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The Microsoft-Nokia deal: Fail plus fail equals more fail

Mark Hachman | Sept. 4, 2013
Microsoft clearly bought most of Nokia to ensure the future of Windows Phone, and ensure a safe harbor for its licensing strategy. But there's a case to be made that this is a marriage of equals. Equal failures, that is.

"We must indeed all hang together or, most assuredly, we shall hang separately." Benjamin Franklin reportedly said this during the signing of the Declaration of Independence. But this quote can also be used to explain the Microsoft-Nokia deal, which cedes Nokia's smartphone business to Redmond for a tad over $7 billion.

Don't like the Franklin quote? Then you can adopt a much more pessimistic school of thought: Microsoft and Nokia may have simply thrown a rope to one another, cried "Save me!" and jumped off a cliff in unison.

In the wake of the deal's announcement, a number of stories have been generous in reporting Microsoft's acquistion--or have at least failed to reality-check the tenability of the deal's greater goals. That's fine. Frankly, Benjamin Franklin's take on the matter is probably a reasonable, fair interpretation of Microsoft's and Nokia's motivations. But the Franklin philosophy is also predicated on the notion that both sides end up winning--and there's little guarantee that will be the case.

Windows Phone is the world's third most popular smartphone platform, and, as Microsoft notes, outsells BlackBerry in 34 markets around the globe. But trumpeting these numbers is like praising Windows Phone with thinly veiled criticism. Worldwide, Windows Phone commands a paltry 3.3 percent market share, up from 2.6 percent a year ago. Yes, BlackBerry fell from 5.2 percent to 2.7 percent during the same period. But with 79 percent market share, Android is outselling WIndows Phone by 25 times. 

"Since when does a combination of a struggling consumer software and hardware company make sense?" Patrick Moorhead, a former AMD fellow who chased Intel for his entire career, wrote in an email. "This acquisition doesn't address why Windows Phone has been unsuccessful so far in driving big-time market share. It's not a resource gap at Nokia, Samsung or HTC. It's not a proximal issue between Nokia and Microsoft. The problem with Windows Phone is that it has been in catch-up mode for years, unable to come up with the killer feature."

Fred Wilson, the principal at Union Square Ventures, has also become a locus of criticism about the deal. "My view is twofold," Wilson wrote. "One, that Microsoft had to do this. The future is in mobile devices, not PCs, and they need to increase their focus and investment on Mobile. I am not sure this will work, but I also don't see that they had a choice. Two, that this changes nothing. Android and iOS are dominant and becoming ever more so."

Microsoft's argument is that "devices help services and services help devices." In essence: Consumers will buy great devices and be rewarded by Microsoft's services layered on top of them. Anecdotally, at least, that's true: My wife owns a Windows Phone, loves it, and hopes that eventually the Lumia 1020 will be supported by T-Mobile. (And maybe, with a little fiddling, it will.)


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