Microsoft Goes Again!

Microsoft is paying Nokia $7.18 billion. On September 3, 2013, Microsoft and Nokia announced to their respective Boards of Directors a deal where the first one will buy all Nokia’s devices and services business, license patents for ten years, and use of Nokia’s mapping services, in an effort to conquer territory already lost in the mobile business to industry leaders like Apple and Google. Microsoft is also buying the option to extend the license patents use indefinitely.

This billionaire deal, EUR 3.79 billion for Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, adding up to EUR 5.44 billion -$7.18 billion, US dollar- will be funded with Microsoft overseas resources and was described by the company CEO, Steve Balmer, in a press release, as a “bold step into the future”. Step full of challenges, risk, but also opportunities if taken in the right way. The full operation is undoubtedly a forward integration while is pushing Microsoft to become a competitor of its prior partners, like Samsung and HTC, who use its operating system-OS. That is precisely and probably the biggest competitive advantage for Microsoft when launching its self to directly compete in the mobile business arena. We all know its capabilities as OS manufacturer and how successful has been doing so and now has the opportunity to show off its talent in its own mobile devices. The full transaction is scheduled to be completed by the first quarter of 2014, “subject to approval by Nokia’s shareholders, regulatory approvals and other closing conditions.”

All started in 2011, when Microsoft and Nokia jointed to launch the “Lumia” smartphones using a Microsoft OS; some of them superb, like the Lumia 1020 with a 41 megapixel camera and meant to be an excellent handset. But despite all this splurge of innovation and technology, the alliance Microsoft-Nokia is only accountable for a languid 3.7% market share of the mobile market while Apple is close to quadruple it and Google brags for almost 80% of the market share.

In the other hand, Nokia is accountable for the 88% of all Windows handsets in use so, this gives a good clue of why Microsoft wanted to buy Nokia’s mobile business. If we put together a big market to conquer and a partner selling your product increasingly, it is valid to think in buying your partner out and develop an outstanding marketing campaign along with great and innovative products for people to love them.

This deal seems not only to be promising to Microsoft mobile ambitions but is also impacting Nokia shares value which has notably increased in the last year. See graphic below:

Nokia shares have jumped from under $3.00, one year ago, to around $6.6 in the latest days.

Nokia narrowed its loss close to EUR115 million for the second quarter of 2013 from EUR824 million for the same quarter of 2012, but in contrast its revenues fell from EUR7.5 billion in 2^nd quarter of 2012 to EUR5.7 billion in the same quarter of 2013. The sales of Lumia smartphones fell 17% in North America in the 2^nd quarter of 2013 compared to the same quarter of last year while sold a record of 7.4 million handsets into distribution channels during 2013, 2^nd quarter. The total volume of Nokia’s shipment volume fell from 83.7 million handsets in the 2^nd quarter of 2012 to 61.1 million for the same quarter of 2013, 27% shrinkage.

What is on the table?

While “Nokia brings its innovation and strength in phones at all price points, and proven capabilities and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.” (Said Steve Balmer, Microsoft CEO), Microsoft will use its knowledge in developing OS and its recognized talent to secure markets and develop outstanding marketing campaigns and strategies in order to recover spaces lost to the giants Google and Apple.

Microsoft is striving in keeping Nokia’s human resources, transferring around 32.000 employees from Nokia to Microsoft and, as mentioned above, is making a forward integration looking to control not only the software, but the hardware as well of its mobile business. A movement like this may have some advantages but disadvantages too, whereas some of its former partners using windows OS, for their handsets, will start to see Microsoft as a rival and not as an associate anymore.

In the other hand, Microsoft will control its software and hardware, similar to Apple and with more maneuverability than Google, but without the Apple talent of selling premium mobile devices at a high profit.

Another challenge for Microsoft will be find a wide range of apps compatible to the windows OS for its mobile devices as Android and Apple products do, and lower distrust caused to its former partners who used to use Windows OS in their mobile devices as Microsoft is planning in continue dealing with them and supply their mobile’s OS. This situation may be jeopardized if Microsoft prior associates start to perceive it as a threat and refuse to continue using its Windows OS thinking that continued business will fuel Microsoft ability to attack them hard in the future.

The aspect of find developers able to invest resources to create applications for Windows mobile devices is sensitive, in a way that a regular user may be disappointed just to find that the apps he/she uses and love are not available for Windows phones. In consequence, if Microsoft wants to hit hard the market, must assure that its mobile products will allow user to do the same or even more that what they are doing now, on line, with their actual devices; on top of all the planned innovations and marketing campaigns or those may be worthless to pick up the Microsoft mobile business.

The mobile business is a growing event, and Microsoft has to be there, but is not. These days, we do many things with our mobile devices and will be more to do in the near future. Housewives may soon be cooking from the office using their cellphones as some electric vehicles are now smartphone operated. The spectrum of possibilities for the wireless universe is as endless as the actual universe itself.

It is sure that Microsoft has big plans and is ready to hit the ground hard with this acquisition, moreover when the desktops and laptops are not a growing business anymore and the future seems to be focus in the mobile business. Being successful in the mobile business arena is a matter of survival for Microsoft, meaning that it has to focus on developing great innovative mobile products, friendly and able to provide outstanding experiences for its users while they enjoy all the applications they frequently use and love.