Microsoft's Acquisition of Nokia: A Strategic Analysis
Introduction:
In September 2013, Microsoft Corporation made a strategic move that reverberated throughout
the tech industry - the acquisition of Nokia Corporation's Devices and Services division for
approximately $7.2 billion. From a strategic management perspective, this landmark deal was
more than a simple business transaction; it was a calculated maneuver aimed at reshaping
Microsoft's position in the mobile industry.
the issue that Microsoft had to resolve was the negotiation process between the companies as
the negotiators were from different cultural origins: Microsoft is an American company, while
Nokia is a European (Finnish) one. What is more, the strategies and aims of both companies
were different: while Microsoft was trying to become present in the mobile phone market, Nokia
wanted to be provided with a serious capital that could help it deal with expensive operations
and productions. However, it should be noted that negotiations between the two companies took
place before Microsoft acquired Nokia: in 2011, the Windows 7 Platform was presented on
Nokia phones. At first, the companies only cooperated to develop new devices and products.
Only three years after the first cooperation Nokia was purchased by Microsoft. The two
companies had a strategic alliance for 3 years before the acquisition.
**Strategic Motivations Behind the Acquisition:**
1. **Strengthening Mobile Presence and Competing with Android & iOS:**
At its core, this acquisition was a strategic move aimed at significantly bolstering Microsoft's
presence in the highly competitive mobile arena. Microsoft recognized the need to compete
effectively with industry giants like Android and iOS, and this acquisition was the key to
achieving that objective. By joining forces with Nokia, Microsoft aimed to gain the necessary
momentum to establish itself as a formidable player in the smartphone market, allowing the
company to take full control of its smartphone destiny.
2. **Leveraging Nokia's Expertise, Patents, and Intellectual Property:**
Beyond just acquiring Nokia's hardware division, Microsoft understood the value of tapping
into Nokia's extensive expertise in mobile technology. Nokia's rich history of hardware
innovation, coupled with its vast patent portfolio, was a strategic treasure trove for Microsoft.
This acquisition granted Microsoft access not only to Nokia's engineering capabilities and
design prowess but also to a reservoir of mobile technology-related patents. These patents
provided a robust defense against potential legal challenges from competitors while also serving
as a source of revenue through licensing agreements with industry peers. This dual advantage
made the acquisition even more strategically appealing.
3. **Vertical Integration and HERE Mapping Technology:**
The acquisition represented a significant step towards vertical integration. Microsoft
recognized the potential to create a more holistic and seamless ecosystem by controlling both
hardware and software components of its mobile devices. This strategic alignment mirrored
Apple's successful model and aimed to enhance the overall user experience. Additionally, the
acquisition included access to Nokia's HERE mapping technology, expanding Microsoft's
capabilities in location-based services and mapping. This access allowed Microsoft to offer
competitive navigation and mapping solutions, further strengthening its product offering.
4. **Supporting CEO's Strategy and Expanding Workforce:**
The acquisition was not only a business transaction but also a strategic move to support CEO
Steve Ballmer's vision for Microsoft's new devices and services strategy. This strategy shift was
a pivotal part of Microsoft's evolution, and the acquisition of Nokia's mobile division played a
central role in this transformation. Furthermore, the acquisition brought Nokia's vast workforce of
32,000 employees into Microsoft's fold. This influx transformed Microsoft into a truly
multinational company, offering tax flexibility and providing access to a broader talent pool and
global market insights.
5. **Lowering Transaction and Unit Costs, Gaining Control Over Supply Chain:**
The economies of scale stemming from the acquisition were instrumental in driving
profitability. Microsoft anticipated a decline in both transaction and unit costs as a result of this
strategic move. The integration of Nokia's supply chain and the optimization of operations
allowed Microsoft to realize these cost reductions. By gaining control over the supply chain,
Microsoft achieved greater efficiency, lower production costs, and more competitive pricing. This
cost advantage was crucial in enhancing Microsoft's profitability in the fiercely competitive
smartphone market.
6. **Protecting Windows Phone, Fostering Innovation, and Increasing Profitability:**
Beyond securing a foothold in the mobile industry, the acquisition was a strategic maneuver to
safeguard the future of the Windows Phone platform. Microsoft aimed to make the platform
more competitive by leveraging Nokia's hardware capabilities and global reach. This strategic
move was not just about surviving but thriving in the mobile industry. It aimed to foster
innovation, attract developers, and offer a compelling alternative to Android and iOS. As a
result, Microsoft expected to increase its revenue per handset sold, reduce redundant marketing
efforts, and access the source code for Nokia's mapping software. These advantages were
essential in boosting profitability and further aligning Microsoft with its strategic goals.
Consequences and Strategic Impact:
1. Lumia Branding: Following the acquisition, Microsoft continued Nokia's Lumia line of
smartphones, rebranding them as Microsoft Lumia devices. While these phones garnered
praise for their camera technology and build quality, they faced considerable challenges in
capturing significant market share against the formidable Android and iOS duopoly.
2. Organizational Restructuring: The integration of Nokia's workforce into Microsoft resulted in a
substantial restructuring process. This entailed a transition that encompassed cultural
alignment, streamlining of operations, and, inevitably, job cuts. Navigating these changes while
maintaining morale and productivity was a strategic management challenge.
3. Windows Phone Challenges: Despite concerted efforts, Windows Phone struggled to gain
traction. Developers gravitated towards platforms with larger user bases, posing a formidable
barrier to building a robust app ecosystem for Windows Phone. This strategic challenge
underscored the difficulty of competing in a market dominated by established giants.
4. Nokia's Transformation: Post-acquisition, Nokia pivoted its business focus toward networking,
infrastructure, and technology licensing. This strategic shift allowed Nokia to reinvent itself as a
technology and networking company, distancing itself from its legacy as a mobile phone
manufacturer.
5. Write-Down and Leadership Changes: In 2015, Microsoft announced a significant write-down
of the Nokia acquisition, signaling a strategic shift in its mobile ambitions. This move was
accompanied by leadership changes, including the departure of then-CEO Steve Ballmer. The
organization's ability to adapt to changing circumstances was tested.
Key Takeaways for Strategic Management:
1. Vertical Integration Strategies: Microsoft's acquisition of Nokia highlighted the importance of
vertically integrating hardware and software in the mobile industry. While Microsoft didn't
replicate Apple's level of success, the concept of tightly integrating these elements remained a
powerful strategy.
2. Intellectual Property as a Strategic Asset: This acquisition underscored the strategic value of
patent portfolios in the technology sector. Access to Nokia's patents bolstered Microsoft's
defense against legal challenges and provided potential revenue streams through licensing.
3. Learning from Failure: The experience with the Nokia acquisition informed Microsoft's future
strategies. The company shifted its mobile approach towards creating software and services for
all platforms, recognizing the challenges of competing head-on with industry giants.
Conclusion:
Microsoft's acquisition of Nokia was a strategic maneuver that showcased the complexities of
competing in the smartphone market. From a strategic management perspective, it emphasized
the importance of aligning hardware and software, leveraging intellectual property, and adapting
to changing industry dynamics. The acquisition's legacy continues to influence Microsoft's
strategic decisions and shapes the broader landscape of the mobile industry.
It can be inferred, going by my analysis and by Microsoft’s statement on its
website, that the Nokia phone business deal was a bad one. However, the fact
that the deal was bad does not necessarily flaw the strategic plan of Microsoft
going forward. In actual fact, shuttering down the Nokia phone business a
little over a year into its acquisition might be a good signal that Microsoft is
smart enough to cut its losses early enough in order to forge ahead for good. I
have always been an advocate of staying through to one’s core competence
over the long haul by getting rid of businesses or operations that could
cannibalize one’s long term profitability.