Thursday, February 24, 2011

Why I believe Microsoft will buy Nokia

I have been pretty lucky in January to predict that Nokia would pick Windows 7 as its new OS. I even won a beer in a bet with the Honorary Consul to Finland in Silicon Valley, clear sign the Finns were not expecting it at all...

I felt it made sense for the situation Nokia was in. I do not think they had many choices. I believed Android was a better option, but it was just not going to happen. Microsoft, also because of Elop's background, was the easiest path.

However, I have been quite surprised by the way they threw Symbian under the bus. I was ok with killing MeeGo, although it is sad to see it (almost) gone, but I feel Symbian has so much market share - still - that a light touch would have been better.

I would be shocked to hear today from any developer in the world "I am still developing for Symbian". As of last week, Symbian is a dead platform, everybody is jumping from it.

Unfortunately for Nokia, developers are not jumping from the platform towards the same boat. They are going to miss the Microsoft boat because it is just a raft, right now. However, they will not miss the Android cruise ship, because it is enormous, it has a pool and a casino on it (check this fantastic video, it is amazing to see how fast Android grew).

Giving up on Symbian, waiting for a Windows Phone to appear (at the end of the year), means wasting a long year, probably even two. If you consider where Android was two years ago (nowhere, check the video above for February 2009) and where they are now, you know what I am talking about. This market is moving at Silicon Valley speed, if you miss two years, you are history.

That's why I think Nokia is doomed as an independent company. Before the announcement, their market cap was $43B, now it is $32B (yep, eleven billions jumped off the platform too). That means today Microsoft has 7 times Nokia market cap (they are at $224B).

With the devastation of the Symbian story (and the grow of low-cost devices from MediaTek and Android), I can only see the stock go south from here. In a year, I bet their market cap will be around $20B, just half of what it was before the announcement.

Put yourself in Steve Ballmer's shoes. At that time, your market cap will be ten times Nokia's. Their company will be $20B cheaper. Apple will be out with iPad 2, iPhone 5 and maybe even an iPhone Mini, with the highest margins ever. Android will be over 80% of market share in mobile, with Google making billions in mobile ads. Where can you go? You can't beat Android, because it is open source and it sells for zero dollars (and it has a momentum that cannot be stopped). But you can chase Apple.

And to chase Apple, you need a vertical integration, from the phone to the OS to the cloud. Microsoft+Nokia is exactly that. Give it a year, there will be friction between the two sides, because the pressure will be enormous and these things rarely work. Microsoft will be left with the only choice of buying, with everyone saying "smart move, you got them for cheap!".

That's why I believe ultimately Microsoft will buy Nokia. And a fantastic story of a company, which was selling rubber boots in the coldest place on heart then moved to mobile to conquer the world, will come to an end. Knowing the Finns, they will drink on it, and move on with a smile. They still have Angry Birds, after all.