Today's announcement that Microsoft is buying the cell phone part of Nokia (their Devices and Services Division) was hardly shocking. Yet, it is a noteworthy event and also a little bit saddening given that it represents a significant milestone in the downhill slide of Nokia from its heights as the undisputed leader in cell phone manufacturing only a few years ago.
With our Chapman MBA travel course Business in Scandinavia, we visited the Nokia headquarters both in 2010 and in 2011. In the following, I will offer some reactions to what this acquisition may mean in the evolution of the mobile phone industry and intersperse it with some pictures from our Nokia visits.
The fact that Microsoft acquires a major hardware brand is further validation of Apple's business model of competing with entire eco-systems. To make the Windows Phone operating system a credible competitor to Apple's iOS and Google's Android, Microsoft needs to tightly integrate Windows with Nokia's still world-class hardware.
The resulting product will apparently still have the Nokia name on it but eventually, Microsoft will likely phase it out to truly make it theirs. Any name ideas for them in the comments? Perhaps the MicroPhone could be confusing to some but I kind of like it! Still, the risk of having “phone” as part of the name may be that it can reinforce the increasingly false notion that people buy smartphones to actually talk to people. Even without “phone” in its name, I believe that the disproportionate focus on making great “phones” as opposed to developing slick interfaces appropriate for apps and social media contributed to the demise of the mobile device units of Nokia and of Sweden's Ericsson before them.
App Developers' Faith in a 3rd Eco-system?
The hardware/software integration alone will not be sufficient for success, however. Microsoft still has a tall task of convincing busy and under-staffed independent application developers of the long-term viability of a third eco-system. Short-term incentives alone will not cut it if developers fear their Windows Phone development efforts will be wasted in a couple of years. Still, if this acquisition doesn't signal a serious commitment, I can't see what would.
Also, if Microsoft has taken a cue from their Seattle neighbor Jeff Bezos of Amazon, they may already be looking seven years down the road and with such a long-term perspective, today's smartphone market may still be considered to be in an embryonic stage of development, especially for the next billion cell phone users in emerging markets. That is, the battle of the eco-systems may not be over yet. Far from it.
The Outsourcing/Vertical Integration Pendulum Swings Back
Not very long ago, many business school professors, me included, professed the virtues of outsourcing so that companies could focus on their strengths or core competencies. This likely is still valid advice in many situations and certainly is the path chosen by the remaining Nokia having not only begun spinning of their cell phones, but also things like real estate (they are currently leasing their headquarters).
That being said, Microsoft's Nokia acquisition is further testament to the increasing complexity of how value is best created in global supply chains. Not only will Microsoft work both on hardware and software, in 2010 they also began rolling out Apple Store look-alike Microsoft retail stores to sell their own wares and complementary products. No wonder they would find it tempting to have some more of their own hardware to put on those tables!