Microsoft to buy Nokia phone unit

[Updated] In 2001, I was a usability tester for a Windows Phone. I don’t remember the details very much, but I do remember that it was hard to use. This, of course, was pre-smart phone but not pre-mobile-phones-connected-to-the-Net.

Flash forward 13 years later.

The Microsoft mobile global market share during the first quarter 2013 was only 3.2%. But that was enough to put it in third place, far behind the pack led by Android and Apple.

Today, Microsoft and Nokia announced a deal valued at EUR 5.44 billion ($7.16 billion). This tweet sums up the situation faster than my prose:

Microsoft gets the phone division, a gaggle of employees and a license for Nokia’s patents.

First quarter global market share for Nokia’s OS, Symbian? 0.6%. This from the early mover when cellular technology was not synonymous with being very mobile or small.

Early mover advantage paid off early: the Nokia 1100, introduced in 2003, became the world’s #1 seller by 2007.

Nokia 2013 phones

“The 1100 typifies Nokia’s ability to function as a lean, mean, phone-making machine,” said Ben Wood, a consultant at CCS Insight. “It is a staggeringly successful product.”

AND

“Such big sales of one product family creates efficiencies which others can hardly match,” said Kai Oistamo, head of Nokia’s Mobile Phones unit, citing bargaining power on component prices and cost savings in production, logistics and sales.

AND

Nokia does not break out profits from the entry-level segment, but analysts believe the margin is running around the level of 17 percent logged by the mobile phones unit as a whole.

This margin is far superior to consumer electronics units of Sony, Philips, Samsung, Panasonic and others which reach 5 to 6 percent operating margins at the best of times, and usually are well below that.

Today Nokia is not in the top 5 mobile phone vendors and its operating system ranks sixth.

smartphone market share : cNet and IDC

Source: cNet and IDC

Back in Redmond, in the interim we’ve had the Kin, an attempt at a consumer product that was a spectacular market failure. And why not? It came from a firm that generates two-thirds of its revenue from sales to business.

Even Bill Gates acknowledges that Microsoft has stumbled with mobile.

In the early 1990s, Microsoft toyed with the WinPad, based on WindowsCE. Anyone remember Windows for Pen Computing? The PocketPC? ClearType (for liquid crystal displays)?

And when did Microsoft release its tablet, Surface? In 2012. Its most recent global market share is a paltry 4.5%. The iPad is still the number one tablet sold, but there are more Android OS devices on the market. That’s because all the other manufacturers license their OS. Microsoft wants to be Apple, and own the OS and the device. (Note: this puts them in competition with all of the established hardware folks; you know, their customers.)

Source: technobuffalo.com

Source: technobuffalo.com

Analysts, of course, have expectd Microsoft to redeem itself with each new version of Windows Mobile.

And every time the analysts have been proved wrong by consumers.

Look. Microsoft was not at the 2013 All Things Digital conference hosted by the Wall Street Journal.

Google’s US market share in search (the most recent quarter): 67%. Bing’s market share was 17.9%; this is a better showing than in mobile, but Microsoft has been at it search much longer. MSN search launched in 1998; it was followed by Windows Live Search, Live and Bing — with an acquisition of Yahoo! for technology implementation along the way.

Today Microsoft bought Nokia’s device division, will license Nokia’s patents, and acquired 32,000 Nokia employees.

The company’s long-held practice of buying its way into markets hasn’t worked for search. And I don’t expect it to work any better for mobile.

Addendum:
Stockholders better be hoping the next CEO has been picked, given that Ballmer’s making mega-changes before departing. Remember this summer’s re-org.

And a plea: Microsoft – (to Steve Ballmer) Just do one thing right before leaving !: Free downgrade for all unhappy users of Windows 8 (OEM)

Updated 12:30 pm 12:09 pm Pacific: And I’m Not Alone

I wrote this before reading any other analysis or commentary. But my skepticism is reflected by others. (Of course, some think this is great. I’ll simply point you “up” to the bit in the essay about analysts and their projections re WindowsPhone.)

Cross-posted from WiredPen.

4 Comments

  1. The phone war is interesting. We have Samsung and Apple, then Motorola Mobile with their new Moto X and Microsoft, both charging. What I find interesting is that they are all a bit hamstrung when it comes to sales. They roll them out with AT&T and Verizon and others, but are then dependent on the AT&T and Verizon in store vendors; who are typically 20-25 years old and bright.

    They will sell what they use. Or, what they are influenced to sell. It reminds me of disc jockeys in the 60s and 70s. Payola! All the big phone guys know it and they all have their mercenaries in shops pushing their products.

    Yesterday I asked a young gun at Verizon if they had a class to teach me how to get full use of a new ‘roll out’. He said, get me a phone and I will personally teach you everything I learn about that unit. Seemed like a good deal. I may take him up on it.

  2. Full disclosure: I’m a WP8 and Nokia owner and fan. I’m a former iPhone owner and my wife still owns one, so I’ve seen the comparison. I think not enough people give WP8 a chance. I try not to let that color my perspective on this deal from a business perspective, but it’s hard not to want to cheerlead for them when I don’t see the quality of the product, in my opinion, reflected in marketshare.

    But sadly, I think Microsoft released a good product too late. The hearts and minds had already been lost, and the reputation of MS as your dad’s software company was well established, so in some ways it doesn’t matter how good it is. I also don’t see how this deal changes that in the short term, since they were already “going steady”, so to speak. But I think (or at least I hope) they are playing the long game. Apple disrupted the market and Microsoft wasn’t able to keep pace. I think the best MS can hope for is to hang on this time and next time be in a position to be more agile to catch the next wave as it’s breaking. I don’t know what that wave will be, but there will be something. The smartphone is great but let’s not kid ourselves that it won’t end up in the same place as the cassette tape in a decade or so. The danger is that Microsoft will find itself fighting the last war.

  3. adelinesdad, astute comments. I was thinking something similar about Motorola Mobile.

  4. My first mobile phone (that you carry in your hand) was a Motorola. Will Google be able to revive the company? Time will tell.

    KP – the US market for mobile phones is very different from the rest of the world. Europe/Asia — phones are kinda like toasters — you buy it without service (electricity in the case of the toaster). Then you arrange your service contract. Much more competition on both sides this way — and the infrastructure is regulated (like copper phone lines and power and water and gas – natural monopolies).

    adelinesdad – I have a lot of friends with Windows phones but more with Android. It’s not that MSFT is too late – they were working on mobile 15 years ago. It’s that mobile has not been senior exec’s focus/interest. They are a classic incumbent, kinda like IBM was when MSFT began its rise in the 80s.

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