Microsoft’s purchase of Nokia is a gamble with a good chance of a big payday, writes Wikibon Analyst Scott Lowe. The purchase did not come as a surprise in the industry, where the question was why Microsoft didn’t buy Nokia rather than just partnering with it over Windows Phone in the first place.

The purchase gives Microsoft a level of vertical integration from the hardware through software, applications, and retail stores similar to Apple and Samsung, its two main rivals in the smartphone market. The purchase may scare other phone manufacturers away from Windows, but since Nokia was by far the largest producer of Windows Phones, Lowe discounts any impact that may have.

The big question, he says, is whether Microsoft can leverage this vertical integration to improve its presence in the smartphone market. Right now, he says, IDC gives it a 3.9 percent share in the market and estimates that it could grow that to 10 percent of a larger market by 2017. While its showing in the United States is abysmal, it has a larger mindshare ovrseas, particularly in Europe, he writes.

If it can capture that 10 percent share, then its $7.7 billion investment in Nokia will pay handsome dividends. However, its track record in hardware manufacturing has been mixed at best. While the Xbox has been a success, with a significant share of the gaming device market, it just took a $900 million write-down on unsold Surface tablets.

To win that market share and turn the Nokia purchase into a success, it needs to do several things, including getting versions of the most popular apps on the Windows platform, whether that means developing its own versions in house or paying the developers, who often are reluctant to write for the Windows platform because of the small market, to do the work.

It also needs to improve the platform’s functionality to match iOS and Android. He suggests that Microsoft should also work to integrate the Windows Phone platform with Xbox and Windows tablet, so that the same apps can run across all three platforms. That, however, may take time and should not be allowed to slow development on those platforms to keep up with their markets.

The Nokia purchase also adds a new contender for Steve Balmer’s seat, Nokia CEO Stephen Elop, the man some observers blame for Nokia’s fall from front runner to back bencher in the mobile phone market. Lowe says under no condition should Microsoft’s board tap Elop for the top spot at Microsoft. Like Balmer, Elop has a terrible record of missing trends. What Microsoft needs is a visionary who can anticipate or at least recognize those trends early and get the company on board quickly.

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