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Game Changer: Microsoft Buys Nokia for $7B

nokia-lumia-925Microsoft announced a deal late on Monday that they will be buying Finnish smartphone maker Nokia for $7.17 billion. Microsoft and Nokia have been partners since 2011 when Nokia decided to replace its own mobile operating system with Windows mobile. Now Microsoft has taken that partnership to the next level by acquiring the company. According to nytimes.com:

“Microsoft said it had reached an agreement to acquire the handset and services business of Nokia for about $7.2 billion, in an audacious effort to transform Microsoft’s business for a mobile era that has largely passed it by.

“Late Monday, Microsoft and Nokia said 32,000 Nokia employees would join Microsoft as a result of the all-cash deal, which is meant to turn the Finnish mobile phone pioneer into the engine for Microsoft’s mobile efforts.”

The deal is an attempt by Microsoft to bolster its penetration of the mobile market. Microsoft has infamously ignored the mobile revolution and is now playing catch up. According to Microsoft CEO Steve Ballmer:

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

The acquisition will provide Nokia and Microsoft a chance to blend the hardware and software for a better user experience. It’s also a talent acquisition as well. As reported by wired.com:

” [Microsoft] has also bought itself the new CEO it so dearly needs: Stephen Elop, the former head of Microsoft’s business division who left Redmond in September 2010 for the top post at Nokia.

“Less than two weeks ago, Microsoft chief exec Steve Ballmer announced that he would be stepping down sometime over the next twelve months, and Elop — who becomes a Microsoft executive vice president with the Nokia deal — is now the obvious choice to succeed him.”

The deal suggests that Microsoft will try to become more like Apple. Previously Microsoft was only focused on licensing software to a myriad of hardware manufacturers—which doesn’t provide the best user experience, and usually leads to inconsistency across products. According to techcrunch.com:

“Apple’s main advantage, and the one that has given it the chance to rise to its current position of prominence in both the PC and smartphone markets, has always been its reluctance to license its software for use on third-party OEM hardware. In keeping both its mobile and its desktop OS the specific province of its own devices, it can ensure that it the software and the hardware are perfectly attuned to one another.”

This move for Microsoft may not be game changing for Apple or Samsung, as they’ll probably continue to hold their leads in the smartphone market. But it does create a couple of potential game changing effects for Microsoft.

It definitely makes Windows Phone a strong contender for the coveted spot in the smartphone platforms, leaving Blackberry as the odd man out.

It also helps Microsoft to build out an end-to-end ecosystem like Apple. Despite what people may think of the company, it still has the largest platform for desktop computers, and it’s already in many living rooms with the Xbox. If you add a good mobile platform and integrate it all, that could potentially be a big deal for Microsoft.

Lastly, although Nokia fell off significantly in the smartphone market, it has always been an innovative company. Nokia has also been solid in an area where Microsoft is clueless: building great hardware. If the next Microsoft CEO is able to leverage Nokia’s innovative approach, this move may have a huge effect on the future of the company.

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