Microsoft was interested in buying Nokia’s handset business outright, according to the Wall Street Journal, which said the two companies met recently to hold “advanced talks” over the possible acquisition. However, the discussion—get this—broke down because Microsoft is worried about Nokia’s current market position. As if Microsoft’s own Windows Phone is the belle of the ball.
Microsoft has already proven it is more than capable of creating its own hardware with the Surface, though Nokia has a much wider market penetration. However, even though Nokia’s Lumias are doing modestly well in some markets, they’re nowhere near the prominence of iPhones and Android devices across the globe. Perhaps Microsoft believes a deeper alliance can change that.
As it stands, Microsoft and Nokia are pretty buddy-buddy in the mobile industry—Nokia has mostly used Windows Phone as its platform of choice over the past couple years. But the return on that hasn’t been particularly grand for either company. And Windows Phone, for that matter, still isn’t anywhere near the top two mobile OSes, Android and iOS. It isn’t clear how Microsoft would benefit from purchasing Nokia, but I have my theory.
It’s likely not many other manufacturers are willing to design high-end Windows Phone handsets, so Microsoft may have wanted to try and capture the Finnish company in the hopes it can use the recognizable Nokia brand to sell devices in the longterm. If Microsoft were to jump out on its own with a homebred smartphone design, the chances of success against the Galaxy S4s and iPhone 5s aren’t good. But, then again, maybe Microsoft needs to take that risk instead of relying on Nokia’s own mobile division to get Windows Phone market share up into the double digits.
Even though Windows Phone—and Lumias—have climbed higher over the past twelve months, the two still aren’t really in the overall worldwide mobile conversation; it’s iPhone and Android, and then the other guys. Of course, that could always change, and an acquisition of Nokia’s mobile business could have potentially helped kickstart Microsoft’s platform. But it sounds like that’s never going to happen now.