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.
Posted by Fabrizio Capobianco at 09:10
25 Comments:
Good analysis. I think shooting Symbian before it was completely dead was a mistake. They could have ridden it a bit longer. Meego demoted to a 'project' basically killed that. And any migration path for developers from Symbian to WP7 is a mystery right now and hard to take credibly.
While I can understand the reasoning behind your prediction, and agree with the logic behind it, it is hard for me to visualize the integration of the two cultures on this scale. I also think that a complete vertical integration would take time and question whether these MSFT and NOK could pull it off fast enough and successfully. Still, it might end up being a desperate move in the mobile market for both of them.
Comment Posted at 10:19
Just FYI: The company making rubber boots, and another one making great tyres are still alive and kicking. Chances are they will outlive their better known offshoot mobile phone sibling.
Comment Posted at 14:30
Really interesting! I think that actually it is a realistic hypothesis. However I think that there are no chance for microsoft+nokia to compete against iphone and android
Comment Posted at 15:32
Don Marti said...
So does this mean that when the acquisition happens all the other Windows Phone hardware manufacturers will get thrown under the bus, too?
Comment Posted at 17:13
Fabrizio said...
Don, that is a very good question. Honestly, at MWC I have not seen on Windows 7 phone in the LG, Samsung or Motorola booths... I am wondering if they will even ship any Windows Phone now (maybe yes, just to keep Google honest). I think HTC is the only one that could be left out from a Nokia acquisition by Microsoft. I do not believe anyone else will seriously build Windows Phone at this point: Nokia is the preferred ODM for Microsoft now, that is enough to scare anyone else away. Nobody wants to be #2, better be like anyone else with Android.
fabrizio
Comment Posted at 17:16
Fabrizio, Nokia will use Microsoft as OS, acquiring Nokia means others vendor to go to android, what the advantage for Microsoft ? I don't want to buy something only because today the value is half of one year ago, I want to gain market share, buying Nokia means losing market share, just to be honest I don't see space for Microsoft in the mobile area, I see only apple 50%, android 30% and RIM 15%, others 5%, this is my prediction by 2012!
Comment Posted at 11:33
Fabrizio said...
Ciao Alessandro,
as I wrote before, with an announcement that Nokia will be the "preferred" vendor for Windows Phone, all the other device manufacturer have already jumped ship... In a year, there will nobody left but HTC (maybe).
BTW, on your apple 50% prediction in a year, in the smartphone market Android was already at 32% last quarter, while Apple was at 16%, just half(http://www.thisandroidlife.com/2011/02/google-scores-double-victory-android-surpasses-symbian-tablets-gaining-market-share/). No chances, in my opinion, for Apple to recover. I see Android at 70%+, while Apple makes all the money.
Cheers,
fabrizio
Comment Posted at 11:55
Andrius Bentkus said...
Man, that sounds reasonable and should scare the shit out of KDE developers.
Comment Posted at 03:35
--You can’t beat Android, because it is open source and it sells for zero dollar
Yet Microsoft gets paid for every Android sold by LG, Samsung and others who signed the Microsoft extortion agreement which is similar to the one Novell did.
Its its the very definition of parasite and of extortion.
MS claims Android/Linux steals their IP and its either the chance of a court battle which companies like LG dont want to deal with (even though MS has never yet once showned any proof. its like me saying I have naked pictures of you but I never showed them to prove their existence.) and rather pays the MS Linux tax.
Just like the Mafia.
Android sells for zero dollars yet MS is getting paid for it.
Please tell me the fairy tales again about how Microsoft really, really, really, loves free-open source.
I love fantasies.
doug
Comment Posted at 11:18
Nabil said...
I would not mind M$ purchasing Nokia (which will basically mean I will avoid Nokia Products and that they will go down the drain) AS LONG AS THEY DO NOT KEEP THEIR FOSS ASSETS (mainly Qt). Qt is one of the best cross-platform GUI toolkits available, and there is a HUGE conflict of interest there (beside M$'s aversion for FOSS).
Comment Posted at 12:57
You miss one very big point. I suspect that the DoJ will, after launching cursory objections, will aprove the deal. I also suspect that the EU antitrust agencies will be a lot rougher, to the point well the deal will not happen until at least the Qt division and probably the MeeGo/Maemo division are sold off. This is likely to delay a sale by at least a year.
In the meantime, Microsoft will try to make up ground in the mobile area by bringing out Windows 8 for the Desktop/Server with integration to Windows Phone that is tighter then is absolutely legal. At which point the EU will once again go after Microsoft and I suspect several US states will too, then the DoJ just to get ahead of the states and try to control the litigation.
In the meantime Elop will have to face the board of directors, who at this point are non too happy with him.
Comment Posted at 20:00
Well, while this sounds interesting, I don't believe it is going to happen. 3 reasons for this:
1. Why would MS buy a tarnished brand?
2. Why would MS buy mfg. capabilities that are sub-par (eg. Samsung can produce almost everything in-house)
3. Lastly the vendors that have Windows Mobile 7 running on their handsets now, will have a massive head-start, provided MSM 7 gets any traction, therefore MS would not need to buy Nokia
The truth is that Mr. Elop and his board have committed a blunder of gigantic proportions and Nokia will go the way Siemens or Sony Ericsson went, ie. to irrelevance.
Comment Posted at 10:29
Ged Carroll said...
I can understand why Nokia would Microsoft to buy it, but not understand why Microsoft would want to buy Nokia. Why would Microsoft want to blow its war chest on the organisation, risk a regulatory bloody nose (I'd guess in China and Korea at least) and take on much more liabilities which would alienate many of its partners?
Like the Microsoft deal with Yahoo!, the current position with Nokia makes much more sense than acquisition. It will be complex enough working with Nokia as a partner let alone integrating it into the company.
Comment Posted at 11:13
Fabrizio said...
Lars, I think they will be forced by the market. Windows Phone will have not enough traction and they will have all their bets on Nokia (I do not believe any other ODMs will consider WP seriously now). They will have the experience of XBox, where they are fully integrated (and it works). They will have the experience of Windows Mobile 1-6 and the failure of Windows Phone. They will look at Apple and believe the only way is to own everything. Much faster to buy it then build it (including logistics, carrier billing and so on).
Ged, the regulatory issues are the only thing that could prevent this deal - I agree. But I think they will be forced to do it and they will hope that Apple + Google at 90% of market share will give them enough arguments against a monopoly charge.
fabrizio
Comment Posted at 11:25
Tina said...
I do find it interesting and something Nokia absolutely needed to do right now. They did have other possibilities in the past, but those flew them by (Palm as I used in my previous example). I also think it's going to shake up the market in Nokia/MS favor in some geographic locations, but IMO, I think they need more exclusivity in this venture. The other companies using MS software are still leaning more toward Android and I don't think they're going to do anything to help make the WinPhone platform shine as brightly as possible.
Check this to see what other developers have to say: http://www.youtube.com/watch?v=kfWFvCJJaNs
Comment Posted at 00:30
GreyGeek77 said...
Nice analysis.
Now that MS is in the driver's seat I suspect that Qt R&D will slow to the bare minimum allowed by the QtFree agreement - one version level between the commercial and LGPL versions, with a "significant" update occurring every 360 days or so. Qt LGPL being a year behind is like a 1/3rd of a computer generation.
THis raises the questions for forking and if KDE has the resources to do both the Qt R&D and desktop R&D, but it is a path they may have to take to control their own destiny. I hope they do.
Meanwhile, Ubuntu is cutting loose Gnome in favor of Unity, which makes excellent sense and raises the question as to why they'd want to waste iso space with Mono, since Qt is much less encumbered than Mono and despite the "agreement" MS can't really control Qt they way they control Mono. After all, if the MS API becomes the default on Linux then what is the point of Linux?
Comment Posted at 08:00
GreyGeek77 said...
@Tina:"Check this to see what other developers have to say"
A polished PR video pandering to WP7 developers isn't an unbiased measure of what "other developers" have to say, and they appear remarkably unexcited about the "opportunity".
The outcry against the move by developers was SO MASSIVE and so unexpected by Nokia they had to do damage control with a rebuttal blog the same day. Android was the big gainer that day, especially since a tool which allows Qt to be used to develop on the Android platform has been released.
Comment Posted at 08:25
Charlie said...
The EU would probably have something to say about a Microsoft acquisition of Nokia. I don't think they could possibly pull that off because the EU would block it over anti-trust concerns (not to mention that the EU really doesn't like Microsoft and really doesn't like European businesses being acquired by US businesses).
Comment Posted at 08:45
Everything you say makes sense except that Nokia and Microsoft don't have enough time to pull it off. Nokia has pulled a classic Osborne, they've pulled the rug out from under their existing handset business before they have the new generation ready to sell. With iPhone3Gs selling for $49 and Androids available at every price point there is nothing left but the giveaway handset market, which can't have any profit margin available for the handset maker. And even the giveaway market will probably be all Android by next year. I don't see Nokia being worth $20B a year from now, they will be lucky to be worth $2B. Microsoft is out of time also. None of current MS phone licensees have their heart in it, they are only offering the Win7 phones to keep MS from harassing them over patent violations, eventually these relationships will turn into simple patent licensing arrangements. MS needed to buy Nokia two years ago, now it's too late for both of them. Even if Nokia was down the road from Microsoft in Redmond they couldn't integrate the two organizations fast enough, integrating a Finnish company into Microsoft would take years if it could be done at all, and they don't even have months available for the job.
Comment Posted at 10:51
Nokia blew it when they failed to promote Maemo. Maemo products, including phones were out several years ago, but the tools to simplify life for developers didn't seem to be available. Also, Maemo was restricted to only the most expensive devices.
Symbian was protected, Maemo was sacrificed.
The Maemo devices I have seen were impressive, but the price point was too high.
By pursuing the Meego thing, they delayed introduction of a working phone by several years. They still don't have a decent simple developer tool set, and now it's too late. The market has moved on. Meego is basically targeted at embedded systems. Phones are an afterthought.
It's all uphill from here. Nokia has to hope for a miracle with Windows Phone 7. An area where Microsoft has repeatedly struck out in the past. Maybe the Xbox tie in will save them. Maybe not. I'm looking for Steam on iPhone and Android sometime this year. There's too much money not to. Amazon and Netflicks are there already.
Or, maybe there is still enough life in Symbian and feature phones to survive on the 3rd world market. Not everybody wants a pocket computer for a phone.
Comment Posted at 14:41
Centerlink said...
Oh no. You do not know about poison bill (http://www.investopedia.com/terms/p/poisonpill.asp) of Nokia. Buying Nokia is very, very expensive. This blog is out of real World!
Comment Posted at 06:55
Nokia simply doesn't understand software. Maemo should've been the obvious choice from the get go for smartphones, sadly Nokia didn't nurture the excellent development community which was even starting to thrive when Nokia did everything wrong. Symbian have a really poor reputation amongst developers and is overall a very poor brand amongst consumers as well. There's really only one mobile OS with a reputation worse than Symbian, and that's windows mobile which have always been crap. Ask pretty much anyone who's suffered under it.
Comment Posted at 17:43
The writer of the article is a sadist that knows just "a" Finn.
Comment Posted at 10:20
Fabrizio said...
Nooo, I am a big Nokia fan, not a sadist... And I know plenty of Finns, one in particular, though ;-)
fabrizio
Comment Posted at 13:36
Microsoft-Nokia said...
I don't see Microsoft-Nokia doing much to stand Apple or Google-Motorola Mobility. Nokia is on the decline dramatically and Microsoft has been trying to use its Windows model for mobile operating system and that just doesn't really make ways for mobile. For the two to come together, I don't really see what they can offer in the market.
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