stores in stores and pop up stores in the US and other regions, and sell its phones and other devices in them. (Something very similar to what Apple has done.) MS should in principle try and get the most profit it can optain from its devices. It should however avoid going the Android route as much as possible, as that is an ecosystem in which only mega corporations such as Google, Samsung, and the telecoms benefit. Google simply dupes partners into selling low cost items where they cannot make any money, and it siphons all their forgone wealth via ads, which it is singularly able to do, because of its 'ginormous' scale. Such an ecosystem will become stale over time, as very few participants will be able to innovate.

    Many people talk about an open ecosystem like Google's. They are idiots. Google's wealth center, is closed and highly proprietary. If you were try to take a look at Google's search algorithms, or tap into its advertising system, you would probably be shot on the spot. Google's Android OS and advertising networks are merely webs that trap businesses, while Google sucks the wealth out of them, drugging them with the idea, that they are doing acceptably well, business wise. People talk about Apple's reality distortion field. Google's is far greater, and highly toxic. You have some of the top bloggers in the world. They are making peanuts, when if they could be part of a subscription system, they could be making many times over, employing people, paying more taxes, etc. Inexplicably they are enarmored by Google's free goodies business model, in which the company makes out like a bandit, and they fend for scraps.

    Microsoft needs to create high value ecosystems, not unlike its Windows desktop ecosystem, which makes good money for as large a proportion of its participants as possible. Even in emerging markets, avoid going scorched earth free, since this will allow locals greater opportunities, to make money as well.
    P. Douglas
  • Google can't "sucks the wealth" from anybody.

    The vendors make their money by selling what people want.
    jessepollard
    • scroogle

      sucks the data from everyone that uses their services, proud to say I am scroogle free.

      google is the privacy problem and until people wake up and figure it out, scroogle will never change and they will continue to be the problem and not the solution.
      hoppmang
    • No, the vendors make their money by cashing the checks Google gives them

      to use only Android products on the lower end affordable phones.

      There was an article that I read where Google has an agreement to pay vendors to use only Android on the more affordable product lines, and that they will pull all funding should the OEM also carry even one affordable smartphone with a competing OS on it.
      William.Farrel
  • Forget cracking the US: Microsoft and Nokia have more important things to w

    "In Microsoft's case, the desktop OS market that made its fortune is being eroded by the rise of tablets;"
    Not quite. Tablets are just a fad. People bought them but will be going back to their Microsoft Windows machines. So any downturn for Microsoft was just a temporary blip.

    Microsoft and Nokia have been having year over year growth in the mobile space. They should keep doing what they are doing now.
    Loverock.Davidson
    • Temporary

      Year over year declines in the PC market is NOT a temporary blip.

      Quite burying your head in the sand and realize that people don't need as many PCs as they once did.
      THavoc
      • ipad say hello

        Ipad sales fell to the ground, and they say hi. And before you say inventory limit says they would decline by 3% in any case without inventory issues. And the three major pc makers sold more units this same quarter, so whatever.
        revben
    • but

      the desktop market is still enormous and microsoft is risking it with this mobile obsession. I hate using tablets or phones for anything but consumption of content. I still will and always will need a mouse and a keyboard connected to a 'real' computer running a 'real' operating system. Linux could displace windows but not that linux hack called chrome.
      alderran
    • Hello Ken

      Is that you Ken? Ken Olson was famous for saying nobody would want a computer on their desk let alone in their pocket. MS made a bunch of money off that fad.
      Linux_Lurker