One of the most enticing “what-ifs” of recent years has come true: Microsoft has purchased Nokia’s devices and services unit, bringing the Lumia lineup under the Redmond roof. The move unites Windows Phone 8 with its biggest hardware supporter, giving the company the integrated mobile offering it’s been looking for with Surface and other devices. When the deal closes in the first quarter of 2014, Microsoft will pay €3.79 billion for Nokia’s business, plus another €1.65 billion to license its portfolio of patents. (The €5.44-billion total is considerably less than Microsoft paid for Skype in 2011.)
BlackBerry and Nokia were once leaders in the Smartphone market but their fortunes changed dramatically after the launch of Apple’s iPhone in mid 2007.
Both companies made the mistake of believing that it would be hard for Apple or Google, newcomers, to unseat them from their dominant market position. History tells a different tale.
Apple’s iOS and Google’s Android together account for more than 90 per cent of the global smartphone market and the question has now turned to whether there is still any room at all for a third operating system.
Nokia had tried to press the “reset” button and recapture some of their lost market momentum with a new operating system – Nokia chose Microsoft’s Windows Phone OS.
Unfortunately, the “reset” also meant starting from scratch in building a vibrant mobile app market to support their new operating systems and introducing existing customers to entirely new formats and experiences.
Even with Microsoft’s deep pockets, that has proved to be a tough challenge.
Lumia sales did finally propel Windows Phone past BB10 to become the third-largest operating system in the first quarter, with a global market share of 3.2 per cent, according to IDC.
So what does Microsoft need for survival in the mobile space?
In terms of hardware and design, there’s not much that Microsoft can actually do. Of course, it can build its own designs. Microsoft is counting on its hardware partners to address the larger market. The issue is that right now, partners believe that they can differentiate more with Android. For instance, most of them change Android’s user-interface (UI) elements or try adding services that people often don’t care about. They all end up spending significant resources in software design, which don’t produce a valuable return. Yet, if the partners believe that they stand a better chance of success with Android, they will use their best hardware for Android designs. Finally, Microsoft does not support enough hardware platforms: only the Snapdragon S4 is currently supported, so powerful chips like the Samsung Exynos 5 Octa or NVIDIA Tegra 4 are currently left out of Windows hardware. Microsoft should make it that every Android designs could also run Windows Phone. We would love to have a Galaxy Note 2 for Windows 8 handset. Microsoft’s best move was to unify its code base and APIs for Windows 8 and Windows Phone 8. Peter Klein means that Microsoft is playing the long game, and that there is no quick fix. Microsoft needs to fight for every percent of market share, and it has to do so by adding value for its customers, without alienating its partners. Of course, other companies have different strategies to do that, but Microsoft is… well, Microsoft, so it has to find a solution that works for itself. Microsoft can still take a number of tweaks to significantly improve its position in the market.
But in an industry driven by scale, Nokia/Microsoft’s market share is still too small to ensure long-term survival.