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When two become one: Was Microsoft's move for Nokia inevitable?

Our Mobile Gaming Mavens discuss
When two become one: Was Microsoft's move for Nokia inevitable?

With Microsoft's proposed buyout of Nokia's Devices & Services divisionleading the headlinew last week, we threw a rather simple question in the direction of our resident mobile gaming experts the Mavens.

A simple question that delivered an array of complicated answers, just as you'd hope.

We asked the Mavens:

Was Microsoft's buyout of Nokia inevitable and therefore meaningless? Or, do stats suggesting Windows Phone is gaining ground in key European markets largely thanks to Lumia make this a significant purchase?

Alex Bubb

Alex Bubb

Head of Partner Management and Marketing

Of course it has been an emotional time for many here at Nokia, but I have to say it has been a privilege, not just during this week, but over the last seven years to see such genuine innovation, urgency and professionalism from the teams here.

There is genuinely not a company like it (and I have worked at a few). The pride at what has been achieved in a few years with both Lumia and new Asha is incredible.

The news is of course not only significant, but it extremely exciting and full of opportunity for games partners. Lumia devices are breaking through with the fastest growth rate in the industry.

Nokia Asha continues to innovate in emerging markets and now, not only do we have the products, but also the backing, focus and investment needed to really get to the next level - which is great news.

#newchapter - bring it on!

Dave Castelnuovo

Dave Castelnuovo

Owner at Bolt Creative

I've said it before that the Nokia partnership was not enough to move the needle in any meaningful way for Windows Phone.

The devices look pretty but it clearly hasn't ignited the desire of the mass market enough to make a dent in the Apple/Android duopoly.

Acquiring Nokia is basically more of the same. Business as usual. The Windows Phone product in its existing form has done all it can to make headway. What they need now is to out innovate the competition, they need to keep surprising the industry each cycle until they get a beachhead they can build off of.

Nokia only really means pretty hardware. That's it. A nice wrapper around the OS that Microsoft creates. Having Nokia in Europe and Microsoft's OS division in the US doesn't achieve what is needed to do create special.

Both hardware and software should come out of the same location. They need to work together. Just replacing the Nokia sign with a Microsoft one is not the kind of collaboration they need.

It seems that Microsoft is waking up to the reality that they need to be in control of the hardware. They are probably blaming their lack of success on their other vendor partners. That no one is pushing it hard enough. While that may be true, this is mainly a symbolic action. Expect more pretty devices with the same basic operating system.

If Steven Elop ends up being the next CEO, expect a Howard Stringer like era for Microsoft.

Scott Foe

Scott Foe

Chief Product Officer at Ignited Artists

Roughly $7 billion for Microsoft to acquire Nokia's mobile handset business?

Remember, it was only six years ago that Nokia, then the world-leader in mobile handsets, paid roughly $8 billion to acquire Navteq. You can duct tape a stegosaurus to the back of a brontosaurus, but that bird still won't fly any better.

Keith Andrew

Keith Andrew

I really don't get the focus on the price, to be honest. Everyone is aware of the slip in share Nokia suffered in the long drawn out switch from Symbian to Windows Phone - the price Microsoft has paid is meaningless.

I think the more interesting element of the deal is that it comes as Windows Phone appears to be gaining ground in Europe - I think it's at a 10 percent share in the UK now, which is nothing to be sniffed at.

Is this something that gets lost somewhere across the Atlantic? I joke tweeted earlier that watching American tech blogs discuss Nokia was akin to watching Gary Lineker (famous English footballer) try and talk about American Football. I'm starting to think there may be some truth in that now, though.

Is Nokia just a company that doesn't translate in the US? And, if do, does that mean this deal is primarily aimed at Europe and developing markets?

Dave Castelnuovo

Dave Castelnuovo

Owner at Bolt Creative

I don't think it's an issue of whether the Nokia brand translates to the US.

I used to own a Nokia back in the feature phone days and I thought it had the best phones at the time. Plus Microsoft is a US company, people love Xbox - at least the current gen. I believe it's simply a matter of the firm's devices not making a big enough splash to convince us to buy a Nokia over an iPhone or an Android device.

And yeah, we probably aren't that familiar with the situation in Europe. Most people I know own the iPhone or a giant Android phone. As a developer, the Windows Phone Store is pretty horrible as far as the revenue we make. It's not friendly to indies, which hurts it even more.

The only way an indie can get on the platform is by going through a publisher or guaranteeing so many app releases per year. Even then, you have to be approved.

Today's mobile industry is worldwide. I'm sure Microsoft isn't just interested in the European market. To succeed it has to have meaningful market share in the US.

Keith Andrew

Keith Andrew

I don't think that's true for anyone now, actually. To succeed in the years ahead, it's all about China. The US's run as the prime market is over.

Incidentally, I was more suggesting that the take of US tech blogs on the deal is especially negative because Nokia's presence in the US market continues to be limited, and US tech blogs are notoriously bad at evaluating the bigger picture - the situation beyond US borders.

Hell, you used to see positive articles about Motorola on US tech blogs up until the other year when the rest of the world realised there was only one way Motorola's market share was headed.

Dave Castelnuovo

Dave Castelnuovo

Owner at Bolt Creative

Yeah, I understand about a definite US bias. I'm sure it's the same all over the world - that there is a bias toward what is happening immediately around you.

But talking about China. It's definitely the prime market, but the US is still #2.

This article has some interesting information. Apple is making headway in China even before the Gold Phone and the 5C. Don't see Windows Phone in this list.

So my comment still stands that Microsoft can't build a strategy around only Europe.

Keith Andrew

Keith Andrew

Well, Huawei which is in the list you cite - actually make budget WP8 devices, but that's besides the point.

That story you link to is actually a prime example of US bias: we covered those figures as well, and - unless I'm mistaken - that 4.8 percent share actually represents a fall in share. iPhone has been losing ground in China, not gaining it.

It's very little to do with the price of the handsets and all to do with the open nature of Android, which is more suited to the Chinese market. Both Apple - and indeed Nokia - will struggle to overcome that with their current models.

Anyway, drifting from the point here. Yes, you're right - Europe can't be the be all and end all. My point was, US commentators seem completely oblivious to the recovery Nokia is enjoying in markets outside the US, hence this focus on price. The price matters not one bit.

Graeme Devine

Graeme Devine

CEO / Co-Founder at GRL Games

Nokia used to rule in the USA. Back when the Nokia N95 came out it was seen as the iPhone killer. And it's only recently that iPhone is on more than one carrier.

Before that, Nokia had a huge gaming presence with a little device we all want to forget called the N-Gage.

There's no bias except for what we see at our local stores and monthly financials as app developers - and that's a whole bunch of Samsung and Apple.

If Nokia had said "hey, you can all make apps for this" back in 2007 instead of continuing to let carriers dictate apps it might be a whole different world wide story today.

Microsoft's buyout was all about, in my opinion, buying back in at the poker table by buying out someone else's stake. The question is, are they James Bond in Casino Royale or Daniel Craig in Layer Cake?

David MacQueen

David MacQueen

Executive Director at Strategy Analytics

Fascinating discussion about the US bias of analysts - I'm based in the UK and frankly couldn't agree more.

Nokia did struggle in the US though, and in many ways that is the root of the company's problems.

Wind the clock back 10 years and Nokia was one of the top handset vendors in the US. The firm let it slip badly - firstly not competing with the RAZR (remember that?) and of course then the iPhone, but by the time that came out Nokia seemed to have already abandoned the US.

That was the period when the US telecoms market went from being one of the most backward in the world to the most important market.

History lesson aside, does this deal mean much? Outside of Nokia and Microsoft, actually not a heck of a lot. Nokia is almost all of the Windows Phones shipped anyway (yes I know there are other vendors, but they have no real volume). With the plan to keep the same management team and largely run things as they were when it comes to hardware, it's hard to see that much will change radically.

Nokia/WP devices are picking up and doing better than they were, but they're starting from a very low base. I find it hard to imagine any seismic changes in the short or medium term. Developers will almost certainly see the developer programs merge but otherwise I think won't feel many changes.

The bigger question mark for me is over the Nokia phones outside of WP Asha and the others. That's probably a more significant question for many developers.

The Ovi Store (serving Asha and feature phones) reached 10 billion downloads. It's miles ahead of Windows Phone downloads, and is still doing a factor of 8 or 9 times more downloads today than Windows Phone is. Massive installed base of course.

Will Microsoft keep going with Asha? In the short term I'm sure it will, in the longer term will that support disappear?

Microsoft will want to try and push the WP platform to the low end, but the cost of hardware might keep tit from doing that. If that happens, will the firm kill it? Sell it off? I think those developers addressing the Asha and S40 devices are the ones that should be most concerned.

Alex Bubb

Alex Bubb

Head of Partner Management and Marketing

David - your question around the mass scale of Nokia Asha and Nokia Store and the threat that it will be ramped down is a serious comment, so wanted to respond on that.

I expect exactly the opposite with this acquisition.

You are absolutely right in terms of scale - let's not forget that Nokia still has the number two global mobile phone market share (with an increasing range of Nokia Asha affordable smartphones as part of that portfolio). There is also a huge consumer brand love/loyalty in markets like India, Indonesia, South America I could go on.

Key point is that it is important to think about the acquisition as part of Microsoft's new strategy/transition Microsoft is taking bold steps to become adevice and services company.

With this mobile phones acquisition, it has just became one of the largest device manufacturers on the planet, with also a huge customer base for Microsoft services.

It makes perfect sense for Microsoft to have a healthy business there. This is even before you factor in the on-ramp up opportunity for Lumia, and by definition the Windows Phone platform.

Of course, it's a tough market segment with huge competition, but Nokia Asha will continue to innovate for many years to come (10 year brand license to start). There is strong commitment to this.

Not only will Nokia Store continue to provide reach for Microsoft services like Skype, Outlook etc there is a continued growth opportunity for games as monetisation continues to improve in these markets too. Don't underestimate the future of Nokia Asha we have seen great things starting with devices like the Nokia Asha 501. Asha is here to stay.

Harry Holmwood

Harry Holmwood

CEO at Marvelous Europe

While I don't see Nokia/Microsoft surging ahead any time soon, I think it's also worth noting that an awful lot of the mass market a market Nokia has traditionally served with cheap handsets - don't necessarily think about these things in the way we do.

I know plenty of people who have no idea what Android is, who've probably heard of iPhone but that's about the limit of their knowledge, and interest, in this stuff.

Only this weekend I was asked to recommend a new phone for someone - they weren't interested in games, had no idea what app stores or operating systems are and just wanted a new phone. There will be billions of customers like this in the coming months and years, and they'll be buying on price, looks, or whatever the salesperson in the shop recommends.

(Incidentally, my recommendation was a Nexus 4, on the grounds that 'it's good and you can get it off contract which works out cheaper'.)

So, although maybe the high end is a two horse race for now, I don't think its all over for anyone yet.

Oscar Clark

Oscar Clark

Chief Strategy Officer at Fundamentally Games

I know I'm a bit late on this one, but its taken me this long to really come to a conclusion.

The original move to have Elop take the reigns at Nokia seemed to me at the time to be a smart positive move for Microsoft (and Nokia). I felt that Symbian was long dead and going down the Android route seemed wrong.

This allowed Microsoft to have the illusion of remaining independent as an OS provider and still have control over the lead platform. Indeed, I think the Lumia product line has indeed been excellent... but the market didn't respond largely as it was way too late to the fight.

Perhaps the merger was always inevitable; but will it shift the dial for the adoption of Windows Phone 8?

My gut tells me Microsoft has a real opportunity to unify the OS across mobile, tablet, console and PC. I believe that the Metro experience is a good one which provides a base which could bring the company back into the reckoning.

However, I don't think Microsoft has really worked out how to get a handle on this opportunity and until it does, all of these moves will feel clumsy and awkward. Microsoft has the tech, but it doesn't have the emotional story.

The best way to sum this up is that I know people love their Lumia. But they don't love their Windows Phone.

Keith Andrew

Keith Andrew

I think that's splitting hairs a little.

People who use the platform tend to love it - it's more that Nokia has presented an acceptable face of Windows Phone. It's turned what was a guilty pleasure for some into just a pleasure.

The two are, design wise, a perfect match in my book. Nokia's handset design has always been strong, and design is at the core of Windows Phone. They fit together really well - it's a far better fit than Windows Phone and HTC or Samsung (though HTC has, at least, tried.)

[people id="11" name="Brian Baglow"]

It comes down to consumer electronics. Outside the Xbox, all Microsoft's consumer electronics to date have not performed particularly well. The firm does solid, reliable PC peripherals, it makes a good console, but can it sell phones?

I have my doubts. Microsoft doesn't really do 'slick' or 'sexy' very well - I know one person who owns a Surface and he's a journalist...

The unified OS across platforms could be very appealing to developers AND consumers, but putting that in a package which excels and makes people want one? I remain skeptical.

Even with Nokia's existing user base, I don't see Microsoft pioneering or taking risks in a way which will let it leapfrog the dominant manufacturers.

I'll miss Nokia. I've been looking for an excuse to get another Nokia, ever since I the N98 broke my heart.[/people]

Keith Andrew

Keith Andrew

But that was the whole point of the original alliance, Brian.

Nokia's 'burning platform' was caused by the fact that it hadn't taken risks. It had stuck with the safety of Symbian long beyond its sell-by date, and its attempt to do something radical - MeeGo - was commercially unsound.

Elop went in there and shook up a company that had become stagnant - and successful companies always do at some point.

It has been Microsoft that has been taking the bigger risks in recent years. Windows Phone and, especially, Windows 8 represent huge risks for the company. It's been Microsoft that has forced Nokia back into innovation, and the result of that are handsets like the Lumia 1020, which we just weren't seeing a few years ago.

Windows Phone is never going to be for everyone, but I think if there is to be a third player, WP8 is a suitable one if only because it does things differently to the rows-of-apps approach of iOS and Android.

But lets not pretend that Nokia was full of innovation before it aligned itself with Microsoft - it had lost that sense of innovation, which is why a fresh face in the form of Elop went there in the first place.

Miss Nokia? Nokia has gone nowhere in my book. In fact, it's more Nokia now than it has been for years.

Jani Kahrama

Jani Kahrama

Founder at Secret Exit

I can't agree with your comment that Microsoft forced Nokia into innovation: the entire Lumia product family inherits its industrial design from the N9, and the PureView camera technology was first launched in a Symbian device.

Clearly Nokia was able to innovate without Microsoft's involvement.

It was always disappointing to witness the lack of faith the high-ups at Nokia had in MeeGo. Just look at the reviews for the N9, and the genuine excitement for what was undeniably the best device Nokia had released in years.

Instead of controlling its own platform and ecosystem, Nokia chose to become an OEM with a custom camera module and navigation tech. That strategy does not encourage a culture of innovation.

The failings of Nokia have been documented in a number of articles and blog posts, so there's no need to re-iterate why it was necessary for them to change. I totally agree that Nokia needed a shake-up and a slim-down, but it sure threw out the baby with the bath water.

Eros Resmini

Eros Resmini

Head of Marketing at The Mini Fund

Samsung, Google and Apple are all working on the next big mobile inflection: wearables.

These industry leaders see that in the post PC era the mobile phone is a transition point. With the speed of technology and innovation it will be a comparatively short transition time I believe.

Microsoft and Nokia are way too late to the party. Actually, I think the party has moved to another location and they are probably wondering where all the people have gone.

Jani Kahrama

Jani Kahrama

Founder at Secret Exit

Would Nokia have ended up in sale like this if it had phased out Symbian in a more controlled fashion and transitioned to MeeGo instead?

We'll never know, but I would have paid to see that fight instead.

Keith Andrew

Keith Andrew

Two things:

Firstly: The longer drawn out the drop of Symbian, the further Nokia's userbase would have slid before turning things around.

Secondly: MeeGo would have been a disaster - as was Bada, and as Samsung will discover, so will Tizen be. Consumers in the west do not want/need another ecosystem beyond the four or more they already support.

Jani Kahrama

Jani Kahrama

Founder at Secret Exit

I disagree on both points. You're projecting industry "common knowledge" opinions on the consumer market.

First: Symbian sales were growing prior to Elop's memo even if its marketshare was diminishing. There's no denying that releasing the memo was a mistake and it hurt Nokia's financials, even if Symbian was going to run out of steam sooner or later.

Second: As a gross generalisation, consumers care about brands and the end user experience (both basic usability and the availability of popular apps and services). The tech crowd cares about platforms and ecosystems.

MeeGo had the usability part nailed down, as noted in the reviews I linked in my previous mail. And as far as apps go, it was a much more feasible porting target than Windows Phone 7.

Don't forget that back when the Nokia-Microsoft partnership started, Windows Phone as an ecosystem was in exactly the same starting position as MeeGo, except WP7 had built-in hurdles and fences to keep developers and apps out instead of inviting them in (apps developed with C++ were not allowed).

Nokia traded one newborn platform for another, and instead of building its own value it began to serve Microsoft's interests.

So yes, I'm just one guy with an opinion, but from my point of view a slimmed, trimmed Nokia would have had a fighting chance with MeeGo. It's not like we can call their Windows Phone strategy a success.

Keith Andrew

Keith Andrew

I think at this stage we can, Jani. It's a work in progress, yes, but it's far from a failure - as the buyout us testament to.

Equating WP7 to MeeGo is also a little daft. The former had the backing of a giant. The latter was sadly already stillborn in terms of the firms behind it by the time the N9 launched. If you think MeeGo was a genuine, commercial prospect at that stage, then you're mistaken.

The flak Nokia took from shareholders in WP7 difficult days would have been tenfold had it made an abandoned platform with no developer support its focus. Nokia wouldn't have been a niche player by now - it wouldn't have been a player at all.

Jani Kahrama

Jani Kahrama

Founder at Secret Exit

It's an odd view to say the buyout is not a testament to failure. Nokia's goal was certainly not to sell out when it announced its Microsoft partnership.

If it was, then you'd have a very interesting discussion between the board and the shareholders regarding the value of the company under Elop's management.

And regarding MeeGo - it's just wrong to take the launch of the N9 as any kind of indication for potential developer support for the platform. Nokia's Windows Phone strategy was already announced by the time the phone was released - officially as a dead end product.

Also, let's not forget that Windows Mobile had "the backing of a giant" for ten years, so I don't quite associate Microsoft's involvement with improved chances of success. Windows Phone itself has not been without its own set of issues.

I do agree with you that the primary reason for Nokia's downfall was its inability to move away from Symbian.

John Ozimek

John Ozimek

Co-founder at Big Games Machine

At the point when Elop decided to drop Symbian and Meego and go with Windows Phone, I don't think that a merger was at all inevitable.

Nearly three years later, with both companies in differing kinds of trouble, it is one way to try and get out of a slump.

However, if anyone can point to Microsoft buying a company and turning it into a success story, I would love to hear about it. That is my fear in this case.

Keith, you said a couple of emails ago that "consumers in the west do not want/need another ecosystem beyond the four or more they already support." But if that's the case, how does the industry evolve?

Is seems obvious that at some point someone will come up with a new OS that will shift the market - exactly in the same way that Symbian, then iOS, then Android has done. So the fact that WP has a foothold doesn't mean that the opportunity for a new OS is closed; far from it.

And what do I think will happen? Let me share a post by Alex Kerr from the Mobile Monday group. I think the facts are pretty clear.

Nokia smartphone division performance under Elop:

(Six months is the point at which Elop shared the 'burning platform' memo.)

First 6 months - Smartphone quarterly revenues up 29 percent from €3.4 billion Euro to €4.4 billion
Next 2.5 years - Smartphone quarterly revenues down 73 percent from €4.4 billion to €1.2 billion

First 6 months - Smartphone quarterly profit up 94 percent from €283 million to €548 million
Next 2.5 years - Smartphone quarterly profit of €548 million turned into loss of €168 million

First 6 months - Smartphone quarterly volume up 18 percent from 24 million units to 28.3 million units
Next 2.5 years - Smartphone quarterly volume down 74 percent from 28.3 million units to 7.4 million units

Nokia smartphone market share when Elop started - 35 percent
Nokia smartphone market share when Elop departed - 3 percent

Nokia ranking smartphones when Elop started - 1st
Nokia ranking smartphones when Elop departed - 9th

Gap to leader when Elop started - twice as big as number 2 (RIM) or number 3 (Apple)
Gap to leader when Elop departed - Samsung smartphones is 12 times bigger than Nokia smartphones

As Ahonen says: "Worst CEO ever? You make the call. Was Nokia smartphone unit truly in catastrophic trouble before the Burning Platforms memo? You make the call. Did the Elop Effect turn strong growth into collapse? You make the call."

Keith Andrew

Keith Andrew

Those figures are rather silly though, John, as I'm sure you're aware.

You're comparing sales of an established platform at the tail end of its life to a completely fresh one with no base - of course the share was going to drop massively. That's why he was there - to facilitate a painful, but nonetheless needed break up.

All the indicators from the last few quarters point upwards.

It's unlikely Nokia will ever boast the dominance it enjoyed in major markets at the start of Symbian's lifetime again, but it's in a healthier position than it would be had it stuck with Symbian - which, I can only conclude, is the goal you'd have been looking for had you been placed in Elop's position based on those figures.

You clearly think the ship was on the right course and no change whatsoever was needed, right?

Switching away from Symbian - and I think we can all agree this is what was needed - was going to result in a massive drop in shipment figures, even if Nokia had adopted Android.

We'll never know what position it would have been in by now had it done so, but it's rather silly to be jumping up and down about Nokia's smartphone figures falling during Elop's run when he oversaw Nokia's wholesale move away from the smartphone platform it had, at that point, been its staple.

Quoting figures like that is akin to deciding to become a vegetarian, and then drawing up graphs showing a vast drop in your daily meat intake in the weeks that followed.

(There's also a debate to be had about whether Symbian counts as a smartphone OS in those figures. I had an N95, for instance, and that was in no way comparable to the market we see today led by iOS and Android. You could argue that, before adopting Windows Phone, Nokia's smartphone shipments were far south of the 20 million plus quarterly figures you're quoting there.)

John Ozimek

John Ozimek

Co-founder at Big Games Machine

Why are they silly? They show, in black and white, the result of the strategy he put in place.

Your question to the Mavens is whether the deal with Microsoft was inevitable back when the decision was made to go with Windows Phone, and at that point, Nokia was still making money, although yes, in strategic trouble and declining market share, so to my mind, at that point the deal was not inevitable.

As I've argued on with you on the forum, we will never know if an alternate strategy might have worked. But if Nokia had gone for Android at least it was a working OS with some apps: when Nokia announced the move to Windows Phone it was almost a year before they could launch a phone.

At a stroke Nokia lost the support of customers, developers and its own staff. Even now, Windows Phone share is less than it was in 2008.

Both the Microsoft shift from Windows Mobile to Windows Phone, and Nokia's shift from Symbian to Windows Phone were, in my honest opinion, badly handled as they failed in a smooth transition that kept the goodwill and support of the existing ecosystem on board.

Was Nokia in trouble before Elop joined? Yes. Did it need a new strategy? Yes. Was Windows Phone the right strategy? It's too early to say. Will Apple, Google and Samsung be worried by this deal? Highly unlikely.

Keith Andrew

Keith Andrew

I can agree with you on all those final points. Wouldn't disagree with any of that.

My point was, it's a false argument to highlight falling smartphone shipments - that really was inevitable as soon as Nokia moved away from Symbian, which it had rested its entire business on.

That's not Elop's fault - it's a result of his management, yes, but one that would have resulted whatever platform Nokia switched to.

If you agree that it was right for Nokia to move away from Symbian, then it's a complete contradiction to post those figures as an attempt to undermine Elop's run.