On September 3, Microsoft announced that it will purchase Nokia’s Devices & Services business [1]. Nokia’s stock price has risen close to 60% while Microsoft’s has dropped more than 6% as of September 27. Is this a good strategy for Microsoft? Will the acquisition help Windows Phone capture 10.2% market share in 2017 as compared to 3.9% in 2013 [2]?
Apple and Google have pursued very different strategies in reaching mobile OS market dominance. No other company but Apple sells phones running iOS while Google relies heavily on partners to popularize Android. Microsoft’s previous strategy was similar to that of Google, except that Microsoft did not sell any Windows phone under its own brand.
On the surface, Microsoft’s strategy seems to be one step closer to Google’s mobile strategy. In fact, the strategy is more like that of Apple. Microsoft’s Windows Phone partners such as HTC and Samsung may become increasingly unwilling to invest in developing Windows phones given the direct competition from Microsoft. However, the reality is that Nokia has a whopping 83.7% of the Windows phone market share in 2013 anyway [3]. So the merger hopefully will make the various aspects of Windows phone developments more streamline and responsive to market demand, thus creating superior and innovative products. Microsoft can also sell Windows phones under its own brand at a slightly lower price because Microsoft no longer has to pay Nokia $250m a quarter for developing Windows phones [4].
Furthermore, Microsoft probably discovered that all of its Windows phone partners but Nokia were also making Android phones and did not consider Windows phones a priority. In fact, even Nokia tested out Android on its Lumia phones [5]. If Nokia started selling Android phones, it would be disastrous for Microsoft.
Microsoft has had the ambition and capability to be a successful platform provider and integrator dating back to as early as 2001 with the introduction of Xbox [6]. More recently, Microsoft started selling Surface tablets running Windows 8 [7]. Thus, the purchase of Nokia’s Devices & Services business ensures that Microsoft will become a mobile platform provider quickly without having to develop Windows phone hardware from scratch.
However, there are a lot of failed marriages between technology companies. The Hp-Compaq merger was a big failure, albeit both companies were in the same PC and server markets [8]. Hp acquired Palm in 2010, and the Palm OS is non-existent anymore, albeit Palm was not one of HP’s partners [9].
Competition is presumed to be good for the consumers. The failure of this purchase may mean that consumers can only choose from two major mobile OS, which could lead to potentially less competition and innovation in the mobile sphere. Good luck Microsoft, for the consumer’s sake at least.