Why did Microsoft buy Nokia?1 Why did the company choose to spend €5.44 billion of its cash reserves to buy a company that was already a close partner for Windows Phone, and which it had committed to pay billions in “platform support” cash2 to use its operating system?
Here's the official reasoning:
Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia’s Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing. For Nokia, this transaction is expected to be significantly accretive to earnings, strengthen its financial position, and provide a solid basis for future investment in its continuing businesses.
The part about “faster innovation” is curious. Nokia never had a problem with innovation: it holds one of the largest patent portfolios in the tech industry, and collects billions of dollars per year to prove it. But what it always had was a problem with bringing that innovation to market. Nokia engineers were talking about single-button touchscreen smartphones years before the iPhone, but failed to bring their brilliant prototypes to market.
And failing to bring great concepts to market is something that Microsoft, too, has been guilty of. Potential innovations like the Courier floated around and then died. The company had prototype ereader hardware around years before the Kindle, and failed to bring it to market. In both cases, the reason for the failure to bring innovation to market was simple: protecting the Windows brand. If it doesn't run Windows (or isn't called Windows), Microsoft won't ship it – no matter how innovative it is.
What about the other reasons? Marketing, branding and advertising? What “synergies” (read: cost savings) can the two companies find there? Microsoft/Nokia might be able to drive better deals for ads and consolidate its work into a single agency, but there aren't billions of dollars of savings to be made there.
Marketing? If Microsoft wants to sell anything, it's going to have to ramp up the quality and quantity of marketing. Samsung outspends everyone else enormously when it comes to marketing, and even the cash reserves of Microsoft won't make up for a gap that big. Can Microsoft really compete with a company that spends more on marketing than Apple, HP, Dell, Microsoft and Coca Cola combined?
Maybe it could if the quality of its marketing was up to Apple's standards. But take a look at the advertising and marketing work for Surface and I you'll see why I have doubts it can deliver. When you create a tablet computer and choose to emphasis how great it works with an optional £100 keyboard, you're either trying to cover up the product's deficiencies as a tablet, or utterly missing the point.
Branding? Only if you ditch the Nokia brand. Otherwise, you have two brands, which is confusing and expensive. And given the license to “Nokia” that Microsoft has paid for, unlikely.
So if the “official” reasons make such little sense, why did Microsoft buy Nokia? Ben Thompson makes a good case that the Microsoft/Nokia deal was driven by an immanent switch to Android – or bankruptcy:
I theorize that Nokia was either going to switch to Android or was on the verge of going bankrupt. (I suspect the latter: part of the deal included €1.5 billion in financing available to Nokia immediately). And, had Nokia abandoned Windows Phone, then Windows Phone would be dead.
Which brings us back to that point about how Microsoft's failure to bring innovative products to market could be ascribed to its determination to protect Windows. Nokia was either going to go down the tubes, or admit defeat and move into the Android camp. This would have killed Windows, and condemned the Windows brand to the PC ghetto. And Windows is sacred: a few billion dollars of offshore cash (which Microsoft couldn't bring back into the US anyway without incurring lots of tax) is a small price to pay to “protect” the sacred cow of Windows.
Yes, I know it's only bought the devices and services divisions and that the new/old Nokia will continue on. But to all intents and purposes, Microsoft has bought what most people think of as Nokia. ↩
It may actually turn out that the billions in platform support would have ended up more than the amount Microsoft paid for Nokia. Looked at purely in this way, this is a good deal. ↩