By now you've no doubt heard today's surprising news; Microsoft has gobbled up Finland's finest phone division in a $7.2 billion deal. On the surface, it's a takeover that doesn't make much sense. But when you look closer, it... still doesn't make much sense. But that doesn't mean we can't try.
Let's start with what Microsoft is and is not getting, at least on paper. For those billions, Microsoft gets in return:
- Nokia's smartphone and mobile phone business, including the manufacturing and assembly bits.
- Nokia personnel, including the design team, the sales/operations team, and the Stephen Elop team.
- A buncha patents, but not all the patents.
- The ability to license Nokia HERE map technology, but not HERE itself, which come on.
- A place to crash in Finland.
Which, hey, nice, not bad. But also, arguably, totally unnecessary.
Why buy the cow when you can get the milk for free? That's archaic and misogynistic when you use it in a dating context. But here's the thing: It's actually totally true when you're talking about a business transaction. And in Nokia, Microsoft had a lacteous cornucopia.
Nokia wasn't just Microsoft's best partner. The two companies had totally bought into each other; Nokia didn't make phones for competing platforms, and Microsoft's relationship with other Windows Phone 8 partners has essentially flatlined. Even though they weren't technically married, they were certainly common law. So what do they gain by making it official?
In its presentation on the strategic rationale (PDF) behind the deal, Microsoft says that bringing Nokia phones in-house "protects Windows Phone future;" having ready first-party hardware means that Windows Phone will, in theory, last as long as Microsoft does. And that's where the picture starts to get more clear.
Nokia's smartphone sales last quarter were down 24 percent (PDF) year over year. Its dumbphone sales, typically a source of strength, declined 39 percent. In fact, every single Nokia division was down double digits in both sales and profitability. That's a company that needs a lifeline. Microsoft threw it one.
Besides, Microsoft had already been tossing hundreds of millions of dollars of platform subsidies Nokia's way, without much to show for it. Microsoft currently makes less than $10 off of every Windows Phone unit sold; that number goes way up when it's all in-house.
So: Microsoft needed to ensure Nokia's survival to ensure Windows Phone survival, and the best way to do that was assimilate. Makes sense. But there's likely more to it, in Microsoft's eyes, than self-preservation. Although as far as strategies go, this one seems a little reserved.
As the NYT points out today, there's a world of hundreds of millions of dumbphone buyers out there who will, someday, make the switch to smartphones. A huge percentage of them already own Nokia handsets. Ergo, the thinking goes, they'll opt for Windows Phone when the time comes.
Would that work? Maybe! Slowly. But it also feels like connecting dots that are drawn on different sheets of paper.
There are a few finance-minded theories floating around about why the transaction makes sense, including its usefulness as a tax dodge. Don't even worry about it.
While we think of big corporate transactions like these as being driven by faceless, monolithic boards of directors, there are actually real human people behind them. In this case, interesting ones!
- Nokia's Design Team: Say what you will about Lumia smartphones, they were beautiful. Well-designed, solid, top build quality. And while they didn't sell well, they certainly have been more successful than Microsoft's Surface tablet disaster. They'll guarantee that Microsoft's first push into smartphones isn't an embarrassment. They also probably have delightful Finnish accents.
- Stephen Elop: For years, Stephen Elop was one of the top executives at Microsoft. Then he went to Nokia. Now he's back. Not only that, but he's back at a time when Microsoft happens to be in need of a new CEO. Could they have just hired him back from Nokia when the time came? Probably! But at least now he'll already be back in the fold. He has a delightful Canadian accent.
- Steve Ballmer: Remember, this blockbuster acquisition comes just a week or so after Microsoft CEO Steve Ballmer announced he was resigning in a year. And while plenty of people signed off on the Nokia deal, it's still basically the equivalent of President Obama announcing that the US is going to annex Mexico his last week in office. Which is fun.
That's the only question that really matters, right? And the answers aren't particularly inspiring.
If you currently own a Windows Phone device and are frustrated by the lack of apps, I'm sorry to report that this won't help the situation any. If anything, it'll get worse; developers are already skittish about the lack of WP users, and the one thing this acquisition doesn't do is guarantee more of them. In fact, it will probably mean fewer (at least in the short-term), as explained directly below.
If you're thinking about owning a Windows Phone device, get ready to have a lot fewer options. Samsung and HTC are Microsoft's only other real partners, and what's currently half-hearted support will turn into no support pretty quickly after this consolidation. Sure, other OEMs stuck with Android after Google bought Motorola. But that's because they had to; Android's too dominant to ignore. Windows Phone barely registers.
If you couldn't care less about Windows Phone, carry on.
So that's where we're at; Nokia killing itself to live, Microsoft doubling down on meh, and people who dig live tiles with fewer shiny things to swipe them on. That's what $7.2 billion gets you these days.