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Chronicles

The story behind the story

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Microsoft to acquire Nokia's devices & services business, license Nokia's patents and mapping services

Microsoft Corporation and Nokia Corporation today announced that the Boards of Directors for both companies have decided to enter into a transaction whereby Microsoft will purchase substantially …

Microsoft

Context & Ripple Effects

Microsoft and Nokia’s relationship had already deepened: 2011 reporting described a commercial accord involving more than $1 billion in Microsoft payments to Nokia, while advanced acquisition talks broke down in June 2013. The announced transaction turns that partnership into direct ownership of Nokia’s devices operation while preserving Nokia as the licensor of patents and mapping services.

First-order effects

  • Microsoft gains control of Nokia’s devices and services business, bringing handset development and distribution inside the company rather than relying solely on a hardware partner.
  • Nokia separates its devices operation from patent and mapping-services licensing, making Microsoft a major customer for assets Nokia retains.

Second-order effects

  • Other Windows Phone handset makers must compete with Microsoft’s own device business while still depending on its software platform, raising the importance of Microsoft’s stated commitment to continued licensing.
  • Microsoft can coordinate Windows Phone software, Nokia device teams, patents, and mapping services in one product strategy, tightening its competitive response to integrated mobile-device rivals.

Third-order effects

  • If Microsoft can operate both a handset business and a licensing platform, mobile software vendors face greater pressure to own critical hardware capabilities rather than remain neutral suppliers.
  • The deal points to a quasi-exit model for struggling device makers: retain intellectual-property and service assets while transferring capital-intensive hardware operations to a platform partner.

The trend: Mobile competition is shifting toward vertically integrated platform companies that combine operating systems, devices, and essential services.

Related: Capability Acquisition · Quasi-exit · Microsoft · Nokia · Microsoft’s 2011 Nokia accord

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