Microsoft has purchased the mobile phone arm of Nokia, bringing production of the handsets which carry the Windows 8 OS in house. The £4.6billion acquisition was confirmed in the early days of September, with Microsoft’s aim obvious , catch up with Apple and Google, the new tech giants. Is Nokia Microsoft’s latest tool to play catch-up?
In addition to the sale of the handset business, Microsoft will licence patents and mapping services from Nokia, creating an altogether more condensed business with Microsoft in full control of the hardware, software and how to use them.
This is good news for both parties. Nokia’s shares jumped 45% on news of the deal, and they will obviously benefit from the financial boost, in a difficult year which has seen them fall behind to companies such as Apple and Samsung in the handset market.
Microsoft will consolidate control of every aspect of the Windows Phone business, finally taking control of the hardware side of things. The tech giant has been criticised for being slow to move in the mobile market, but they have been making progress in recent months. Bringing the hardware side of the business under their total control will obviously enable them to move things faster and in their own direction, without having to compromise with another company overseas.
Taking all devices into account, Microsoft’s share of the computing market has shrunk from an enormous 95% to just 30%. With much of that change coming due to Microsoft’s slow progress in the rapidly expanding mobile market, Microsoft really have to do something, sooner rather than later.
By buying Nokia, the focus is obviously on consolidating control over the final product. It might be a gamble, but it’s a necessary one if Microsoft want to pick up steam in the lucrative mobile market. They have to change their slow progress to instant success, or risk seeing their market share decline further as mobile computing continues to grow.
Bringing hardware development in house would help “achieve a tighter integration” according to Manoj Menon, MD of Frost and Sullivan consultants. That can only be a good thing for Microsoft, but is it too little, too late?
Nokia sold close to 54 million units last year. Their market share is declining, but they are still up there with the big players in the handset world. Microsoft’s involvement may turn that decline around , sales of the Microsoft-powered Lumia range rose in that period of decline.
It will be important to strike a balance now that Microsoft owns the second largest handset manufacturer in the world. They can’t simply power them all with Windows before improving the OS , powering a product with declining sales with a slowly growing OS is not a recipe for instant, competitive growth. These are two brands that can’t really afford to inhibit each other, so it must be played perfectly. Figuring out what to do must start back at the beginning. Now Microsoft owns both sides of the mobile business , software and hardware , they can start to develop a more consistent, integrated product, just like Apple did a decade ago.