Don't fight yesterday's war: Can Nokia fix Microsoft's mobile problem?

Microsoft has completed its mega-acquisition of Nokia's handset business, but where does it go from here?
Written by Steve Ranger, Global News Director

Microsoft today finally completed its acquisition of Nokia's handset business; now the real work starts.

The Nokia acquisition was one of the last big decisions made by former Microsoft CEO Steve Ballmer. It's now down to his successor Satya Nadella (who was apparently initially against the deal) to make it work. The Ballmer era 'devices and services' strategy seems to have been replaced by Nadella's 'mobile and cloud-first'. That shift in emphasis could be a significant one for the company.

It's essential to never lose sight of the big picture with Microsoft. The desktop PC was the key to business software market, and Windows and Office allowed Microsoft to build an unrivalled position there. Enterprise software is still the biggest part of Microsoft's business, but getting mobile right is essential to the company's future in the long term. The importance of the PC has been declining for some time as companies are moving their applications and data to the cloud, and workers are happy to access those applications and data from tablets and mobiles

As such Microsoft desperately needs to be strong in mobile to protect its core business of selling software to enterprises over the next decade or more, and find new customers in emerging markets who will probably never buy a PC at all.

Microsoft managed to dominate the PC without having to build PCs, leaving that Dell, HP and the rest. And you can be a big player in mobile without making any phones yourself — Google has proved that with Android.

Until now the problem for Microsoft has been that few mobile phone makers other than Nokia have bothered to make Windows Phone handsets, and consumers haven't warmed to those that did make into onto the market. The thinking behind the Nokia acquisition seems to be that Microsoft can now be guaranteed that there will at least one company still building Windows Phone devices, even if it is Microsoft itself.

A look at the market share numbers show the mountain that Microsoft will have to climb in mobile if it wants to become a serious player. According to IDC in the last quarter of 2013 Windows Phone held a mere three percent of the worldwide smartphone market, and Nokia's handsets accounted for 89 percent of that. In contrast, Android had 70 percent of the market, and Apple's iOS 21 percent. And neither Nokia nor Microsoft's attempts to build a successful Windows tablet to rival the iPhone (the Surface line and Nokia's 2520) have met with little more than a lukewarm reception, either.

During Microsoft's Q3 investor call Nadella sketched out a vision of a world five to 10 years from now where computing is ubiquitous and "where all experiences are powered by ambient intelligence". He talked of computing power built into new form factors, the importance of cloud, and of Microsoft adopting a 'challenger mindset'. All of this is sensible and an acknowledgement of how the environment has changed.

Microsoft needs to pour all of this into its plans for Nokia. Microsoft needs to be a giant in mobile, but that doesn't mean it has to be a giant in mobile devices. This is where 'mobile first, cloud first' could be different to 'devices and services'.

Trying to simply build 30 or 40 percent market share for Windows Phone is both unlikely and risks fighting yesterday's battles. Microsoft needs to have a broader approach to mobile, one that is not wedded purely to Windows Phone.

It can't replicate the Windows PC world again, and may finally accept that now. Even before the Nokia deal was completed Microsoft bowed to the inevitable and made a version of Office available for the iPad. Similarly, its recent decision to make Windows free to hardware manufacturers building phones and small tablets might help it claw back some customers from Android.

Another example of a new way of thinking: Nokia has been experimenting with an Android phone, which could be an intriguing alternative way to encourage new smartphone owners to use Microsoft's services even if they don't want to buy a Windows Phone device.

Already the next battlefied is evolving in mobile: Google and Facebook are looking beyond the smartphone and tablet to the next big things (wearables and virtual reality); Nokia has always been known for its excellent hardware and in combination with a cloud powered intelligent assistant could make an interesting play here.

Microsoft's decision to buy Nokia shouldn't be about taking on Android and iOS head-to-head, but about infusing a mobile first culture through Microsoft. 

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