On September 3, Microsoft announced its purchase of all of Nokia’s Devices & Services business, license of Nokia’s patents, and license and use of Nokia’s mapping services. While mergers are a recognized strategy to quickly add capabilities to a company—in this case, Microsoft is gaining Nokia's deep experience designing and manufacturing mobile devices—some critics dubbed this acquisition as the “Merger of Losers.”
But despite popular belief, there is some hope for the Microsoft-Nokia deal. The two companies can climb the steep hill to compete in the global mobile market. But how?
First, Microsoft needs to focus on a dirt-cheap smartphone or it will continue to flounder.
Currently the Windows Phone is in third place, behind Android and iOS, holding a little under 4 percent of the market. The 4 percent market share they have created is impressive. To put it in perspective, this is roughly a quarter of Apple’s iOS market share—and much larger than Blackberry’s—and all within a relatively short time span.
Even though Nokia has been one of the top mobile phone manufacturers, second to Samsung, the majority of their sales are of feature phones in emerging markets. Even in these markets, feature phones are quickly getting replaced by cheap smartphones (most running the Android operating system). Nokia isn’t even one of the top five in smartphone sales.
A cheaper smartphone would ultimately open new opportunities for Microsoft in emerging markets. Together, leveraging Nokia’s strong brand presence in these markets, the pair will be positioned for mass adoption if the price is right. By removing the steep licensing fees that came along with using the Windows Phone operating system, Microsoft will be one step closer to a competitive price point—possibly living up to Nokia’s strategy of bringing the “next billion” online.
With Nokia’s dwindling mobile market share and Microsoft’s lackluster performance with the Windows Phone, shouldn’t these be obvious signs that they are on their way to becoming the losers? Absolutely not. In a global market, there is room for multiple players. There is no need to subscribe to the “one-platform-to-rule-them-all” mentality. The market can sustain multiple television manufacturers, clothing manufacturers, and automotive manufacturers. There is no doubt it can sustain multiple smartphone manufacturers and varying operating systems.
Attracting more developers and upgrading its app store will be another challenge. Microsoft made great decisions with their interface, which leverages a very modern grid-based design and creates a consistency throughout the user’s experience. It also uses one of the best development environments on the market. Every developer I know who has worked with any of the Microsoft developer tools, has nothing but good things to say.
Nevertheless, its app store needs to be more competitive. Even though many developers say they are planning to build their apps on the Windows Phone platform, the numbers are climbing slowly. Microsoft has previously run varying levels of incentive programs for developers to build apps for Windows Phone, some of which pay a portion of the development costs to popular companies, while others offer cash incentives to developers outright for making apps. However, there continues to be a lack of interest with developers, because they go where the market is, which is ultimately where they can make the most money. By offering a low-cost smartphone, Microsoft will get more devices in more hands, and developers will gladly start developing for the Windows Phone.
Do Microsoft and Nokia have a chance of taking a strong hold in the mobile market? Of course. Both Microsoft and Nokia are global brands that consumers recognize and generally associate with reputable products. You can’t discount the Microsoft and Nokia brands because of any single product. Remember Microsoft’s Zune? Few people do—but Apple had its share of failed product launches as well.
Together, Microsoft and Nokia are in a position to own a larger piece of the global mobile market. They have a solid presence worldwide, they have a very good mobile operating system, and they have developer tools that are actually enjoyable to use. Now all they need to do is take advantage of the newly minted acquisition and create an aggressively affordable smartphone that can undercut the high-end iOS devices and compete with the inexpensive Android devices.