Microsoft's $7.1B Nokia Deal Gives It a Shot at the Bronze

NEWS ANALYSIS: Microsoft's purchase of Nokia's device division ostensibly gives it everything it needs to be the mobile industry's third major player.

Microsoft's $7.1 billion purchase of Nokia's Devices and Services businesses, announced Sept. 3, provides it with the missing piece of the ecosystem—hardware—that it needs to become the third major player in the mobile industry.

Apple, BlackBerry in its heyday and now even Google, following its Motorola purchase, have made clear the necessity of controlling all of the necessary ecosystem components: hardware, software and an apps store. Even Samsung, which last year overtook Nokia to become the world's top-selling device maker, is working on its own ecosystem, and HTC is said to be designing its own OS for China, the world's largest smartphone market. The more control you have, the more nimble, cunning and creative you can be.

Analysts say the deal will be good for Nokia, good for Microsoft, and good for the CIOs and consumers who have invested in Microsoft's mobile platform, though likely not to equal degrees.

Given the mobile industry's current dynamics, "Microsoft will benefit from a deeper integration of the hardware business," Gartner Research Vice President Carolina Milanesi told eWEEK. "With Nokia, they acquire someone that knows about being a hardware vendor but also has an understanding about ecosystems and the importance of mobile."

Ovum Principal Device Analyst Tony Cripps says the deal represents a "symbolic end to the mobile phone industry" as we know it.

"The sale of Nokia's mobile phone business demonstrates conclusively the need for major consumer technology vendors to create ever deeper and wider offerings to consumers and ecosystem participants in terms of their device, platform and service offerings," Cripps said in a Sept. 3 statement. "This approach is no longer simply an option but a pre-requisite to competing successfully in this highly converged market."

Still, equipped with the necessary components, Microsoft will need to execute effectively. Over the next three to four years, Ovum wants to see Windows Phone grab a portion of market share large enough to make clear its undisputed role as the third player. A good goal, says the firm, is 15 percent.

"The heat may be off for Nokia's shareholders," said Cripps, "but for Microsoft's investors the fire is only just being stoked."

Analysts with Global Equities Research, however, don't expect the new Microsoft to come within reach of such market share.

"Winners in the smartphone market are already declared; 95 percent of the market is going to remain with Google Android and Apple. There is no third player," the firm said in a Sept. 3 report. "Microsoft, BlackBerry, etc., will play in the 'others' category, which is the remaining 5 percent of the smartphone market."

Neil Mawston, the U.K.-based executive director of Strategy Analytics' Global Wireless Practice, says the deal is a good one for Microsoft, in that it has purchased a major phone manufacturer "at a low price," and good for Nokia, in that it ensures the company will improve its cash flow and not go out of business. But it doesn't solve Microsoft's major problem—its "glacierlike software development for smartphones," Mawston told eWEEK.

"Microsoft's Windows Phone platform is not yet cheap enough to compete with Android at the low end, and it is not yet advanced enough to compete with Android at the high end. For example, Android today supports octo-core chipsets, while WP8 does not," Mawston explained.

"Microsoft should really be fixing its software problems for WP8," he added, "not tinkering with a big hardware purchase."