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Should Microsoft buy Nokia?

Should Microsoft buy Nokia?

After learning that Microsoft paid Nokia $250 million in the fourth-quarter of 2011 just to adopt Windows Mobile on their phones it feels like a full buyout of Nokia would be money better spent.

Although Nokia reported that they sold over 1 million Lumia phones last year, other Windows Mobile devices are not selling so well. Considering the limited interest from phone manufacturers to use Windows Mobile for $10-$30 per device it seems that Microsoft is spending more with Nokia rather then actual income from selling licences.

Personally I think the Nokia Lumia running Windows Mobile 7.5 is the second best phone on the market today next to the iPhone 4S. Nokia created a solid device that looks fresh and of a higher quality over most Android devices. Windows Mobile 7.5 is also miles ahead Nokias own Symbian OS that normally would have shipped on the Lumia if it wasn’t for the Microsoft partnership. The Windows Mobile app store isn’t as large as Androids but the quality of the apps seems to be quite higher on Windows Mobile because of Microsofts stronger interface guidelines. Unfortunately it’s going to take more than a single solid Nokia phone if they want to put a dent in the iOS and Android mobile stronghold.

The problem for Microsoft is that Windows Mobile is a hard sell to device manufacturers over the free Android. Microsoft maintains strict hardware requirements in order for manufacturers to create Windows Mobile devices. Not many manufacturers have the motivation to buy Windows Mobile as they would rather pay no licensing costs with Android and have the freedom to sell whatever they like.

This could be part of the reason Microsoft has aggressively pressured companies like HTC and Motorola to pay patent licences for every Android Device they sell.  Along with Apples “thermonuclear war” against Android puts Microsoft in a position where they can approach device manufacturers and coyly offer them options. Either pay up Android patent fees and risk further lawsuits, or licence Windows Mobile with the security of no patent related lawsuits. This is a smart move on Microsoft as it gives manufacturers pause when deciding which platform to support, yet Microsoft profits either way.

At the end of the day Microsoft would be much happier selling Windows Mobile licences over I.P. licences as selling the OS provides other sources of long term income. Over the past couple years Microsoft has been transforming themselves to be more like Apple in wanting full control over the hardware and software as it results in a higher quality product. The upcoming Windows 8 will also have minimum hardware requirements for PC and tablet manufacturers such as motion sensors, high resolution displays as well as restrictions on themes and customization.

As of early 2011 Nokia doesn’t have any exceptional devices to compete in the market is still losing money and marketshare by the truckloads. Windows Mobile even though it is loved by critics has less marketshare today then a year ago. None of the Windows Mobile devices from HTC or LG have created much interest or stood apart from their Android counterparts. Microsoft has finally realized that design and user experience matter more than a huge variety of hardware and options. Microsoft doesn’t currently build hardware other than the canceled Zune and a few peripherals so they don’t have a clue how to make manufacture smartphones. Nokia has decades of hardware experience however and they could be ripe for an affordable buyout from Microsoft.

At $250 million per quarter Microsoft is looking at spending about a billion dollars per year to get Nokia to use their OS. This huge amount of money could be better spent at buying out Nokia and becoming a hardware manufacturer overnight. Heck even Google did it.  The end result is Microsoft and Nokia create flagship phones for both the low and high end markets to generate enough interest in Windows Mobile for developers and manufacturers to get behind.

And then there is always the inevitable Nokia tablet running Windows 8…

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