The announcement by Microsoft that the company would buy Nokia's cell phone division made plenty of headlines, but surprised almost no one. Such a move had been speculated about for months, and Nokia has been struggling for years.
In fact, it seems clear that if Microsoft really wanted Nokia to keep making Windows phones, it would need a financial boost of some kind. But that could have happened just with a capital investment by Microsoft. So why buy a big part of the company?
The fact is that Nokia fits in nicely with Microsoft's stated strategy of becoming a devices company in addition to a software company. In one sense, Microsoft has been a hardware company for decades with its Xbox game consoles, its mice, keyboards and Webcams. But these are not the core of a real contender in mobile hardware.
That changed when Microsoft introduced the Surface tablet, a device that garnered broad acclaim for its well-designed hardware even while critics were blasting it for the Windows 8 user interface. While the Surface RT version hasn't sold well, apparently the Surface Pro, with its full version of Windows 8, is holding its own in the tablet market.
But Microsoft wants to do more than hold its own. The company must have more than a toehold in the smartphone and tablet market to keep from getting pushed out altogether. It needs its tablets to become hot sellers so its mobile operating systems will be widely accepted by users. Microsoft gets a better chance to do this by controlling Nokia's hardware business and patents.
Nokia brings more than hardware to Microsoft, and perhaps it's the expertise in mobile devices that Microsoft needs the most. This expertise includes about 32,000 employees steeped in mobile phones and in mobile technology along with intellectual property that's hard to understate, including access to some of the most basic patents in the mobile industry.
Microsoft CEO Steve Ballmer outlined just how this infusion of expertise will work out in a memo to Microsoft employees released when the two companies announced the deal. In brief, Nokia CEO Stephen Elop will step down and take a temporary position until the deal is finalized, at which point he will lead an expanded devices team. Meanwhile several leading engineering executives will move to Microsoft along with their teams.
Equally important, Microsoft will license Nokia's Here (formerly Navteq) navigation services for use in its devices and it will gain access to Nokia's mobile device IP.