Purchase Of Nokia Means Broader Mobile Presence For Microsoft, But Channel Strategy Unclear

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In a bid to boost its mobile device strategy, Microsoft purchased the fading phone giant Nokia in a $7.2 billion deal that it says will help connect the next wave of smartphone users to the Windows ecosystem via Nokia smartphones. The acquisition, according to Microsoft CEO Steve Ballmer, "cements a partnership put in place two-and-half years ago." During a conference call with the media outlining the specifics of the purchase, Ballmer added, "We have a long way to go."

As part of the acquisition, Stephen Elop, a former Microsoft executive rumored to be in the running to replace Ballmer as Microsoft CEO, will step down as Nokia CEO and will lead the Microsoft devices effort as executive vice president of devices and services.

His team's goal, Elop said, is to "bring a rich array of Microsoft services to first-time smartphone users as we create an on ramp to Windows phones for people that are having their first smartphone experiences." By combining Microsoft and Nokia efforts, Elop said, "we can increase our share in smart devices through faster innovation, through better products and through unified branding and marketing."

[Related: Microsoft To Buy Nokia Mobile Business In $7.1 Billion Blockbuster Deal]

Ballmer said Microsoft's impetus behind purchasing Nokia was threefold. One was to acquire a mobile hardware partner it has close ties with that had valuable mobile patents and licenses. The second was to convert lower-end feature phone users to Windows Phone 8 smartphones. Ballmer and Elop both said that having a strong mobile strategy also keeps its Windows ecosystem healthy.

"Nobody buys hardware for hardware. And it's sometime hard to get real end users to buy services without buying hardware," Ballmer said. With Nokia hardware, Ballmer said, Microsoft has "a powerful lineup of first-rate mobile services to deliver," namely Office, Skype, SkyDrive, Bing and Xbox entertainment services.

As part of the deal, Microsoft acquires Nokia’s smart devices business unit, the Lumia brand and products, 8500 key patents and access to an existing Nokia licensing agreement with companies such as Qualcomm.

"We are pleased to be acquiring the full capabilities of Nokia and phones from its mobile phones, smart devices, engineering, marketing, to supply chain management," Ballmer said.

While Microsoft bolsters its mobile device strategy with the purchase of Nokia hardware and patents, scant details emerged on how its channel strategy will differ moving forward.

"More success with phones helps our OEM tablets and PC business," Ballmer said. "Now we have a flagship product to blaze a trail in this market. It's a different model than the PC model, but I'm pretty excited about how we can balance our own first-party hardware and get support and help that’s important from our OEMs."

Elop will run Microsoft's integrated devices organization with Nokia's research and development division in Finland. Julie Larson-Green, who was just named executive vice president of Microsoft’s Devices and Studios division, will report to Elop.

Ballmer said Microsoft has no plans to change development efforts of Microsoft products on iOS and Android platforms, however, he said Microsoft needed to be more fully in control of the hardware and software development for a "first-class experience on those platforms." He said Microsoft was leery of being at the mercy of Apple or Google whims when it came to porting services and software to their mobile platforms.

"We will support iPhone and Android and Galaxy phones with our services. We are not holding back services from other phone vendors' platforms in any way," Ballmer said. "However, we run the risk of Google or Apple foreclosing on our ability to innovate and integrate our applications."

"The successful investment in Windows Phone 8 and Windows ecosystem should help raise the tide in everything we do," Ballmer said. "We know that tide helps attract application developers. And we recognize the gaps we have in applications in the ecosystem today, particularly with Windows phones."


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