Much of the early reaction to the announcement early on Sept. 3 that Microsoft plans to acquire most of Nokia for $7.2 billion focused on the likelihood that the deal makes Stephen Elop the favorite to succeed Steve Ballmer as CEO of the company. That’s likely true and, of course, very important. It’s also fair to ask how much of this was already established when Ballmer announced his retirement.
The existing relationship between the two companies – Nokia agreed in 2011 to use Windows Phone in its smartphones – makes it possible to make some other tentative assessments at this early point.
The first point, or question, is what impact, if any, the recent progress of Windows Phone had on the desire of the two to take their relationship to the next level, so to speak. The numbers hardly are overwhelming, but it is clear that Windows Phone now is the favorite to be the third mobile operating system. BlackBerry is in free fall and the smaller candidates - four of them - are in various stages of introducing themselves to the market.
Another scene-setter is that Apple isn’t the mobile monolith of the past few years. CNNMoney points out that it’s still a giant, but one that is not quite as tall as in the past:
The iPhone's share of the smartphone market peaked at nearly 24% in the holiday quarter of 2011, according to research firm Gartner. But Apple's share dropped to 21% the next holiday season, and again to 14% last quarter. Android dominates the market with a 79% share.
The fact that what Apple lost Google gained is important. But does it speak to Android’s quality, or the absence of an established third player? In any case, it also is important to note that once a user shifts one time, he or she probably is more likely to be willing to shift again. That pliability is good news for other players in the market.
Thus, at the pre-dawn of the Nokisoft (or Microkia) era, two things can be said: The product that the companies already are partnering on is making progress and the market share landscape is at least somewhat flexible. Both suggest that the deal makes sense.
A third thought is that there are major untapped markets the new Microsoft can attack. The race, as Facebook and other companies suggested last week, may not be for shards of smartphone market share in developed nations. Analysys Mason analyst Ronan de Renesse’s comments on the deal, posted at CIOL, suggest a larger agenda:
The biggest opportunity for Microsoft is in the non-smartphone space. Microsoft will gain a foothold in developing market via Nokia's non-Lumia device portfolio; 45.5 percent of Nokia mobile device shipments went to Greater China, Middle East & Africa and Latin America in 2012. This strengthen Microsoft's position versus Google in connecting the next billion people.
In late August, Robert Baillieul wrote a column at The Motley Fool explaining why Microsoft should not buy Nokia. His reasoning was that the two companies need each other to the extent that a merger, with all the dangers and uncertainty inherent in such a move, isn’t necessary.
The column is a good one. Indeed, just because a deal was struck doesn’t mean that Baillieul was wrong. It seems, though, that the arguments he makes focus on the smartphone OS as it exists today. An expansive future that a combined company would attempt to capture – one that goes far beyond securing a viable third place in the smartphone OS sector – creates a whole different set of variables. Opportunities such as the tablet sector, emerging markets and wired and wireless home automation are just three possibilities.
The prospective deal is a big one. Assuming it is completed, the impact won’t be felt for years. That said, two things seem to be true: It is not just about smartphones and it is not just about small bits of market share in North America, Europe and other developed regions.