A new era will dawn at Microsoft at the end of the week when the software giant becomes a smart phone maker.
It’s US$7 billion deal to buy the handset division of Nokia becomes official on April 25.
“This acquisition will help Microsoft accelerate innovation and market adoption for Windows Phones. In addition, we look forward to introducing the next billion customers to Microsoft services via Nokia mobile phones,” Microsoft counsel Brad Smith wrote in a blog.
It will be led by former Nokia CEO Stephen Elop.
UPDATE: On Friday April 25 Microsoft confirmed it has closed the deal. Elop will head the Devices group which includes the Surface tablet, Xbox hardware, Perceptive Pixel (PPI) products, and accessories. The Lumia handsets and Surface tablets run on ARM-based processors, leading to speculation that the operating systems for those devices will be merged. They note that Microsoft is making it easier for developers to write apps once for all Windows platforms.
“With the Nokia mobile phone business, Microsoft will target the affordable mobile devices market,” the company said in a statement, “a $50 billion annual opportunity, delivering the first mobile experience to the next billion people while introducing Microsoft services to new customers around the world.”
The question how many will care about the new owner when they buy their next smart phone?
Apple’s iPhone and manufacturers using Google Android operating system now sell the vast majority of smart phones. Not only that, Apple and Samsung Electronics are the only two manufacturers making money. Finally, although recently sales of Windows Phone have picked up recently, historically buyers around the world haven’t embraced the Microsoft mobile ecosystem.
Another fact: Google wanted to have more influence in the mobile market and bought the handset division of Motorola — only to sell it to Lenovo at a loss just over a year later.
That has led a number of industry analysts to wonder if Microsoft’s bet to boost WinPhone by owning a manufacturer will show dividends. They include Carl Howe of the Yankee Group, who said in an interview that Microsoft should abandon the consumer market and focus on making Nokia devices for business.
As it walks into Microsoft’s embrace Nokia is still a distant third in world-wide smart phone sales, he noted. And unlike Android, there are only a few other WinPhone makers, he added (one of them being Samsung).
“This would have been a much more compelling value proposition around 2011, 2010,” he said. “By waiting until 2014 a lot of people have made up their minds” that WinPhone isn’t for them, including the vast majority in North America. “So the big question is can this ecosystem get traction in other markets, especially in emerging markets where Nokia traditionally is very strong.” But, he added, in those countries Nokia is selling low-priced handsets, not smart phones.
Microsoft (Nasdaq: MSFT) has signaled its prepared to do almost anything to make the WinPhone ecosystem more attractive to buyers (releasing the Cortana personal assistant) app developers (by making it easier to write a Windows app once for desktop, tablet and smart phone platforms) and manufacturers (by giving away the OS for devices with screens of less than 9-in.).
And it does have WinPhone 8.1, which everyone acknowledges is a significant improvement over the various mobile phone operating systems Microsoft has released over the years. But Howe argues it comes with a high price tag in terms of its hardware needs.
Buying a handset maker isn’t the only mobile strategy Microsoft can have, Howe added — it is moving into mobile services, as evidenced by recent mobile device management announcements.
But now that the Nokia deal is done, Microsoft should go after the business market, How said. “Microsoft is a trusted vendor to enterprises,” he argues, “so why not play to that strength rather than go after consumers, who require a lot of support and brand management?”
Microsoft executives have to explain to buyers why a Windows Phone is worth buying, he said. “To date they have not articulated that … you’ve got to convince people that they’re not going to buy the market leaders. Traditionally Microsoft’s done that by tying their products to things they already sell. This is a place where I think that’s going to be very hard — I don’t think people buy a mobile phone to run Office, despite Microsoft’s assertion this is a big value proposition.”
Two years from now WinPhone will still have less than 10 per cent market share in the U.S., he believes, less globally. As for the medium term, it depends on how long Microsoft shareholders are willing to continue to lose money on mobile, he said. “I think their best shot would be to go after enterprises.”