Corporate Strategy: Microsoft buys Nokia's Devices and Services Business

Yesterday, Microsoft announced its intention to purchase Nokia's handset business group for an unprecedented 7.2 Billion US Dollars. Three years ago, in an equally surprising and even more confusing move, Stephen Elop was announced as the next CEO of Nokia. The handset maker, whose brick-like 3XXX series phones were as indestructible as they were ubiquitous, was starting to show signs of slowing down despite holding market share leadership. Their Symbian OS, a pioneering system in its own right, was beginning to feel dated next it's iOS, Android, and Blackberry competitors. A joint development scheme with Intel on the open source Meego OS hadn't borne any fruit yet and investors were getting antsy.

Across the globe, mobile skies were equally gloomy in Redmond. Windows Phone 7 had debuted earlier that year to great reviews from users and the press. Unfortunately, great design and reviews don't necessarily translate market success. Windows Phone was suffering from a late start in the market and general apathy from app developers. Both companies needed a shot in the arm, and Microsoft was willing to write the check.

Backroom Deals - Nokia gets a new CEO

Enter Elop, former head of Microsoft's Office business group. Pundits and bloggers alike speculated over this unorthodox move. Why would a manager at a software company transition to CEO at a hardware/devices company. The prevailing theory: dollars, and lots of them. Nokia would go on to announce a strategic (read exclusive) partnership with Windows that following February, which many speculated was motivated by a little cash reward. Some sources even suggested that Microsoft suggested the move a little more forcefully than it had first seemed. Either way, there was a lot of evidence pointing to Nokia's new blind faith in Windows Phone, including the bizarre decision to limit distribution of the hailed and long-awaited N9, a great handset whose Meego operating system didn't align with the company's new direction. 

Fruits of the Past Three Years

For all the confusion regarding the CEO decision and the criticism that Nokia has endured during the past few years, these two companies have indeed come out with some great products. The aforementioned N9 was one of Nokia's first products to restate its commitment and show that it still had that industrial design magic. The most recent example though, has to be the Lumia 1020. With an industry leading 41 megapixel camera stuffed into a remarkably slim chassis, it differentiated itself and provided real customer value. I wish I could say the same about Windows Phone OS though. Sure, it's kept pace with the competition and still maintains the solid and clean UI, but it still just can't shake that also-ran feeling. They can't kick the app developer problem either, though it has improved over the years. 

Going Forward

The implications of today's announcement for Nokia are grim at best. Microsoft isn't merging with the Nokia outright, it's instead buying the business group that makes up the vast majority of the company. Sadly, what will probably remain for Nokia is disorganized group of leftovers that will slowly fade away. This merger will see the destruction of one of the few internationally recognizable Finnish companies. Worse yet, Microsoft is only able to stomach this buyout after a three year long slide of Nokia's stock price, arguably helped by their buddy Elop's actions at the company.

What does this mean for a Microsoft that is going through a rocky transition? All the cool kids are going vertical; Apple always has been, Google has Motorola, and now Microsoft has Nokia. It has to feel awfully lonely to be a Windows OEM right now. But this is the new vision for Microsoft, the transition to which Ballmer said he couldn't be the one to lead. That begs the question though, who will? Is it possible to really merge these two businesses in any effective way in the near term? Elop, the only one to have played on both sides, is suddenly looking like a very good candidate with his new mobile and device-focused resume. Are we nearing the final strokes of a plan that was assembled many years ago? We'll have to wait and find out...

Sources:
Nokia/MS press release
BSN Elop announcement
wiki