Nokia is another casualty of war

Mobile’s worst kept rumour comes true

There’s a war brewing in the Middle East but in the smartphone world the battle commenced long ago, and Microsoft just dropped the latest bombshell. It might well be its last.

On Monday evening they announced their intention to purchase Nokia’s handset business for €5.4 billion.

Better than starting from scratch…

Yes that’s right, history’s most successful software company has been so emboldened by the success of the Kin, the Zune and most recently the $900 million-sized hole in its balance sheet known as the Surface that it has decided jump with two feet into the mobile phone hardware business.

Shareholder’s should probably be grateful they did not try to start from scratch themselves.

The rationale for the deal is mind-boggling. The primary (purported) reason was to faciliate closer integration between the two companies after two years of partnership.

At arm’s length, it appears, they just were not able to deliver the awesomeness they know they are capable of. Now that Microsoft pays the salaries of 15,000 engineers that will remain in Finland it will all change.

They also hope to provide a clearer message to consumers about Windows Phone. Apparently the Nokia Lumia Windows Phone 8 1020 was not resonating. Dropping the ‘Nokia’ will make all the difference.

Or maybe they just wanted to make it easy to appoint Stephen Elop as CEO. Expect it to go down as the largest ever headhunter’s fee.

Windows is losing its grip on emerging markets

Now, glibness aside, I understand Microsoft’s predicament. Steve Ballmer may come across as the George W Bush of US business but he is shrewd enough to know that the world, yes the entire world, has changed under his tenure and it presents an existential problem for his company.

Five years ago, I sat in a meeting with Microsoft executives and we were staggered to learn that they were tracking pretty much all pirated copies of Windows in China, which was 90% of PCs in the country.

They were gradually pinging users and disrupting the OS all with the eventual goal of enticing users to pay. It was a Trojan horse that secured their future relevance for a generation.

Not any more. The emerging markets, particularly China, will piggyback the PC straight to the tablet or phone. Even in developed markets, the attachment to Windows has been broken. Google is agitating with Chrome OS , whose brother is now the world’s leading browser, and hardware partners are happy to indulge them after years of ever decreasing margins.

The mobile ecosystem has understood the importance of the consumer cloud; any serious application must be available across platform.

Your Windows experience can be replicated near perfectly, through a browser, independent of the operating system.

Nokia lives on

So they had to do something. Unfortunately they should have done it five years ago. They would be better off focusing on their corporate business, where they remain an innovative leader in server technologies and cloud computing.

And what of Nokia? Perhaps surprisingly it lives on. Microsoft took the Devices and Services business, along with some patents and of course Mr Elop and left Nokia with a mobile network business known as Nokia Solutions and Networks. It represents another pivot from the company that started life as a paper-production plant and at one stage manufactured wellies.

Another casualty of war

The fact that the stock jumped a Lumia 920-sized 47% on Tuesday illustrates just how much of an albatross the devices business had become. Free of the burden, and flush with cash, the favoured option for Nokia’s future is a merger with Alcatel-Lucent’s mobile business to become a powerhouse in the mobile network.

The handset business, though, joins Blackberry as a casualty of war. It was supposed to be a quiet year in smartphones.

image credit: flickr/wired