Microsoft Takes Over Nokia’s Device & Service Business: What This Means To You

Almost two years after Nokia made the landmark decision to run with Microsoft’s windows software, the phone giants have finally succumbed, and are now in discussions to sell the main arm of its handset business – involving devices and services to the software giants in a deal worth $7.2 billion. This doesn’t come as a surprise to us as we predicted this much earlier. The only expected outcome since Nokia announced the adoption of the Microsoft Windows platform for its smartphone devices has just been played out. And we must say that the script was well-written.

But where does this leave all the stakeholders – device owners, investors, Microsoft and Nokia itself? Some years back, 2007 to be precise, Nokia was the clear market leader in this sector with a huge 40 percent market share. Many may argue that this was before the major advent of Smartphones and at the moment Nokia’s market share has continually shrunk and is now down to just about 15 percent with a meager 3 percent of the smartphone market.

It would not be strange for anyone to wonder out aloud how on earth this ever happened. But with the market volatility and outrageous changes in the IT market, any business which refuses to study the trend and react pragmatically is almost certain take the hit. That could ultimately signal even a total exit from the market as has been seen with major brands take-over sagas and mergers witnessed over the last ten years. Not sure if this is real, ask IBM, Research in Motion (now Blackberry), Dell, HP and Compaq for their experiences.

History Repeats Itself Again?

The interesting thing is that this is similar to the Kodak story. You still remember the famous Kodak film? Most people still do today. Kodak was the leader in the photography film industry with multiple patents and major advantages but the company refused to respond quickly to the changing trends – the emergence of digital cameras and such other instant photo devices. By the time the company woke up to the reality on ground, the market where they once played strongly was fast disappearing and it was too late for Kodak to respond. Kodak never survived the onslaught as a company and is today in history.

One would have thought that a major giant like Nokia would have learnt from this similar experience but it seems history is repeating itself again. It now seems that competitors such as Apple and Samsung had read the market almost perfectly and responded quite early to innovations which culminated in their respective chunky smartphone market shares today. This does not mean these other OEMs do not have their own peculiar problems. But they already have acted early instead of waiting to react to market trend changes.

The deed has been done now but I can only help but wonder how differently the outcome would have been had Nokia chosen to go with Android. I am not saying that I have the answer but I have a hunch that the story might have turned out differently especially with all the goodwill the company already possesses in the market. But like they say, all of this is history now. Somewhere in-between, maybe Nokia’s loss is Microsoft’s gain. The software giants had been itching to get a hold of some kind of hardware device production strategy which would complete their value chain. Apart from producing software and licensing it to other OEMs, Microsoft can finally now get to complete the other leg by owning a device to go with it. This has proven to be really advantageous for companies like Apple, and is a bit similar to Google’s latest experiment with the ChromeBook. It adds a flexible edge to device pricing knowing that all the processes can be completed in-house.

So, what does this mean to the ecosystem?

It is clear from the announcement yesterday that Microsoft is only buying the device business – Lumia and Asha brands. In addition, there is a ten-year licensing agreement to use Nokia’s brand on the lower end devices. If this deal finally seals through, it may pose certain restrictions on Nokia. It implies that  we will definitely, at least in the nearest future unless Nokia comes up with a trick, not be seeing any Nokia smartphone again in the market. But will Microsoft be able to deliver the wow experience that is associated with most Nokia’s device? I feel yes in the immediate term but will need to be proven over a long period of time. Also, it is worth waiting to see how customers will receive the idea of a Microsoft Windows phone without the “Lumia” effect. This may ultimately turn out to be Apple and Samsung’s gain as they can capitalize on the confusion in the mind of customers to increase their respective market shares.

But there is still some good news for Nokia fans, the business is left with its licensing patents. Nokia could still make something significant out of that channel right away. Confusing as the agreement between Nokia and Microsoft may sound, the difference between a 10-year license and the 30-month mobile device restriction definitely raises questions too. All in all, Nokia’s shareholders have something to be happy about. We can now sit and wait to see how this pans out as the proposed acquisition deal is subject to standard regulatory clearance, before it can be said to be a done deal. In the meantime, if you are a Nokia fan, enjoy the last set of Nokia devices coming into the market and lastly, do let us know how you think the mobile ecosystem will shape up by dropping your comments below.

[Image via Flickr/Karyn Christner]