Microsoft rocked the mobile industry when it announced its acquistion of Nokia's Devices & Services unit for $5 billion with additional $2.2 billion to license
In 2011 Marc Andreessen of Andreessen Horowitz wrote an article about how software was eating the world. Nokia’s device business sale to Microsoft highlights that point. Increasingly the value of the mobile device market is in the operating system and the applications that are designed for these systems. In an intensely competitive mobile devices market, beautiful hardware is a requirement, not a differentiator, in the space.
Frankly, the industry had come to a point where most of the mobile hardware looked the same. If you stripped the label from a Samsung or
What’s interesting about this announcement is Microsoft’s change of heart on the need for a vertically integrated hardware play. It’s seen great success with Xbox and it’s watched
Here are my thoughts on winners and losers as a result of the acquisition.
Winners
- Nokia wins as it sells a business that’s becoming increasingly difficult to generate profits. The smartphone market's average sales price has fallen to $375 according to IDC. Prices will continue to decline as sales move to emerging markets and markets where lower cost phones are in high demand.
- Microsoft’s tablet business has been anemic at best. The company took a major hit to it's Q4 financials with a massive $900 million inventory write down charge for its Surface RT units. While enterprise customers balked at the changes in operating system for the Surface tablets, the tablet hardware was also hindering sales. Microsoft purchase of Nokia’s device team gives it real design skill for future Surface tablets.
- Enterprise buyers. The Nokia team understands software user experience design. The combination will help take Microsoft’s operating system to the next level. In the battle for mobile software developer mindshare, Android and IOS were winning. I expect more developers to write software for the Windows Phones OS now that its evident that Microsoft is taking the mobile market seriously.
Losers.
- Blackberry. Nokia’s market capitalization was over $12 billion in May but the deal for the hardware business was only $5 Billion. Blackberry’s total current market capitalization is at $5 billion. Nokia’s sale price may not detract from Blackberry’s $5 billion market capitalization but it severely limited any upside. An August article from the Rayno report pegged Blackberry’s sales value at $6-10 per share. Blackberry’s sales value will be based on the valuation of its patent portfolio, not its hardware business.
- HTC and LG. These companies failed to push the Windows Phone OS and now they’ll have to compete against Microsoft. At a time when Samsung is eating everyone’s lunch, these companies need allies, not new competition. However, it’s most likely that Microsoft will use its move into hardware to convince companies, such as HTC and LG, to building more phones for the Windows Phone OS than Android.
Wildcards
- HP purchased Palm for $1.2 billion and shuttered it a year later. After this spectacular waste of money and talent, HP claims it’s once again serious about mobile. While it will continue to work with Microsoft, it could purchase Blackberry and make a play for the enterprise market.
- HTC, LG, or Lenovo could make a play for Blackberry but it’s unlikely these companies would achieve regulatory approval.
- Nokia could purchase Blackberry’s patent portfolio and become a patent licensing house. As more companies look to build contextual services, mapping technology and communications-related patents are becoming increasingly important. What if Nokia used its money from Microsoft to buy Blackberry’s patent portfolio?
Microsoft originally owned the mobile business with Windows CE but ceded ground to Palm, Apple and others. We’ve waited years for Microsoft to get serious about the mobile business. The combination of a change in senior management at Microsoft and the purchase of Nokia’s hardware business indicate that change is finally here. The question is how will the industry react. What are your thoughts on the future of the mobile device market? Please leave your comments here or send me a message on Twitter @MaribelLopez.
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