Nokia, Without a Microsoft Offer, Will Inevitably Turn to Android
Microsoft and Nokia discussed a possible purchase of the Finnish handset maker, as recently as this month. But the talks fell apart, the Wall Street Journal reported June 19, after the pair were unable to agree on a price.
Sources told the Journal that the talks "aren't likely to be revived." But as things remain, Nokia is in a tight spot.
In February 2011, Nokia moved its proverbial eggs from Symbian's basket into Microsoft's, hoping that in two years' time, the Windows Phone OS would find a strong enough following to reverse Nokia's falling market share.
By the first quarter of 2012, Nokia had lost its title as the world's top-selling mobile phone maker—a title it had held for 14 years—to Samsung. And by the first quarter of 2013, Nokia's market share was still falling, from 20 percent a year before to 15 percent, while Samsung's inched toward 24 percent, according to Gartner.
"I believe that Nokia is at a crossroads of sorts. They can continue exclusively with Windows or they can add support for the Android platform," Ken Hyers, an analyst with Strategy Analytics, told eWEEK.
Sales of Windows Phone 8 devices are rising, but they're not yet strong enough to offset the loss of Symbian phone sales, Hyers continued.
"If Nokia is to continue to be the standard bearer for Windows Phone, it needs additional long-term support from Microsoft, beyond the $250 million in quarterly 'platform support' payments that Microsoft already provides," Hyers said. "If Nokia intends to stick with Windows Phone, as [CEO Stephen] Elop has recently stated, then a tie-up with [Microsoft] would give it the long-term backing it needs to build a base of customers large enough to support it."
If Microsoft won't meet Nokia's price, it would be "rational" for Nokia to expand its support to Android, Hyers added, but doing so would put those platform support payments in danger.
Roger Kay, principal analyst with Endpoint Technologies, rolls his eyes at the idea of Microsoft being a one-stop shop for software, hardware and services.
Kay told eWEEK that Microsoft proved with its Surface tablet launch that it doesn't have the distribution channels its partners do, and it's trying to pass off the idea of letting customers pay to "lease" software as if it were a type of service.
Kay chided Microsoft for this in a recent Forbes blog, writing, "There's a definition of service that includes how prize bulls are set up to impregnate cows. This kind of service, related to what phone companies do, definitely falls within Microsoft's skills. Essentially, [it] involves setting up a billing machine and turning the crank."
Kay said it's also easy to imagine that Elop, a former Microsoft executive, arrived at Nokia with some vision of transitioning it to Windows Phone, if not also an eventual Microsoft acquisition. He added that it's also easy to imagine Microsoft thinking it should get Nokia, a failing company, for a song, and Nokia, given its history, being insulted by a low offer.
If the pair have in fact come to a negotiating impasse, "I would say it's better for Nokia to hedge its bets. If you've got all your money on one horse, and it doesn't win, you're out of luck."
While Android-running Nokia phones could find themselves in a position like HTC—making great phones but being largely overshadowed by Samsung—Nokia would have the benefit of its history.
"There might be a role for them," said Kay. "Europeans like something made in Europe, and they've historically been Nokia supporters. If Nokia had an Android phone for people to consider by next Christmas, it might work. It's a reasonable strategy."
If Microsoft won't "up the ante" and give Nokia the "long term support it needs in order to be successful," Strategy Analytics' Hyers also stated, "then Nokia will inevitably add Android to its portfolio."
Which just may be—versus a return to the negotiating table—the way things go.
"I see no benefit for Microsoft to buy Nokia," Gartner Research Vice President Carolina Milanesi told eWEEK. "They get what they need from a commitment perspective without taking in the risk."
She added, "Owning Nokia would be a turnoff to other vendors, the same as Motorola is for Google. I think the only reason for Microsoft to buy Nokia was to take it off the market."