Microsoft has finally brought Nokia’s devices unit on-board, about seven months after announcing it was planning to acquire the operation that once dominated the cellphone market. It is now up to Microsoft’s new chief executive to make use of the company, which Microsoft ended up paying more than $7.5 billion for.
Nokia will become the hardware arm of Microsoft’s “mobile first and cloud first” approach that is the cornerstone of the company’s strategy under its new chief executive officer, Satya Nadella. This basically means building services and devices that keep people immersed in Microsoft’s products wherever they are.
With the market for personal computers steadily shrinking, Microsoft is relying increasingly on mobile phones. “The vast majority of people do not have, or will they ever have, a personal computer,” said Stephen Elop, the former Nokia chief executive who is now executive vice president of Microsoft’s devices group, in a statement. Mobile devices are the way to drive adoption of services like Skype and Bing. “There are literally billions of people who can be exposed to Microsoft for the very first time,” he said.
With Nokia now part of the company, Microsoft is the second-largest maker of mobile devices, with about 14 percent of the market, according to IDC. At the moment Samsung and Apple grab almost all of the profit in the market. Microsoft’s Windows mobile operating system is growing faster than any other over the next four years, but that is largely due to its small starting point. By 2018 it is expected to be only 7 percent of the total market.
When the deal was announced, it seemed like it might scuttle Microsoft’s strategy of having other phone manufacturers make devices that run its operating system. But it is not giving up that idea. One reason that Microsoft may have been slow to catch on is that it wanted device manufacturers that wanted to run Windows to pay Microsoft. But the company recently said it would stop charging licensing fees to manufacturers of devices with screens smaller than 9 inches. This covers some tablets and all smartphones (although if people’s tastes for huge phones continue to grow, who knows whether it always will.)
By forgoing licensing revenue for scale, Microsoft is mimicking Google’s approach to the mobile market. Google gives away the Android operating system for free to all comers, in hopes of recouping the value through advertising and other indirect means. Microsoft is working on its own flavor of this approach, according to Nadella. “We have monetization wrinkles on the back end,” he said in a call with analysts on Thursday, “because in a world of ubiquitous computing we want Windows to be ubiquitous.”
