Most of us would have responded with a ‘Finally!’ when Microsoft announced that it has agreed to buyout Nokia’s handset business on September 3, 2013. The deal has been pegged at USD 7.2 billion. More than the money it involves however, what is important is what this development entails if Microsoft and Nokia can leverage the combination that they will create once this deal meets regulatory approvals and the transaction is closed.
Writing on the wall
This deal was in the making for some time now. In fact, I would say for two years at least. Nokia has been banking heavily on the Microsoft operating system for its flagships products. Microsoft on the other hand, historically did not have any significant play in the device segment (Microsoft’s music player, Zune, did not deliver) with the exception of X-Box. Microsoft’s success with X-Box, versus some of the other products, implies that the company has an understanding in this area. I believe it can definitely benefit if it has a handset in its fold that it can integrate better with its overall offering.
What we must also remember is that after the two big operating systems – Google’s Android and Apple’s iOS, Microsoft is the third big player in the market. BlackBerry is diminishing in most markets. Apple operates in both the OS and device space and so does Google, with Nexus. It was imperative for the third player also to ensure capability on both spaces. Microsoft has taken a step in that direction with Nokia.
The deal also opens up the mobile market for Microsoft and immediately gives it access to more than the one billion consumers that it was otherwise targeting because mobile is a much larger game. Nokia, with its expertise in low cost feature phones and into the mobile-first markets, which essentially come significantly from emerging markets, has made the canvas bigger for Microsoft.
A clear relevance for the deal in Asia
The way I see it, the deal is clearly going to bear a stronger impact in the fast emerging markets including in Asia. Take the example of Indonesia for instance – Nokia has a 40 per cent reach in this market that Microsoft other has no access to. This is true for various other markets in Asia, which then opens up a humongous database that can be addressed from different perspectives such as cloud computing and what have you – sky is literally the limit. Platforms such as iOS is still not as prevalent in Asia and from a brand perspective, Nokia and Microsoft are strong brands in these markets. This cannot be discounted.
Also, the two companies can gain from brand building exercises at the middle and the lower end of the pyramid and create a stronger place with the masses. There is an opportunity to learn from these markets and inject those learnings in creating products and services. A company such as Microsoft can then take these to other markets.
At the end of any such deal that involves a merger or acquisition, one cannot help but wonder, which one of two gained more. I would say, in this particular case, it is a win-win deal. The two companies complement each other in spaces that the other was lacking in. They now create a formidable force that will keep them relevant in the long term and give the top two players a run for their money.