Microsoft acquired Nokia’s device business this morning for about $7.16 billion. There’s more to this news than is visible on the surface. First, we probably won’t see a Nokia smartphone again since, as The Verge pointed out, the deal takes away its ability to sell smartphones under its own name in the future. That’s a weird pill to swallow, especially for the leagues of us who grew up carrying Nokia handsets and, especially, since Nokia has become a staple of the Windows Phone brand over the past few years. Strategically, there are still a lot of questions that remain unanswered.
Nokia has a history of building fantastic devices and, as we have seen with the Lumia line, has been largely strangled by Microsoft’s own software. Hardware is Microsoft’s weak point, but Windows Phone isn’t exactly great either. We know that software is key to success right now: Android and iOS are continuing to grab the majority of smartphone sales around the globe and while Windows Phone has seen slight gains, we also have to look at another firm that failed with poor software: BlackBerry.
At least we know Nokia can build hardware. It’s not simply enough to build a great looking and great feeling smartphone anymore. A good keyboard is useless without great software and a great ecosystem backing that hardware. In the case of Palm, sometimes great software and great hardware get you nowhere. Microsoft still struggles on the software side of Windows Phone, so it’s hard to see a real benefit to buying Nokia – other than it now has more control and an ability to pump the handset division full of money if it decides to. As we’ve learned from history, though, Microsoft isn’t very good with devices.
Remember when it tried to enter the tablet market before anyone else? Nobody wanted the tablets because they offered terrible performance. Then Apple came in with the iPad and showed the world how it’s done. Google and its partners followed with Android tablets. And yet even still, even after seeing what consumers wanted, Microsoft released the Surface and Surface RT, the latter of which ultimately cost the firm $900 million due to poor sales. I won’t even get into the Kin One and the Kin Two, but they were on the market for shorter than I can remember. We’ve seen what happens when Microsoft makes its own hardware: nothing.
That’s where Nokia will come in. I just can’t see how much better off Windows Phone is going to be with Nokia now in-house. Windows Phone has failed to see great success in the U.S. despite amazing phones from Nokia that are largely hobbled by Windows Phone. Perhaps the two teams will be able to work more closely together – though one has to wonder why they weren’t already doing so – and create great new technologies and devices. That’s what’s ultimately going to have to happen for there to be any success; if Microsoft strangles Nokia’s hardware prowess than this is all going to fall to pieces.
The branding question comes back into play, too. If consumers know that Microsoft’s devices aren’t very great, and never really have been, then why are they going to buy them now? Most consumers probably have fond memories of Nokia devices, but it looks like Microsoft isn’t even going to be able to take advantage of that branding with new smartphones. Worse, Nokia has a pretty solid name on a global scale, particularly in emerging markets. It can still sell “Nokia” branded feature phones, though trying to convince emerging markets to switch to a Microsoft smartphone isn’t a job I’d want to have.
Microsoft is transitioning to a new chief executive officer. Steve Ballmer is on his way out, and that means the new chief is going to have to not only continue Microsoft’s efforts on the Windows, Office and enterprise fronts, but also now also help direct an entire mobile device unit. That’s not easy. Maybe it’s good Ballmer is out. Maybe he didn’t have the vision to push Windows Phone where it needs to be. And with Elop still in house, he stands as a possible contender to lead the company. He’s already had a lengthy tenure with Microsoft, and while he has helped boost Nokia’s market share in some areas of the world, he hasn’t had great success in the United States.
I can’t draw any conclusions right now, but part of this seems like a bit of a mess to me. Microsoft’s going to try again to become a hardware company, that much is clear. We’ll see Nokia’s teams continue to work on phones and tablets, both of which will probably offer great hardware design. If Microsoft can’t get its software game up to speed, and it really hasn’t proved it has great future plans for Windows Phone, then that $7.16 billion purchase will leave us all scratching our heads.