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Microsoft's new ecosystem with Nokia

Tuesday, September 03, 2013 - 02:32

Sept. 3 - Buying Nokia's phone business gives Microsoft an ecosystem to take on Apple and Google and could fatten margins. Fred Katayama reports.

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Microsoft's $7.2 billion purchase of most of Nokia's mobile phone business gives birth to a mobile Microsoft ecosystem, putting Windows Phone software and Nokia's hardware under one roof just as Apple and Google do. Microsoft CEO Steve Ballmer: SOUNDBITE: STEVE BALLMER, CEO, MICROSOFT (ENGLISH) SAYING: "For Microsoft, it is a signature event, a signature event in our transformation." Nokia's gear fulfills his plan to transform Microsoft from an operating system company into a device and services provider. He says the deal will help Microsoft boost its smartphone market share to 15 percent by 2018. Although Windows Phone is gaining momentum, that's a far cry from the puny 3 percent share it now has, placing a distant third behind leaders Apple and Android. Reuters Breakingviews columnist Rob Cyran says the need for speed also motivated Microsoft. SOUNDBITE: ROB CYRAN, REUTERS BREAKINGVIEWS COLUMNIST (ENGLISH) SAYING: "The other thought is that if they can tie the two businesses closer together, they can design devices faster and make this software work a bit easier, better with the hardware. That's been Apple's advantage over the years." Integrating the two companies won't be hard, says CLSA Americas analyst Ed Maguire. SOUNDBITE: EDWARD MAGUIRE, MANAGING DIRECTOR CLSA AMERICAS (ENGLISH) SAYING: "There's not a lot of overlap. You're not talking about a merger of equals here. You're talking about bringing on board an existing partner." Here's how the deal would work economically: Microsoft says now that it won't have to split profits, the gross margin that it gets for each Nokia phone sold will quadruple to $40. But to become competitive, Maguire says Microsoft must beef up its offering of apps and get developers to commit to them. SOUNDBITE: EDWARD MAGUIRE, MANAGING DIRECTOR CLSA AMERICAS (ENGLISH) SAYING: "Part of the appeal of a phone is really what you can do with it. It's the apps. Microsoft doesn't control the third-party developers that create those applications. So part of the rationale for an integrated platform is, if you're a developer, you get more bang for your buck by developing on a Microsoft platform because you can run apps on different form factors, which is not something you can do with Apple iOS and Mac OS, for instance, which are quite different." But Microsoft investors weren't buying Ballmer's story. The Nokia news knocked its shares down nearly 5 percent.