3 early takeaways from the Microsoft-Nokia deal
With the ink is just about dry on the agreement to sell of parts of Nokia to Microsoft, this post offers three things that could be learnt from the transaction.
Although rumoured for several months, it was officially confirmed this week that Microsoft will be acquiring Nokia’s devices and services businesses, and will license that company’s patents and mapping services (Source: Microsoft). The transaction should be finalised March 2014, and will cost Microsoft around USD 7.2 billion (EUR 5.4 billion).
As recently as three years ago, Nokia was the world’s most popular mobile/cellular phone vendor in terms of number of units shipped. However, with the launch of the Apple iPhone in 2007 and the continuing emphasis on innovation and smartphones, Nokia lost its foothold in the market and has been on a dramatic decline.
In a completely different vein, Microsoft is and has been a software giant in the computing market. Use of its Windows Operating Systems and Office productivity software is virtually ubiquitous worldwide, but the company is still considered a lightweight in the mobile/cellular market.
In light of the deal announced between Microsoft and Nokia, below are three early takeaways that business owners and professionals alike might find useful.
Adjust or die
This point is focussed more at Nokia, which had been haemorrhaging money over the past few years. For example, for the quarter ending June 2011, Nokia reported “net loss of €492 million, despite a €430 million payment from Apple” (Source: Wikipedia). Although Nokia’s prospects might have begun to improve since forming the partnership with Microsoft in 2011, the company would still have been experiencing significant financial challenges across of most of its business segments, which the partnership would have not resolved.
In the resulting sale to Microsoft, essentially, Nokia has been able to offload its less profitable segments and retain those that could become profits centres for the company. However, it also highlights the fact that for a company like Nokia, which is widely known to the mass consumer market for its phones, it may have had to adjust its business model and perceptions of itself considerably in order to survive.
Some paths might be inevitable in order to remain relevant
This takeaway is based on the Microsoft perspective. As most of you would be aware, Microsoft has been hoping to make major inroads into the mass consumer mobile/cellular market, which currently is being dominated by Android-based devices and the Apple iPhone, and their respective Operating Systems. Although initially the company did not fully appreciate how critical that market would become, in recent years it has been become committed to being seen as an important player in that mobile/cellular market.
The most recent releases of the Surface tablet and the Windows Phone, although well received by some industry experts, were not as transformative as perhaps Microsoft had expected. Hence the purchase of Nokia’s phone business could be seen as virtually inevitable, as it would give Microsoft greater control of the device ecosystem, and ultimately, should also allow it to compete more directly with market leaders, Apple and Samsung.
Strategic advantage of retaining control of your IP
Finally, it is interesting to note that although Nokia will be selling the majority of its operations, it will retain ownership of its patents. Their use will be licensed to Microsoft as part of the deal, but other companies would also be able to access them if desired.
This takeaway clearly highlights the fact that a company’s or person’s Intellectual Property (IP) could be truly valuable, and may need to be given clear and separate consideration in any major transactions. Although the initial thought might be to ensure that in the sale of any business, project or even a concept, that one is adequately compensated for that IP, another approach could be to use that IP as a stepping stone to other, hopefully bigger and better, things.
In the Nokia situation, analysts expect that its patents will evolve into a profit centre for the company, but it could also be leveraged to facilitate its transformation from a ‘has-been’, into a cutting-edge and lucrative entity once again.