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Microsoft reveals bankruptcy of devices strategy by dumping Nokia feature phones

Gregg Keizer | July 22, 2014
Smart and dumb at the same time, but for entirely different reasons, say analysts.

"Dumping the mobile phone business makes a lot of sense," echoed Charles Golvin, founder of Abelian Research and a former Forrester analyst. "Microsoft's interest is in driving the Windows platform and Microsoft services, and while it might have been a possibility to customize those services to work on feature phones, they're not a growth market. So the likelihood of doing that on more basic phones was dim, and not worth the effort."

The exit from Nokia's feature phone business was not what Microsoft talked about last year when it announced it would buy the Finnish firm's handset division and license its broad patent portfolio. Then and later, lame duck CEO Steve Ballmer described the feature phones as potential "on-ramps" to more capable, and presumably more expensive, smartphones.

"I've never believed in feature phones being an on-ramp for Microsoft. Emerging market consumers have been dumping Nokia feature phones for Android smartphones for a while and I'm not sure that could have been reversed without incurring major expenses," said Singh.

Golvin concurred. "It's been demonstrated that customers in emerging markets are interested in and willing to use smartphones, providing they're priced appropriately and the associated operator services are priced reasonably," he said.

A huge part of that switch from feature to smartphones has been driven by device makers selling Android-based smartphones for less than $100, sometimes considerably less, drastically narrowing the price differential between those models and a Nokia feature phone, which Singh said sold for an average of $35.

In other words, Microsoft saw the writing on the wall and got out while the getting was, if not good, then better than if it had stuck to the feature phone guns.

"Given the hand Microsoft's new leadership team was dealt, I think it's a very smart move," said Singh. "Best to cut your losses now before the unit starts to bleed money."

Nor was it a shock to the experts that Microsoft decided to shutter Nokia's feature phone division rather than, say, try to spin it off or sell it.

"Is there a possibility of selling off the core of that business? Perhaps, but it would likely have to go 'on the cheap,' as who wants to buy a business that you don't want to run?" asked Gold. "An acquiring company could get the Nokia brand and a distribution channel, which could be very valuable for a newcomer in the market, perhaps one from the Far East who wants to go worldwide. But they would pay far less than the price Microsoft bought it for."

But by dropping such a huge part of Nokia -- half its employees, the biggest driver of unit sales -- Microsoft showed the bankruptcy of the "devices and services" strategy that Ballmer used to justify the acquisition.

 

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