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Sep 06 2013

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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.

Microsoft and Nokia logos

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.

 

Image credits (logos):  WikipediaWikipedia

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About the author

Michele Marius

Michele Marius has a wealth of experience in the telecoms and ICT space, which has been gained in the Caribbean, Southeast Asia and the South Pacific, and in the public and private sectors. She is the Editor and Publisher of ICT Pulse.

Permanent link to this article: http://www.ict-pulse.com/2013/09/3-early-takeaways-microsoft-nokia-deal/

4 comments

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  1. John Thompson

    In the beginning of the mobile evolution it was always taboo to let Microsoft into the business simply because nobody wanted them to stomp in and takeover as they did with PCs. Could you imagine Microsoft having a strangle hold on mobile and PC at the same time? The mobile industry was very conscious of limiting microsoft’s involvement in the early days. Now the story is different, somebody is finally letting them in. microsoft is going to create a big stir with the expertise they have in applications and the skill nokia has ( Nokia’s crime is lack of ideas really, they are still very much in the mobile device capability race) I expect them together to turn the smart phone market on its head. Remember, they beat Apple soundly in the PC market and they can do it in the smart phone, i imagine. But they never had the door open to them. Now it is look out!!!. Not even Google will stand up to them, I think, when they reconcile their apps capacities with veracity of the smart phone technology. And also important too, it all depends on the network infrastructure players they choose to partner with to gain the reach to end users in substantial in numbers.

    1. Sachin Ganpat

      I beg to differ. Microsoft is still trying to figure out mobile, because it doesn’t want to lose the desktop. Windows 8 was a huge flop. People have been forced to use it because it now comes pre-installed on new PCs. But people do not like the new interface, and that ruined the OS.

      Nokia didn’t run out of ideas. Meego was going to be the next step, but the decision to go with Microsoft ruined that, much to the chagrin of Intel (who is also struggling with mobile).

      I had thought that Windows 8 was going to be it for Microsoft, but I was wrong. I honestly don’t know if people want Microsoft anymore, but there are few alternatives.

  2. Sachin Ganpat

    When Stephen Elop was announced to be the CEO of Nokia, at the time, many said that he was a Microsoft operative sent to assimilate them into the collective. Well so said, so done!

    The major decision that Elop made in using the Microsoft operating system exclusively was definitely good for Microsoft, but others wondered what is the advantage to Nokia? There was none. And with that one decision, Nokia’s market share dropped and their stock prices plummeted, allowing Microsoft to take over their phone division.

    This is the death of Nokia as we know it.

  3. John Thompson

    I heard all those complaints about Microsoft before I thought too they were dead after the big anti trust loss against Netscape in the mid nineties but what I realised is that free-ness ( for want of a better word) ( free software) trumps prejudice and bias. Everybody continued with microsoft, Lotus too took a beating from that freeness of Microsoft’s.

    What you overlook is that over the years microsoft has developed so much economies of scope and scale in the software development business that they can acquire ideas and use their vast machinery to convert that into very cheaply produced software and this is what makes them dangerous. They were deliberately kept out of mobile, understand that and why first. For everyone it was a fresh start a green field without microsoft around (a level playing for the others) etc. It was a tact or inside collusion that held them at bay, its only now the rest of businesses feel prepared to take them on. Lets see what happens. I’d buy some of the stock just in case. You can write me and thank me later on. Microsoft and Nokia seems set go with AT&T so its all come-backers joined together – these guys know how to win they done it before. Besides, it’s just another cycle starting up, a change of baton. It happens all the time, no one really dies just like that maybe only if the founders or stalwarts themselves retire from the business, otherwise they come again in another form. We learnt this since from the days of Texaco, BP and Shell.

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