Microsoft's acquisition of Nokia's Devices & Services business is a necessary gamble for the software company's future growth in mobile, and for Nokia an admission that it doesn't have enough resources to successfully compete with Samsung and Apple, according to analysts.
Microsoft announced on Tuesday it will pay €3.79 billion (US$5 billion) for "substantially all" of the Nokia's Devices & Services business and €1.65 billion to license Nokia's patents at the close of the transaction.
The deal is a momentous one for both companies, and the end of an era for Nokia, which will now focus on mobile networking equipment and mapping and location services.
"With mobile now firmly positioned as the world's fastest-growing and largest computing platform we see this move as a bold but entirely necessary gamble by Microsoft," wrote Ben Wood, chief of research at CCS Insight, in a research note.
The failure of Microsoft's platform-only approach to the mobile market over the last 15 years — first with Windows Mobile and more recently with Windows Phone — has left it with few alternatives given its almost complete reliance on Nokia for Windows Phone devices and the competitive ecosystem strength of Google and Apple, according to Wood.
The deal, if approved, should be positive for both companies. But the challenge of integrating the two businesses shouldn't be underestimated, especially at a time when Microsoft is in the middle of its own biggest ever re-organisation. History is littered with failed efforts of this magnitude, Wood said.
Carolina Milanesi, research vice president on Gartner's Consumer Devices team, agreed:
"I think it is a question of timing, and time is running out for Microsoft to have a go at the mobile space. With Nokia it had a preferred partner, but this takes away any risk of Nokia moving [to another OS] or someone acquiring them," Milanesi said.
Both think the acquisition will leave Microsoft as the sole maker of Windows Phones. That is, unless something significant happens to Android, according to Milanesi.
The speed at which Microsoft-Nokia can develop new smartphones, improve the underlying OS and get developers to create more apps will be key to the future success of Windows Phone, which is still a distant third in the ecosystem race. In the last six months Nokia has shown a greater urgency, and Milanesi hopes some of that energy will be injected into Microsoft.
The success of the deal will to a large extent depend on Microsoft's ability to persuade the best Nokia employees to stay.
"I really think it would be a mistake by Microsoft to integrate the two and take over, because it doesn't understand mobile. What is good about the Lumia smartphones has more to do with Nokia than Microsoft," Milanesi said.
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