Why Nokia plus Microsoft won't equal Apple: It's much more complicated than that

Why Nokia plus Microsoft won't equal Apple: It's much more complicated than that

Summary: Microsoft's acquisition of Nokia is aimed at building a devices and services strategy, but the joint company won't take the same form as Apple.

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Microsoft has been working on its evolution into a devices and services company, away from the services business it has traditionally been, for several years now with limited success.

Its acquisition of most of Nokia is the latest acceleration of that strategy — to move further away from the moribund world of the beige desktop and towards the sunlit world of smartphones and tablets.

Owning the desktop (via Windows) and building additional services on top, like Office or search, has been vital for Microsoft's strategy until now, so as our interest shifts from the desktop to the tablet or smartphone it's essential to Microsoft's broader business (even Azure) that it can retain that connection in some form. To be a winner in the business market it also has to be a winner in the consumer market, something that wasn't the case a decade ago.

As Microsoft's own presentation about the deal, announced on Monday, notes: "With the consumerisation of IT user matter at both home and work... We cannot risk having Apple or Google foreclose app innovation, integration, distribution or economics."

Nokia lashed itself to Microsoft's mast after losing out to iOS and Android in the smartphone market share stakes and with the limited success of the Lumia range so far enough to keep interest in Windows Phone alive, most analysts are seeing a certain amount of inevitability to the acquisition, even if they are split on what its biggest implications are.

Forrester mobile analyst Charles Golvin said the steadily diminishing investments by other Windows Phone licensees has left Microsoft with just Nokia as its standard bearer and added Microsoft now appears "poised to adopt a vertically integrated strategy more akin to Apple's".

But he said Microsoft's challenge remains how to unite the myriad services and brands — Windows, Nokia, Live, Surface, Xbox, Bing and more — into a cohesive experience that will command and cement customer loyalty.

"That's a tall order and one that should weigh strongly on the board's choice of a new CEO," he said.

Richard Holway, chairman of analyst TechMarketView, said given that Microsoft paid $8.5bn for Skype in 2011, the price it is paying for Nokia "seems extremely reasonable".

However, he added: "Our only 'surprise' now is the timing of the announcement. For such a big deal to come just days after Ballmer stood down seems mighty strange."

For Holway, there is also an opportunity for the enlarged Microsoft to step up its business mobility efforts: "There is undoubtedly a market opportunity for the creation of a provider of mobile solutions for the enterprise. Taking Office onto various mobile platforms. Providing secure emailing in a sector once occupied by BlackBerry."

But such a move carries its own risks — Microsoft's success has been build on being hardware agnostic and persuading device manufacturers to support it. Already its move into the tablet market with Surface will have unsettled its manufacturers which have struggled to come up with convincing form factors to tackle the decline of the PC. If Nokia's rumoured tablet appears too, this will further complicate Microsoft's relations with these partners who are essential for the success of Windows 8 (as well as Office and other products).

But, as Holway points out, "on balance, Microsoft needed to make a bold move into mobile. Not doing so would mean certain terminal decline. This way at least holds out some chance of survival."

Carolina Milanesi, research vice president at analyst Gartner, said by buying rather than just partnering with Nokia, Microsoft gets deeper integration, the benefit of its patents and removes any risk of Nokia either going Android or being acquired by someone else.

But success against iOS and Android will depend on how the companies integrate.

"Nokia benefits from higher R&D spend as well as more marketing budget. Microsoft benefits from a good relationship with carriers, good direct channel presence in emerging markets, the potential of going after more aggressively to the business market," she told ZDNet.

But for Milanesi, business is a secondary concern, even if it is an attractive target where Microsoft, and to a less extent Nokia, have experience: "First and foremost it needs to be about consumers. Enterprise are certainly a target especially considering the state BlackBerry is in but consumers make or break a phone vendor today."

From Milanesi's point of view, emerging markets need to be a longer term target for Microsoft — but the battle needs to be won in the mature markets first.

For Forrester principal analyst Thomas Husson, Nokia adds to Microsoft's developing market strategy. It's looking increasingly likely that the US and western European smartphone market is reaching saturation, so that most growth will come from emerging markets. Here Nokia's Asha devices could play a neat role as an 'on-ramp' for consumers buying their first smartphone. Tied in with a revamped tablet strategy this could open up a new front against Android in particular.

But Husson cautioned: "This is going to be a long journey. In some countries, Windows Phone 8 market share is now above five percent and close to 10 percent. It thus still offers a limited reach for developers and marketers.

"Nokia is indeed still massivley popular in some emerging countries but competition is very high with Far East manufacturers and low-cost Android devices. I think it will depend on Microsoft's new strategy for emerging markets beyond just mobile phones."

All of this shows the number of competing — and occasionally contradictory — demands upon Microsoft's management.

As the incumbent player in a fading market, Microsoft has a take into account those differing requirements as it tries to build for the future. For example, balancing Microsoft's business customers against the need to get into consumer tech, the need to build its own hardware business against the need to keep manufacturers onside, and building up a mobile business while protecting its PC heritage.

It's easy to look at Apple's integrated hardware and software model and the rich ecosystem that sits around it, but it's much harder to emulate.

Global coverage: Nokia Interim CEO: Microsoft deal makes us stronger | Even with Nokia devices, Microsoft wants to license Windows Phone to other makers | Does its Nokia buy thwart or fuel a possible Microsoft break-up? | Microsoft shows how to flush decades of Nokia goodwill away | Microsoft gets less than $10 per Windows Phone unit | Microsoft-Nokia deal: Reaction from the Twitter trenches | Elop drops Nokia CEO role to lead devices team under Microsoft deal

Further reading

Topics: The Microsoft-Nokia Deal, Microsoft, Mobility, Nokia, Smartphones

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54 comments
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  • Apple isn't Nokia or Microsoft or Nokia+Microsoft

    Both MS and Nokia have global distribution channels, Apple does not which is why Apple is weak globally. Microsoft has the leverage in this contest.
    greywolf7
    • MS+Nokia

      ....is not about imitating Apple. It's about adopting the same strategy as Google/Motorola.

      Ms remains open to license its Os to other manufacturer. Apple is not. Even if it is not obvious right now, I think this merger will be better for both companies than the Google/Motorola deal.
      gbouchard99@...
      • The Google/Motorola strategy doesn't seem to be doing too well.

        Are you sure you want to use that as your platform? If that strategy were working, why isn't Motorola selling more Android phones than Samsung? If that strategy were working, why isn't Motorola selling more Android tablets than Samsung? After all, Motorola has the advantage of more reliable updates and being custom-designed for Google's uncorrupted Android distributions.

        No, Microsoft has realized that relying on OEM "partners" does not get them the kind of distribution or support they need for their mobility devices. Even with Windows CE, Microsoft was stuck with what the OEMs wanted to build, never even considering the potential of purpose-built products. Why? Because the OEMs were out to sell the cheapest possible devices for the highest prices the market would bear--and when it came to the enterprise, that price was pretty high for such poor reliability that effectively destroyed Microsoft's mobility reputation. Apple came out of nowhere and simply blew away almost all the existing mobility products and Android effectively finished the job.

        Microsoft has been forced to start over from scratch. They witnessed how working through OEMs killed even their enterprise mobility tools. They witnessed how working through OEMs to build purpose-designed devices like the Zune failed to engender the sales they needed. They witnessed how working through OEMs failed to make even their 'made for kids' Kin move due to poor quality and poor design. For almost every hardware product Microsoft has put their name on, somebody else has actually designed and built it. Apple has always had the design of both hardware and software in-house, even if assembly is now done by a third-party factory. Microsoft has seen their sales of ALL types of devices (except perhaps their gaming console) fall by double-digit percentiles while even at its worst Apple's recent fall has stayed consistently in the single-digit range and during the entire recent recession showed growth where nearly all the others showed losses. For all that Microsoft's computers still hold a commanding lead in sales, those sales ARE falling and they're falling to mobility devices NOT carrying Microsoft's OSes. If they want to stay viable and relevant even with computers, they HAVE to turn that around and Apple's system seems to be working best as they still command the most profits.
        Vulpinemac
        • In regards to the Kin phones,

          what killed them wasn't so much a lack of build or design quality, it was the carrier that insisted each individual phone be sold with an expensive data plan, as well as voice, text, etc.! If Verizon had offered the phones at a more reasonable rate, they may have sold better. $70 US per month for a kids data plan??? In fact, I think a lot of the sways and swings in mobile phone market is influenced more by the carriers than the phone manufacturers, including Apple!
          wizard57m-cnet
          • I could agree with that...

            especially when you consider that Microsoft pulled the device after only 2 months. I think even Verizon would have changed their policy if Microsoft had stuck it out--but MS chose to pull it instead.
            Vulpinemac
          • Kin died several deaths

            Yes, the immediate death of the Kin was Verizon's forcing it on a smartphone plan, despite it at best being a feature phone. But that wasn't the whole story. Kin was designed as a phone for communications-oriented tweens and teens -- in fact, the very age of my kids when it was out.

            The first problem was simple: phones for kids that age are primarily for the parent. They're so I can keep in touch with my increasingly mobile kid, not so the kid can surf the new or whatever on that phone. So there's no way I'm paying $30 a month for said kid to have a smartphone.

            The second problem was that no kid that age wanted the Kin. Most wanted iPhones, a few were learning about Android. Microsoft was and remains the antithesis of cool. There was pretty much no chance any kid would chose such a phone anyway. And there was zero chance they'd choose one of these instead of an iPhone or an Android.

            This is much the same disease Microsoft's shown in most new products -- they just don't get their customers. Maybe they're trying to be like Steve Jobs, making the things we don't even know we want yet, but they have yet to really sell people on that vision: Windows 8, Windows RT, Windows Phone, etc. X-Box was about the only "success", and it's still lost $3 billion since its inception (that's factoring in losses and profits, not including 2013's losses due to the X-Box One development expenses).
            Hazydave
    • It appears Apple DOES have a "global distribution channel"

      After all, nearly every technological country in the world has at least ONE Apple store. And Apple phones, unlike their PCs, do quite well in other countries as exemplified by how long it took the many different Android OEMs to out-sell iOS globally. Let's at least keep this argument on a level playing field.

      On the other hand, Nokia is traditionally weak in the one country where Apple is strongest--the US. Microsoft's purchase may be exactly the foot in the door Nokia devices needed to penetrate US markets.
      Vulpinemac
    • What a lame comment!

      From who do most people buy their phones? Carriers, not the manufacturers. Carriers are the distribution channel.

      Have you ever brought a phone from Microsoft? Have you ever actually bought a product from Microsoft? Or did the OS and Office package just come with your PC? D'oh!
      GoPower
      • Thanks for the disclaimer about your comment!

        As it so happens Microsoft does have an online store where one can buy software and if I'm not mistaken hardware as well. That's where I purchased the Windows 7 Home Premium 3-pack - as did a lot of others. So yeah one CAN buy a product from Microsoft.

        BTW with your carrier comment people can and have bought an iPhone at the Apple Store and had it provisioned there with their choice of carrier - they did not have to go to the carrier.
        athynz
  • To paraphrase Steve Jobs

    Microsoft shouldn't try to be Apple. It should try to be the best Microsoft it knows how to be. I think this acquisition is a brilliant thing, and hopefully they chart a unique course.

    Microsoft's strengths (development tools and business infrastructure) should be combined with Nokia's (really robust design and the best cameras in the biz) to make a great feature-filled line of product that straddles the line between personal and business use.
    Mac_PC_FenceSitter
  • R&D spending

    Nokia r&d spending was in 2011, $7.8b, while Microsoft a bit more with $9b. While MS numbers are big, it's also a much bigger company with a lot more stuff to deal with.
    Apple and Google are spending a lot less.
    (http://www.thephoenixprinciple.com/.a/6a00d8341c275753ef017ee4c7feed970d-pi)


    While money is needed to develop great products, trowing money at something is not enough to make it succeed.

    Apple is (arguable) the only company that can enjoy such success being alone. MS will have a very tough job to be meaningful in mobile with just Nokia or be very good convincing others to join in the ship - something that they were unable to do so far, and buying Nokia is not going to help them there.
    AleMartin
    • It's funny...

      To read all the anti-Microsoft rhetoric as is usual for AleMartin. Yes, we all know you are anti-Microsoft and will simply pour cold water on everything they do or say. So your "opinion" is essentially worthless. If you were at least objective from time to time, perhaps more on here would pay attention. Can't wait to see the other anti-Microsoft zeolets such as yourself chime in on this deal. I'm sure we will all get more negativity, defeatism and Linux-Andoid-Apple fanboy "opinions". Very sad, but very true.
      BruinB88
      • I posted real numbers

        You want more objective than that?!!!
        Show me the objectiveness in your post - we can discuss from there :P
        My opinion is as worthless as yours - I don't have nothing against yours, if you have something against mine - nothing I can do.

        It's true I criticize MS sometimes (as I praise them others - maybe less, I guess they are not succeeding that much in the stories at ZDNet - not me saying it, if you want links I can give them) - but point me one post in the past where I was very wrong about it (you can use the search box).
        AleMartin
      • Why don't you let us know what you don't agree from my post

        That would be much more objective ;)
        AleMartin
      • I run a search on your posts

        Do you want me to count the times you just complained about someone not being a MS lover without adding anything useful to the discussion?
        I guarantee you that you don't find those kind of posts from me, as I was never rude even when provoked.
        AleMartin
      • Bruin, how about actually reading what he said...

        instead of assuming that was anti-Microsoft rhetoric? Your own response reeks more of 'fanboyism' than offering any kind of rebuttal.

        Microsoft IS hurting, though you might not see it because of its ubiquity in every field BUT mobility. They're hurting because the workstation market is falling far faster than you may want to admit--quarterly sales of Microsoft-carrying devices falling by double-digit percentiles from nearly every OEM in the field. The poor showing of Windows 8 exemplifies the issue and Microsoft is scrambling to stop that slide. If these poor sales continue, Windows itself could be irrelevant as an OS within 5 years as OS X and Linux gradually take over through supporting iOS and Android devices.

        Am I being anti-Microsoft? No; though I admit I used to be. Microsoft used to abuse its customers through its poorly-designed OSes but over time I realized that most of the issues were hardware related, due to OEMs trying to boost profits by reducing the quality of the components in their PCs. A well-built PC ran Windows far, far better than the typical commodity-priced name brand PC and even Apple's computers demonstrated better stability and better performance than any cheaper OEM model running Windows. That commodity OEM quality is now hurting Windows far more than any time in the past because users have lost confidence in Microsoft. Even now while the general 'digital' stock market prices are up--even for Nokia--Microsoft's own stock has fallen an incredible 6% just today.

        This isn't Microsoft bashing, this is simple fact and Microsoft is in a near panic to stop that slide.
        Vulpinemac
        • Re: due to OEMs trying to boost profits by reducing the quality of the com

          And why do you think they've been doing that? Could it be because there is no other way to make money from selling a PC nowadays, because Microsoft and Intel insist on grabbing essentially 100% of those profits for themselves?
          ldo17
        • Actually...

          It's not the workstation market that's failing at all. Workstation users already get PC upgrades... we're the people who still need more PC performance. And yeah, I did just this weekend max out memory on my workstation here, 64GB of RAM and huge swap partition on a RAID. Doing photo editing... but I'm probably doing a few things in photography most people are not.

          And the thing is, the workstation market is probably less that 1% of the whole PC market. How did I get this admittedly made-up number? Simple math. A PC workstation costs more than $1000, significantly more. A few years ago, Apple sold about 90% of all of the PCs over $1000, simply because Apple sold about 5% of the world's PCs, and every one of them cost over $1000.

          Add to that the fact that there are more hardcore PC gamers than workstation users, though we often use the same class of hardware. Neither of these markets is going to keep Microsoft happy.

          It's the loss of sales in regular every day ordinary desktop PCs that's the problem. PCs from ten years ago meet the needs of most business and home desktop users. And given that ARM and Atom based tablets are about as powerful as a ten year old PC, some of these people are finding their needs well met by tablet computers. That's why both Microsoft and Intel are so serious about mobile computing. It's not that $300 tablets and $20 SOCs are the best business, but they're clearly where the volume is headed.
          Hazydave
        • Re: That commodity OEM quality is now hurting Windows

          Which is ironic, because the very fact that it was running on commodity software made Windows so ubiquitous and popular.

          One thing that Microsoft fanboys forget when comparing Microsoft to Apple is that Microsoft does not make personal computers, while Apple's business has always been centered there. Apple even went that far to convince people that they are better with a pocket computer having phone features (iPhone) than with a phone having computer features (everyone else).

          Now, Microsoft blaming OEMs whom they owe their success so far for their own failures is .. pathetic.
          danbi
        • Juz Small silly mistake had done by microsoft

          Consumer hate Microsoft bcuz of silly GUI mistake not the OS itself.I think Win 8 are far more secure that I could think + it with secure UEFI boot.hmm OS X is great , but not everybody in this world are rich enough to afford a mac book. Chrome OS hmm still poor & unmature OS.need online connectivity to access all the data in the cloud.Linux,okay & stable but heavy gamer really need Linux to run on their gaming platform. even though hardcore and professional enthusiast are prefer windows based OS as their project department. I think Microsoft should set an on/off add-ons settings to the GUI live tiles and desktop mode.If Microsoft noticed that problem i think the consumer will appreciate it
          Anonymous1511