Microsoft + Nokia = Dog

When Stephen Elop moved from Microsoft to run Nokia, many saw this as part of a cunning plan to prepare the latter for purchase by the former. There's no real evidence for that, although soon after joining, Nokia did place the Windows Phone...


When Stephen Elop moved from Microsoft to run Nokia, many saw this as part of a cunning plan to prepare the latter for purchase by the former. There's no real evidence for that, although soon after joining, Nokia did place the Windows Phone platform at the heart of its future strategy, despite the many drawbacks of doing so, effectively betting the company on the success of Windows as the third mobile platform alongside Android and Apple.

That didn't really work out, as can be seen from the fact that in 2011, shortly after Elop took over, there were rumours that Microsoft might buy Nokia's mobile business for about 20 billion Euros; today, Microsoft acquired that unit for under 4 billion Euros:

Microsoft Corporation and Nokia Corporation today announced that the Boards of Directors for both companies have decided to enter into a transaction whereby Microsoft will purchase substantially all of Nokia's Devices & Services business, license Nokia's patents, and license and use Nokia's mapping services.

Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia's Devices & Services business, and EUR 1.65 billion to license Nokia's patents, for a total transaction price of EUR 5.44 billion in cash. Microsoft will draw upon its overseas cash resources to fund the transaction. The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia's shareholders, regulatory approvals and other closing conditions.

Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia's Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing. For Nokia, this transaction is expected to be significantly accretive to earnings, strengthen its financial position, and provide a solid basis for future investment in its continuing businesses.

On the one hand, that means that Microsoft may have picked up an incredible bargain; on the other, it may have tied itself to a manufacturer that is well past its glory days and plummeting fast. Certainly, managing the takeover will be a major task, especially at a time of great uncertainty in the wake of Ballmer's announcement that he will be leaving.

To be sure, the close working relationship instigated by Elop will make the takeover simpler than it might otherwise have been. But I doubt whether many of the fiercely loyal Nokia employees will be overjoyed at being assimilated by the Microsoft machine. Indeed, I predict that a good few will take any redundancy schemes that are offered to them, or maybe simply leave. That will probably be good for the local startup scene, but not for Microsoft, which will lose many good engineers.

But I don't think that haemorrhaging of talent is the main problem with this announcement. When I first heard about the move, I assumed that Microsoft was buying Nokia largely for its patents, which are very strong in the field of mobile. And yet as the statement above indicates, it is merely licensing them. Here are the details from the Strategic Rationale document [.pdf]:

Microsoft is acquiring over 8,500 design patents, ownership of the Lumia & Asha brands, and a ten-year license to use the Nokia brand on feature phones.

Microsoft is paying ‚¬1.65 billion for a fully paid-up license to Nokia's utility patents

That seems to suggest that Microsoft is only getting the design patents, not the crucial utility ones. Given Nokia's recent decline, that means Microsoft is missing out on the most important part of the company's portfolio. Maybe there are plans to buy the rest at a later point (perhaps when the value of the rump Nokia falls even further...), but there are certainly no hints of that in the details that we have of the licensing agreement.

Assuming that it has not acquired utility patents, as Google did when it bought Motorola in a similar move, it really seems to me that Microsoft has got the worst of both worlds here. It must grapple with the painful integration of a major but dying hardware company, which has been left behind by competitors, into what is still basically a software company at heart, but without enjoying any of the benefits of Nokia's glorious past in terms of the utility patents it has amassed. In a way, this awful deal seems to sum up Steve Ballmer: managing to snatch defeat from the jaws of victory.

But there's a further intriguing possibility. As Ballmer explained to his staff in an email about the acquisition:

Stephen Elop will be coming back to Microsoft, and he will lead an expanded Devices team, which includes all of our current Devices and Studios work and most of the teams coming over from Nokia, reporting to me.

Partly as a result of that, many are speculating that Elop will in fact be Ballmer's successor. I think that would be disastrous for Microsoft. That's because Elop is a Microsoftie through and through – the last thing Microsoft needs. If the company is to become relevant rather than just profitable, which it will certainly remain for many years, it needs to find a new vision, and that requires some completely fresh thinking from an outsider. As we've seen with Nokia, Elop's solution is just More Microsoft. That practically destroyed Nokia, and might well do the same for Microsoft.

Unless Microsoft makes a truly inspired choice for its new CEO, which seems unlikely, I think the latest move to acquire Nokia is good news for open source in general, and Android in particular. It confirms that Microsoft's previous mobile strategy has failed, forcing the company to step in and buy Nokia's device division. Microsoft's inability for whatever reason to acquire some dangerous patents in the mobile sphere means that the threat to Android is no greater now than it was yesterday (but that could change if Microsoft does go on to buy Nokia's utility patents.) Meanwhile, Microsoft's old and new managers will be distracted by the need to bring in Nokia as fast and painlessly as possible. What open source gets up to will be very low on their list of priorities, which means that Microsoft will probably miss the next revolution in computing just as it missed the last two – the Internet and the rise of Linux as the foundation of a universal consumer platform.

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