If you’re old enough to remember a time when mobile phones weren’t common place you also likely remember the time when Nokia was the brand to have, much like Apple is today. I myself owned quite a few of them with my very first phone ever being the (then) ridiculously small Nokia 8210. I soon gravitated towards other, more shiny devices as my disposable income allowed but I did find myself in possession of an N95 because, at the time, it was probably one of the best handsets around for techno-enthusiasts like myself. However it’s hard to deny that they’ve struggled to compete in today’s smartphone market and, unfortunately, their previous domination in the feature phone market has also slipped away from them.
Their saving grace was meant to come from partnering with Microsoft and indeed I attested to as much at the time. Casting my mind back to when I wrote that post I was actually of the mind that Nokia was going to be the driving force for Microsoft however in retrospect it seems the partnership was done in the hopes that both of their flagging attempts in the smartphone market could be combined into one, potentially viable, product. Whilst I’ve praised the design and quality of Windows Phone based Nokias in the past it’s clear that the amalgamation of 2 small players hasn’t resulted in a viable strategy to accumulate a decent amount of market share.
You can then imagine my surprise when Microsoft up and bought Nokia’s Devices and Services business as it doesn’t appear to be a great move for them.
So Nokia as a company isn’t going anywhere as they still retain control of a couple key businesses (Solutions and Networks, HERE/Navteq and Advanced Technologies which I’ll talk about in a bit) however they’re not going to be making phones anymore as that entire capability has been transferred to Microsoft. That’s got a decent amount of value in itself, mostly in the manufacturing and supply chains, and Microsoft’s numbers will swell by 32,000 when the deal is finished. However whether that’s going to result in any large benefits for Microsoft is debateable as they arguably got most of this in their 2011 strategic partnership just that they can now do all the same without the Nokia branding on the final product.
If this type of deal is sounding familiar then you’re probably remembering the nearly identical acquisition that Google made in Motorola back in 2011. Google’s reasons and subsequent use of the company were quite different however and, strangely enough, they have yet to use them to make one of Nexus phones. Probably the biggest difference, and this is key to why this deal is great for Nokia and terrible for Microsoft, is the fact that Google got all of Motorola’s patents, Microsoft hasn’t got squat.
As part of the merger a new section is being created in Nokia called Advanced Technologies which, as far as I can tell, is going to be the repository for all of Nokia’s technology patents. Microsoft has been granted a 10 year license to all of these, and when that’s expired they’ll get a perpetual one, however Nokia gets to keep ownership of all of them and the license they gave Microsoft is non-exclusive. So since Nokia is really no longer a phone company they’re now free to start litigating against anyone they choose without much fear of counter-suits harming any of their products. Indeed they’ve stated that the patent suits will likely continue post acquisition signalling that Nokia is likely going to look a lot more like a patent troll than a technology company in the near future.
Meanwhile Microsoft has been left with a flagging handset business, one that’s failed to reach the kind of growth that would be required to make it sustainable long term. Now there’s something to be said about Microsoft being able to release Lumia branded handsets (they get the branding in this deal) but honestly their other forays into the consumer electronics space haven’t gone so well so I’m not sure what they’re going to accomplish here. They’ve already got the capability and distribution channels to get products out there (go into any PC store and you’ll find Microsoft branded peripherals there, guaranteed) so whilst it might be nice to get Nokia’s version of that all built and ready I’m sure they could have built one themselves for a similar amount of cash. Of course the Lumia tablet might be able to change consumer’s minds on that one but most of the user complaints around Windows RT weren’t about the hardware (as evidenced in my review).
In all honesty I have no idea why Microsoft would think this would be a good move, let alone a move that would let them do anything more than they’re currently doing. If they had acquired Nokia’s vast portfolio of patents in the process I’d be singing a different tune as Microsoft has shown how good they are in wringing license fees out of people (so much so that the revenue they get from Android licensing exceeds that of their Windows Phone division) . However that hasn’t happened and instead we’ve got Nokia lining up to become a patent troll of epic proportions and Microsoft left $7 billion patent licensing deal that comes with its own failing handset business. I’m not alone in this sentiment either as Microsoft’s shares dropped 5% on this announcement which isn’t great news for this deal.
I really want to know where they’re going with this because I can’t for the life of me figure it out.