Microsoft’s strategic thinking in its acquisition of Nokia Devices & Services

Microsoft’s strategic thinking in its acquisition of Nokia Devices & Services
Microsoft published a 30 page PowerPoint presentation outlining the details of the deal which, assuming all goes according to plan, will result in Microsoft acquiring Nokia’s Devices and Services unit for roughly €5 billion.

While there are sure to be many Nokia faithful that will be upset by this news, this may actually prove to be the single transaction that allows Nokia to continue as an on-going concern, through commercial services and its exceptional mapping product. Moreover, Nokia trims its overhead by adopting a licensing model, similar to how Qualcomm conducts its business. Indeed, Nokia is not going anywhere.

The Deal in Broad Strokes

Microsoft gets a lot out of the deal too. For starters it is acquiring a large talent pool that has dominated the Windows Phone ecosystem with uncompromising high quality equipment. €3.79 billion of the deal goes to buying the Devices and Services business unit itself along with some “key” patents. The other €1.65 billion grants Microsoft access to a “broad” set of intellectual property which Nokia will continue to own.

Where Microsoft really makes a score is with the patent arrangement. It gains over 8,500 patents directly in the deal, ownership of the Lumia and Asha brands and a ten-year license to use the Nokia brand on “feature phones.” However, it also gains from Nokia “assigning” its relevant agreements with companies like Qualcomm, IBM, Motorola and others, streamlining Microsoft’s patent agreements.

Crosshairs on Google and Apple

It is made clear throughout the presentation that Microsoft is gunning for Google and Apple. While Microsoft states that it will continue to support its products on iOS and Android devices. It also sees the possibility of Apple and Google being at the root of a foreclosure of “app innovation, integration, distribution, or economics.” That is a valid concern and it is part of the problem that is starting to close in on BlackBerry on a consumer level.

Microsoft will counter the Apple and Google juggernauts with a “first rate Microsoft phone experience.” The execution of the plan for this merger incorporates a vision that Microsoft will continue to position itself as an alternative to Google and Apple.

Why Phones?

Another interesting fact that can be drawn from the presentation is that Microsoft was netting less than $10 for every Nokia Windows Phone that was sold. The acquisition reverses that monetary arrangement and integrates research and development.

For the software purists, the performance of the Microsoft Surface tablet would have many asking, “why phones?” The company goes into depth here as well and even goes on to state outright that part of the reason is to protect the Windows Phone ecosystem by buying Nokia before someone else does (recall the rumors that Huawei could buy Nokia). Nokia is 80% of the Windows Phone market, and if another company were to acquire it and decide to make a switch to Android, that would be the end of Windows Phone in no uncertain terms.

Microsoft put its Money where its Mouth Is

Nokia Devices and Services is an established player, which means that hopefully Microsoft will not tinker with things too much and break a well-oiled machine. Nokia has done quite well rolling out a number of devices over the past year and that is something that Microsoft will want to keep at the ready if innovation is accelerated like it hopes it will be.

Then there is the age old motivator, money. Microsoft is betting that Windows Phone will have at least 15% of the market by 2017. That should equate to roughly $45 billion in revenue. Making that happen will be some 30,000-plus Nokia employees getting Microsoft ID badges along with Stephen Elop as the Executive VP of Devices at Microsoft.

The presentation was a fairly concise 30 pages and can be seen in its entirety via the source link below. For those that are less patient, we grabbed what are arguably the most pertinent slides. Yes, this is Microsoft’s rationale and yes it can be said that it is one sided. For the Nokia fans there is arguably not another company that could be entrusted with the image that Nokia now has. For the Windows Phone fans, this is Microsoft going all-in and getting ready to go toe-to-toe with Apple on the devices front and confront Google when it comes to many services. Things just got a lot more interesting.

source: Microsoft



1. Commentator

Posts: 3723; Member since: Aug 16, 2011

15% market-share by 2017. That seems almost too conservative. Granted, they obviously know what they're doing... But they're apparently content to stay in third for quite a while.

3. a_merryman

Posts: 749; Member since: Dec 14, 2011

Considering the potential growth the smartphone market still has in the developing world and even parts of the developed world...a 15% marketshare can still = huge profits. According to them $45 billion. I think windows phone ending up as a strong third contender is inevitable and is a good thing for the market. It will be hard to pass Android's market-share due to the nature of android, but it might be possible for them to capture more of the global market than Apple (unless the 5C does as well as Apple is hoping it will in the developing markets).

5. Commentator

Posts: 3723; Member since: Aug 16, 2011

Without a doubt, and they're definitely acknowledging Android's (Samsung in particular) ability to cater to developing nations with entry-level devices, but that's also where Nokia has traditionally thrived. I'm not going to argue their results because obviously they came to that conclusion through thousands of hours of research and analysis, but it certainly says a lot about their views on the market landscape going forward. As for the 5C, I really doubt Apple is aiming for developing markets, especially at the prices it's rumored for. Developing markets has never really been part of their game plan, they're a premium manufacturer. The 5C looks more like a colorful, fun, slightly "less-premium" device aimed at first-time users and the like. The way Apple works though, there's no way the average consumer in a developing nation would be able to afford a 5C.

51. a_merryman

Posts: 749; Member since: Dec 14, 2011

I dont think Apple would be aiming for the average consumer in those countries. I think they are trying to aim for the new upper middle classes over in those countries who now have enough disposable income for a mid-range smartphone but maybe not for the flagships yet. While also trying to keep their margins. And yes, it looks like Microsoft and Nokia are finally turning their ships around. Though to be fair, Microsoft still rakes in money hand over fist.

2. lallolu

Posts: 733; Member since: Sep 18, 2012

This is why Nokia could not make an android phone even though they knew it would be good for business. As many people foresaw, this was Elop's plan from the beginning.

47. akki20892

Posts: 3902; Member since: Feb 04, 2013

Absolutely true said dude agree...... we will see Nokia Android, bring it on Nokia show them who you are.

4. kaliil10

Posts: 146; Member since: May 16, 2012

i knew that Stephen Elop will bring Nokia to Microsoft lol. anyways i love Nokia wherever its.

6. alterecho

Posts: 1106; Member since: Feb 23, 2012

Man this is really hard to swallow. Will the actual design team remain unchanged? Are they going to replace the Nokia branding?? I really, really hate MS now. I bought a Lumia 820 recently for Nokia's hardware and brand. My favourite company.

10. Commentator

Posts: 3723; Member since: Aug 16, 2011

Don't worry, they're keeping the Nokia branding and designs. Why else would MS have bought them?

19. alterecho

Posts: 1106; Member since: Feb 23, 2012

The problem is, Microsoft has a knack of ruining things. They ruined Windows and XBOX brands. And its incompetence is seen in the way they handled WP7 and their laziness is shown in their pace of rolling out some simple features for WP. Microsoft is a company living in the shadow (money) of its former self. With Nokia being bought, i feel betrayed.

35. cdgoin

Posts: 614; Member since: Jul 28, 2010

Ruined Xbox..? They made Xbox, and came in and took the gaming world from Nintendo and Sega and beat them up with it. Only true competition is Sony and to a small extent Google. And WIndows is only the top operating system in the world, by a factor of 90 to 1.. ?

43. alterecho

Posts: 1106; Member since: Feb 23, 2012

As i said, its living under the shadow of its former self. Also, it wasn't MS that took the gaming world from Sega and Nintendo. It was Sony. The 360, XP and windows 7 were the ONLY good producs from MS.

49. zennacko unregistered

Not Microsoft, Steve Ballmer did. Now that he won't be the CEO from 2015 on, things will be better, I think (I hope Gates come back, but if he doesn't, I hope he puts someone better in charge, a person with the same mindset as Steve Wozniak maybe?)

28. tedkord

Posts: 17415; Member since: Jun 17, 2009

Let's hope that the minds that brought us the Kin1 and Kin2 are put in charge!

50. zennacko unregistered

A Zune HD-like phone would rock the market, especially when it's done with nokia's expertise in mobile

7. kaira

Posts: 26; Member since: May 12, 2013

Watch out, NOKIA will rule again (or get the 2nd spot) since the won't be (any) two-centres of power... Give them TWO years from now... Microsoft will be fully behind Nokia everystep of the way from now on... Watch the space!

8. veer.d

Posts: 89; Member since: Jul 12, 2013

why nokia accepting this.They can even succeed with Android

9. Timmehor

Posts: 599; Member since: Mar 09, 2013

Nokia are doing this for their own Financial good, you won't see Nokia struggling any more with Money under Microsoft, this is one of the pro's of the buy out. But one of the negative will be if Microsoft go overboard and we lose the Nokia touch, the touch we all love, and WANT TO KEEP!

11. Shatter

Posts: 2036; Member since: May 29, 2013

After seeing what they did with the xbox one and windows 8 Nokia is done for.

12. Commentator

Posts: 3723; Member since: Aug 16, 2011

Yeah, that's obviously the reasonable way to look at it...

13. microsoftnokiawin

Posts: 1268; Member since: Mar 30, 2012

Microsoft's gaining way more out of this then they payed eugh next step sailfish for me

17. AhmadAlsayegh

Posts: 326; Member since: Jul 18, 2011

I have placed an email notification for when Jolla is back on stock so I can order mine...

18. Timmehor

Posts: 599; Member since: Mar 09, 2013

Mhmmmm, this was planned and Nokia did a bad job at preventing this acquisition.

20. volcano

Posts: 348; Member since: Jan 25, 2013

your next phone should also be lumia since they joined together as one team for design developing creating apps

27. AhmadAlsayegh

Posts: 326; Member since: Jul 18, 2011

dude, most people love Nokia because it is Nokia, not for Microsoft, and I for one, love both products as two different companies not one

33. Timmehor

Posts: 599; Member since: Mar 09, 2013

I love Nokia for Microsoft! Well, kinda, I liked the great Nokia touch it put on Windows Phone! I am thinking about Jolla, but that is years to come, when their Sailfish OS is older and better.

37. cdgoin

Posts: 614; Member since: Jul 28, 2010

Look at the Surface.. its so well built its amazing. I don't think there is anything to worry about with MS trying to cheapen the product. I do believe they will replace series 40 with WP on lower end phones. But thats a good thing.

14. AhmadAlsayegh

Posts: 326; Member since: Jul 18, 2011

This acquisition based on massive market research and studies, I can't say i know more than Microsoft or Nokia, probably both did their homework...but this news utterly broke my heart...what happened to Nokia who started as a lumber mill, then a rubber and cable company...when they founded the electronics department, they were running in loss for 15 years! and yet, they managed to come out of it...seriously, I thought Nokia could do way better than thinking of this fast cash, Elop just buried 150 years of history, I bit Finnish people won't be happy with this decision

21. alterecho

Posts: 1106; Member since: Feb 23, 2012

I share your pain.

46. Pdubb

Posts: 249; Member since: Aug 08, 2011

Wait did you read the article? Nokia only sold a portion. There will still be a Nokia. Also MS can only use the Nokia brand for feature phones for 10 years. That would mean after that Nokia could use it or license it or whatever they wanted.

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