Plenty has been written about why Microsoft buying Nokia is such a smart move, and there have been plenty of critics calling out the deal as well. But according to two different analysts, the real motivation for Microsoft was that if it didn’t acquire Nokia soon, the Finnish company would quit using Windows Phone altogether. But is this assessment correct?
Microsoft’s $7.17 billion acquisition sees the software giant take over Nokia’s Devices & Services division, which includes both its smartphones and its feature phones. In addition, Microsoft also gets to license Nokia’s patents for the next ten years at least.
Also crucial is that Stephen Elop, Nokia’s ex-CEO, is now onboard, taking on the role of vice president of Nokia’s Devices & Services division. Many have suggested that this puts him in pole position to take over as Microsoft’s CEO when Steve Ballmer leaves the company.
The acquisition had been rumoured for many months before it came to fruition, and there are many compelling reasons why Microsoft went through with it. But irrespective of whatever advantages Microsoft gets out of the deal, at least two analysts claim that the biggest motivating factor was its fear that Nokia was about to dump Windows Phone. According to Business Insider, “Two analysts, Ben Thompson of Stratechary and Benedict Evans, assume that Microsoft had to buy Nokia because Nokia was going to stop making Windows Phones very soon.”
In particular, Thompson was very critical of the deal, claiming that it makes no sense:
“I theorize that Nokia was either going to switch to Android or was on the verge of going bankrupt. (I suspect the latter: part of the deal included €1.5 billion in financing available to Nokia immediately, and the fact Microsoft had to take Asha but not the brand or maps suggests they were trying to keep the price as low as possible). And, had Nokia abandoned Windows Phone, then Windows Phone would be dead.”
“Windows Phone has already been largely abandoned by other OEMs; Samsung and HTC make warmed-over versions of 6-month old Android hardware, and that’s really about it. Of course that will now stop, Microsoft’s protestations to the contrary, but regardless, without Nokia it would be over.”
Meanwhile, Evans made a similar argument about the deal, stating:
“The acquisition solves Nokia’s problem (running out of cash) and hence is a tactical move by Microsoft: it prevents the only significant Windows Phone OEM from exiting the market. It is possible that Nokia threatened to switch to Android otherwise (the relevant contracts are getting close to renewal), rather as Motorola threatened to sue other Android OEMs before Google bought it.”
Whether or not Nokia was considering dropping Windows Phone is a matter of debate, but few will deny that if it had, it would have almost certainly killed Microsoft’s mobile OS. AdDuplex’s most recent figures show us that Nokia’s Lumia phones make up 87% of all Windows Phone devices, with HTC (10%), Samsung (2%) and Huawei (1%) barely even figuring. Nokia’s devices are basically carrying Windows Phone, and while Samsung has indicated that it might get closer to Microsoft in future, Redmond cannot afford to bank on this.
Perhaps what it boils down to is this – Microsoft simply couldn’t afford to take even a small risk that Nokia might eventually abandon its mobile platform, something that Nokai’s new CEO Risto Siilasmaa alluded too in his own statement following the buyout:
“It’s evident Nokia doesn’t have the resources to fund the required acceleration across mobile phones and smart devices. Nokia has done great work, however, the industry is becoming a duopoly with the leaders building significant momentum at a scale not seen before.”
Basically what Siilasmaa is saying is that Nokia simply couldn’t afford to keep on plugging away with Windows Phone indefinitely, certainly not while it’s struggling to eat away at Android’s and iOS’s market share. That admission, above all else, could well be what forced Microsoft’s hand.