Microsoft and Nokia: What Kind of Marriage Will It Be?

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3 September 2013
Zilvinas Bareisis
Today Microsoft announced that it has purchased Nokia's mobile phone business. According to the announcement, "Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash." Both companies have been struggling to adapt to changes in mobile computing - Nokia has lost its leadership in handsets, and Microsoft was rather late in announcing its latest Windows mobile operating system, which remains a distant third to Apple and Android. So, what can we expect from this marriage? One of the commentators on The Times website summed up the question rather bluntly and concisely: "Interesting. Microsoft, who failed to anticipate that computers would become more like phones, merges with Nokia, who failed to anticipate that phones would become more like computers. So will they end up in a perfect partnership of complimentary skills and experience? Or will this create a behemoth that consistently fails to predict the future?" In many ways, the merger is a natural progression of the deep partnership that the two companies struck two years ago. It appears now that both agreed that the next step in the integration was required. Or was it perhaps a defensive move for Microsoft to make sure its main handset partner does not fall into competitive hands? Mobile platforms so far have been characterized by two rather distinct approaches. In the "closed" camp, there is Apple with its tightly controlled and integrated ecosystem, from operating system to handset to strict app approval process. In the "open" camp, we have Android - an open operating system available to multiple handset manufacturers. Microsoft and Nokia alliance so far seems to have fallen in between the two camps - it was neither as tightly integrated as Apple, and given Nokia's dominance of Windows-based handsets, perhaps not as widely open as Android. While the merger is pointing towards increased integration, the question remains whether the combined Microsoft/ Nokia indeed want to fully emulate Apple's closed strategy. One of the selling points of the latest Windows platform is its seamless integration across devices, from desktops and laptops to mobiles and tablets (a move Celent applauded when it was announced), and I don't think Microsoft has any intentions of entering the hardware market in the traditional computing space. The outgoing Microsoft CEO Steve Ballmer described today's announcement as a "bold step" and "a signature event in our transformation." It certainly is. More competition in the mobile platform space is very welcome, so we wish Microsoft and Nokia's marriage is a success.

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