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How much was Microsoft willing to pay Nokia to launch the latter’s Windows Phone line?
The answer, according to Nokia’s most recent earnings report, was $250 million in the fourth quarter of 2011-and that’s only the beginning. “Over the life of the agreement, both the platform support payments and the minimum software royalty commitments [which Nokia will pay to Microsoft] are expected to measure in the billions of U.S. dollars,” read a statement accompanying the numbers.
Having abandoned its own operating systems (such as Symbian) in favor of Windows Phone, Nokia has little choice but to play out the thread of its Microsoft partnership to either its bitter or insanely lucrative end. Certainly the switchover to the new operating system has plunged the Finnish phone maker into a “transition period” of lowered earnings and analyst pessimism: the company’s net sales declined 21 percent from the year-ago quarter, while operating profit, device volume and net cash also tumbled.
But there are also signs the partnership could pay off in the longer term. By the end of 2011, Nokia had sold some 1 million smartphones running Windows Phone. “From this beachhead of more than 1 million Lumia devices, you will see us push forward with the sales, marketing and successive product introductions necessary to be successful,” Nokia CEO Stephen Elop wrote in a statement accompanying the earnings. “We also plan to bring the Lumia series to additional markets including China and Latin America in the first half of 2012.”
Next question: How much has Microsoft benefitted from its Nokia deal?
As a platform, Windows Phone has struggled for adoption in the broader smartphone marketplace, trailing Google Android, Apple iOS, and Research In Motion’s BlackBerry franchise. Data from research firm Nielsen suggested that Microsoft owned 7.3 percent of the U.S. smartphone market in the third quarter of 2011, down from 9 percent earlier in the year; much of that decline was due to users abandoning the antiquated Windows Mobile platform, something that Microsoft executives say they anticipated.
While Microsoft regularly declines to provide Windows Phone sales figures, CEO Steve Ballmer described the platform’s market share as “very small” during a July 11 keynote speech at the company’s Worldwide Partner Conference. Before Nokia began rolling out its first Lumia devices, outsiders estimated total Windows Phone sales at somewhere in the range of 1.4 million to 1.7 million units-the former figure from analyst Horace Dediu, the latter from research firm Gartner (which grouped Windows Mobile into its calculations).
If those analyst numbers are accurate, then Nokia’s Lumia sales may have nearly doubled the number of Windows Phone units in consumer hands. Considering the integral role of mobility to Microsoft’s overall fortunes-and the lack of a fallback position for either Microsoft or Nokia, in the event of Windows Phone’s marketplace demise-that quarterly payout may have been money well-spent.
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