Nokisoft

Past week, we were all shocked, but not surprised, by Microsoft's decision to acquire Nokia's phone division. But it makes sense. Nokia is the only OEM who bet the house on Windows Phone 8. Although growing steadily, Windows Phone 8 is not setting the world on fire. PC sales are only going in one direction since the last few quarters. Microsoft's own efforts on the Surface were a big dud in the market. All of these pointed to a serious change required in the setting. A bold move. Double or quits.

That is exactly what Microsoft's Nokia acquisition tells us. Its a doubling down move on mobile. I consider this to be a good decision by Microsoft, and a wise use of the monies they have been accumulating. Office & Windows revenue streams are in an extremely risky position as momentum is surely with mobiles and tablets.

The deal has to be approved by various regulatory bodies. The integration will take atleast a few months to show any signs of success.

Microsoft has always been in the licensing business, be it operating systems or office productivity software. The business model is simple. They earn an x amount of dollars for every PC that is sold in the market. But this model is not working in the new post PC era. No phone/tablet hardware manufacturer is ready to pay for software (Samsung, HTC). Certainly not for a late entrant like WP8. And besides, Android is free. The rest are vertically integrated (Apple, RIM).

With the notable exception of Xbox, and to some extent Bing, Microsoft's foray into digital media or consumer hardware have not been successful. Post PC era has arrived in the consumer space. It is only a matter of time before this shift happens in the enterprise market. Apple & Google are in a very good position to dislodge Microsoft from enterprise IT. Or worse, make Microsoft irrelevant.

This acquisition is Microsoft's attempt to change that.

With the Nokia acquisition, Microsoft gets :-

  • A hardware manufacturer who knows how to build quality, differentiable hardware.
  • An efficient distribution system and a global supply chain, with an extremely lucrative share in the growing markets.
  • A strong patent portfolio, that can always come in handy.
  • Expertise and experience in mobile computing, with ready to use platforms like "Here Maps".

These are good tools to have in your pocket. An integrated offering provides higher gross margins, as you save on markups and royalties. While many believe Microsoft was already late with WP7 when it launched a few years ago, there are some who are getting bored from both iOS & Android. And Blackberry is up for grabs. Plus, this market is crucial to Microsoft's future. We need to wait and see how things pan out for them.

I also think Microsoft can win over a few million in sales from other OEMs by giving away WP8 for free. It might even be possible to arrange a barter system wherein companies like HTC et al get to pay nothing for x million of phones provided they commit to y million of Windows 8 devices per year. Or no $5 per Android phone sold, if they also sell z million of WP8s.

With these benefits and economies in scale, Microsoft's bet to gain a significant market share in consumer space gets some wind underneath its wings. Whether that will be enough to take flight, only time will tell.

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Windows Phone 8!

Microsoft's Windows Phone 8 event was a pleasant surprise. As a Windows Phone user, I am very satisfied with the way things are shaping up for this (not so) new phone OS. iOS 6, for me, was an underwhelming attempt by Apple. WP8 announcement packs in a lot and will help break the boring duopoly of iOS & Android in the smartphone marketplace.

Announcing Windows Phone 8

A quick recap of what is new and coming this fall :-

  1. A new start screen
  2. Better hardware choices, with support for three screen resolutions, dual-core & quad-core (planned) and microSD card.
  3. Internet Explorer 10
  4. Shared core with Windows 8, with easier porting and more interesting apps and games coming through.
  5. Nokia Maps, with offline caching and turn-by-turn navigation
  6. NFC/Wallet feature and In-App purchases
  7. Enterprise features including Encryption, Secure Boot, Device Management and App Deployment
  8. Full VoIP support

All of this sounds great. This release will strengthen WP8's pitch as a viable alternative to iOS & Android. We can expect a few more interesting features once the devices start shipping.

However, this did not please a lot of existing WP7 customers.

WP7 customers were distraught that WP8 won't be coming to their "barely days old" devices. And frankly, Microsoft could have done a better job on this. All the Software features should have been brought to the existing devices. A price correction is another way to sell existing, but now old and incompatible devices and software.

Apple customers face a similar problem every October. But instead of getting angry and upset, Apple customers support and queue in for the new hardware and software features. Google, on the other hand, announces a new version, which trickles down to a percent of existing devices in 6-12 months timeframe, and most of the time never.

Microsoft should take a leaf out of Apple's book, rather than following its PC legacy of announcing a product and following up with an actual release 3-4 months afterwards. The Phone industry is not similar to the PC industry, where the major distribution was through PC manufacturers. Here are a couple of things Microsoft can do better next time :-

  1. Fix an approximate announcement schedule, so customers know it is that time of the year again.
  2. Work with Nokia and release a new lead device, along with the OS announcement.

A new OS is a "once in two years" phenomenon. Microsoft has a couple of years to figure things out for WP9. Every new OS version should accompany a new phone announcement for Microsoft to gain a substantial traction in the market.