Why Microsoft bought Nokia´s handset division

4. September 2013

After thinking about the news on Microsoft buying Nokia´s smartphone division I really believe it is a win-win-situation for both. Not because it is a result anyone in the beginning really wanted (I believe MS actually wanted a strong independent Nokia) but because the current situations for each MS and Nokia suggested that some far reaching strategic decisions had to be made.

For MS it´s becoming more and more obvious that time is running out. The old business fields and models are slowly but surely fading (Desktop OS, Office, et.al.) and new ones are not taking off as wished (Windows for phones and tablets in particular). Also expanding the old business model (selling licenses for software to hardware manifacturers) did not work out. So the new mantra „service and devices company“ as a (imho cheap) copy of Apple´s strategy was born. From that point of view it makes perfectly sense to buy Nokia. Nokia was already trimmed down on Nokia´s expenses to fit to Microsoft (abandoning all of Nokia´s own software ambitions except for what is now running Asha phones). Also I think that over at Microsoft they still believe (what already has proven wrong once) that they can turn current customers to WP, so the current feature phone user base is seen as an asset too. And last: losing OEMs is a reasonable trade off for gaining full forward integrated control of supply chain and product policy of the market leader in this particular field (Nokia as the biggest manufacturer of Windows Phones). I believe MS thinks that controlling hard- and software can increase their gross margin on sold devices and makes breaking even more likely than sticking to the licensing model. So even if MS does not gain the proclaimed 15 % market share they might even have a foot in the door of the mobile „gaming room“, may play with the other kids and make money.

For Nokia it was more kind of a die fast or slow decision. I think that Nokia was running out of cash in foreseeable future. The recent gains in market share are so small that they might have not been making money with the smartphones division for another year or so (I am just guessing, I don´t know any forecasts or current numbers in detail). The other divisions (networks, maps, feature phones) could not compensate the loss making unit. So clock was ticking here as well but the alternatives were rare. There was no chance going back to an in-house development of an own competitive operating system due to lack of strategy, know-how and resources (thanks to Elop). I guess there was also no chance of getting on the Android waggon due to restrictions in the agreement with MS. This could have been a way out but the door was closed. So without an alternative than doing more of the same that lead to this disaster (selling Windows phones) what could you possibly do as a company to avoid going bankcrupt? The only answer I can think of: destroy what destroys you. Or in less martial words: get rid of it while you can. And Nokia could because if Nokia had failed so spectacularly with Windows Phone not only Microsoft´s biggest OEM would have been gone but also Windows Phone as a platform would have lost any credibility and justification. So actually there was no other chance without risking big damage for both MS and Nokia than to settle the deal. So the win-win-situation is in reality more of a „not-lose“-„not-lose“ situation.

I personally do not believe the theories saying that it was a long planned strategy to take over Nokia and that this was Elop´s or Microsoft´s only target. These theories have strong points which cannot be denied (e.g. getting rid of Nokia´s in-house expertise on software, etc.) but I rather believe that Elop, the Nokia board and Microsoft were rather naive and believed in a strategy where a strong Microsoft and a strong Nokia can convert the user base to Windows phone and as a result turns it into a strong third platform. I don´t hope that any of the conspiracy theories are true which say that Nokia as a non-US technology company was in the way of a US technology hegemony or worse to supply NSA or whoever with access to user data. I think that the MS-Nokia-Elop-gang did not read their Porter on strategy, have no glue why open source software is not only a philosophy but also the oil of the information age that runs the engines and last made all their decisions with a big portion of arrogance against these stupid little Europeans and Asians (by underestimating Samsung´s ability to profit on Nokia´s decline). This turned out to be a fatal cocktail and the result is that the Nokia we knew (and obviously a lot of people loved) has ended. Thanks Steves, thanks Microsoft, thanks Nokia BOD for that!