The Rumored Microsoft Nokia Deal–Making of 1000 Pound Gorilla?

Stephen Elop was considered a super star in Microsoft. He ran one of the most profitable business divisions at Microsoft (apart from the OS group – which screwed up around the same time with Windows Vista). He had an impeccable history at Macromedia, Adobe and then at Juniper. If there was anyone more suited to take Nokia out of this mess, it was the certain someone at Cupertino and who was the person who caused the slide for them in the first place.nokia_microsoft_deal

In the past few weeks, a lot of people have talked of the impending marriage (or maybe engagement if you want to talk in human relationship analogies) between Nokia and Microsoft. Nokia has already been partnering with Microsoft for having Office Mobile on their phones (incidentally a group belonging to the larger group headed by Elop at Microsoft).

Apart from these, they also have had communicator for Symbian and slowly making applications from MS available on Nokia. In the blogosphere, we have had some interesting comments – the most interesting in this one from ComputerWorld’s Preston Galla which quotes an open letter from the FT –

To Elop

“Announce an EXCLUSIVE deal with your ex-colleague, Steve: you get access to their WP7 intellectual property (IPR) scot-free and access to the US market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least €1bn ($1.4 billion), or 30%, which should add 300 bps to your operating margin. Get rid of your own proprietary high-end solution (MEEGO) — it’s the biggest joke in the tech industry right now and will put you even further behind Apple and Google.

“Focus your high-end portfolio around WP7, and over time you can take the cost down (that’s Steve’s job and cost base) to get this into the mid-range market.

To Ballmer

“two million units shipped in the last quarter is not really much to write home about, given $500m in marketing programmes (ouch), but with Nokia on-side, you get access to a potential 20-25 percent global share over time–and exclusivity. You need to tie yourself to a high-volume player to be relevant.”

In the past few days we have also been hearing of major shakeups in Nokia. For good reasons this is the way ahead – Nokia has been a leader at making phones. They have made a lot of iconic phones and have had a huge success in the same. However in the software play, they have had very few and moderate success at best.

This is where a marriage with Microsoft would bring out the best with them we think. Although Apple stole their lunch (and Android is ruling the roost as the trends say), Microsoft knows the application play better than anyone else. The most applications in the in world are written on Windows (OS) today and it is a matter of time till they figure out the game in Mobile. From a Microsoft point of view, Nokia has an existing sales channel (among the best) and huge footprints in many countries.
They also have highly efficient phone making capabilities – with the ability to churn our many different SKUs at the same time. As the open letter in the FT says, Microsoft needs the downstream capability which Nokia has in order to reach the large numbers.

Lastly, on a more generic note, smart phones have a life of 2-3 years. Which is why the winners of the mobile battles for the last 4 years (iPhone) are now behind the Android bandwagon. The need is to not only innovate in technology but in business models, mechanisms of monetization and partnerships. This partnership leverages the best that both these companies have which is why we strongly believe this is the right way to go for Microsoft and definitely for Nokia.

What’s your take?

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