The Inside View: Microsoft's Top Execs Sound Off On $7.2 Billion Nokia Buy

Microsoft Goes Cellphone Shopping

Microsoft went shopping Monday and made plans to pick up a phone company, Nokia, for $7.2 billion. The company managed to dominate mobile news headlines with the move, overshadowing Google's Android 4.4 KitKat announcement and Apple's iPhone event announcement, as it looks to catch Samsung and Apple in the fast-paced mobile market.

But what does Microsoft get for its phone buying binge? CRN listened in Tuesday to an hourlong phone briefing with Microsoft and Nokia top brass, including Microsoft's Steve Ballmer, Terry Myerson and Brad Smith and Nokia's Stephen Elop. Here's what they had to say about the deal.

1. What Is Microsoft Buying Exactly?

Steve Ballmer, CEO, Microsoft

"Microsoft is acquiring Nokia's phone business, both its so-called mobile phone business as well as its smart device business [$5 billion]. Along with the acquisition of Nokia's phone business it is also being assigned rights in Nokia's IP license with Qualcomm and other key IP licenses [$2 billion].

We are licensing -- not buying, we are licensing -- Nokia's patents to be able to use them not only with our Windows Phone and other phone product lines but across the Microsoft product set. Number four; we're licensing the ability to use Nokia's HERE mapping geospatial location."

2. What Are The Roots Of This Deal?

Terry Myerson, executive vice president, operating systems, Microsoft

"This all started in fall 2010 when the Nokia and Microsoft teams began talking about partnership. We asked ourselves with two great brands, Microsoft software and Nokia hardware, what could we create? In Nokia we found great leadership, innovative concepts and incredible engineering capabilities, not to mention a flair for original and world-inspiring hardware design.

In February 2011, we signed our strategic partnership. Nokia would invest exclusively in Windows Phones, and Microsoft would bet on Nokia's HERE mapping technology. We shipped our first phone together nine months later, the Lumia 800. In just over two years, Nokia has gone from shipping no Windows Phones to shipping 7.4 million last quarter."

3. Can You Ever Compete Against Apple Or Google's iOS And Android Platforms?

Terry Myerson, executive vice president, operating systems, Microsoft

"We are building momentum but we still have low share today. Last decade with Xbox and Exchange we were in the same positions, starting small. Here we aspire to the same trajectory. We need to make the market for Windows Phone. We have to go to the customer with a clear message that highlights Windows Phone's differentiation."

4. Why Buy A Phone Company?

Steve Ballmer, CEO, Microsoft

"There are many theories of Microsoft and where we should go that I get a chance to read here from investors, from journalists. And in a simple way, I would say much as apps help operating systems and operating systems help apps, devices help services and services help devices. Being successful with end users ... is absolutely vital to succeed, both at work and at home."

"When people talk about the consumerization of IT, that's a phenomenon that we grew up with. The PC represented the first consumerization of IT. If you want to, as we do, then, to capture a large user base -- real people who use our products in many aspects of their lives -- you must focus either on consumer services, devices, or some combination. And I would say that in many ways we're coming at both of these, but devices are particularly important as a place to capture and really involve the end user. Nobody buys hardware for hardware."

5. What Will You Do Differently As The Owner Of Nokia, As Opposed To A Partner?

Steve Ballmer, CEO, Microsoft

"The marketing approaches we have used in the past are insufficient. This deal enables us to invest in a single marketing campaign, which allows us to officially communicate the Windows Phone value proposition to consumers with one brand and a united voice, making the market for the entire Windows Phone ecosystem."

6. What Will The Executive Shuffle Look Like?

Stephen Elop, executive vice president, devices and services, Nokia

"I [Stephen Elop] will step down as Nokia CEO and will lead the Microsoft devices effort as executive vice president of devices and services.
Jo Harlow will join Microsoft and will continue to lead smart devices.
Timo Toikkanen will join Microsoft and will continue to lead mobile devices.
Juha Putkiranta will join Microsoft and will lead the integration effort between our companies on behalf of Nokia.
Stefan Pannenbecker will join Microsoft and will lead design.
Chris Weber will join Microsoft and will lead the devices sales team with the Nokia sales team being the nexus for Microsoft's devices sales team going forward."

7. How Will You Tie The Nokia Purchase To Microsoft's Core Business?

Steve Ballmer, CEO, Microsoft

"The company I joined 33 years ago was a company focused on software for personal computers. And software is a great skill and will always be a core strength of Microsoft. The PC is an important device, the most productive device on the planet, and will continue to be so. And, yet, for us not only to grow but for us to really fulfill the vision of what we can do for our customers, we've evolved our thinking. We need to be a company that provides a family of devices -- in some cases, we'll build the devices, in many cases, third parties, our OEMs, can build the devices -- but a family of devices with integrated services that best empower people and businesses for the activities that they value the most. The core deliverable for us has been software. And, yet, the core way in which people will consume that is through hardware experiences as well as cloud services, which is a fundamental transformation for our company, which is very, very important."

8. Does This Impact The Reorg Outlined Earlier This Year?

Steve Ballmer, CEO, Microsoft

"No, the reorg is absolutely intact. Obviously, the devices business has a broader scale and new capability. Julie Larson-Green (pictured), who is running devices and studios is flat out. We've got a lot of work we're doing here over the next several months, and Julie and her team will work on a planning and integration phase. Julie will continue. She's excited about working on devices, but, absolutely, the critical mass of the group with that acquisition is in the phone space, and Stephen Elop will run the group and will take the appropriate steps with Julie working with Stephen to figure out appropriate integrations."

9. On Microsoft's Acquisition Of Nokia's HERE Mapping Service

Steve Ballmer, CEO, Microsoft

"Microsoft will get flexibility to integrate Nokia's HERE geospatial assets into all of our experiences. We’ll have great freedom to innovate around the HERE location platform, and yet Nokia can maximize the use of the HERE asset by other industry players. Like every other aspect of the deal being announced today, we examined many possibilities and collectively decided that the new partnership is simpler, more effective, and more likely to lead to economic success for both entities, and a real second digital map of the world."

10. Does This Discourage OEMs From Making Windows Phone 8 Smartphones?

Steve Ballmer, CEO, Microsoft

"We absolutely believe this acquisition grows our OEM opportunities. More success with phones helps our OEMs in tablets and PCs. I've talked to a number of OEMs who are more enthusiastic today than they were yesterday about pursuing Windows Phones, because they know we have a flagship product with which to blaze trails in this market. And there is plenty of opportunity for OEMs to address the diversity of markets that are out there, and I'm pretty excited. It's a different model than the PC model, but I'm pretty excited about the way in which we can balance our own first-party hardware and get support and help that's important from our OEMs."

11. How Does The Nokia Acquisition Play Into Microsoft's Tablet Strategy?

Steve Ballmer, CEO, Microsoft

"Certainly, as I talked to our hardware partners in PCs and tablets, they agree with me passionately that success in phone is important to success in tablets. And I've already had a chance to talk to a number of our big OEMs who are excited about the transaction that we're announcing today with Nokia. We also know that there's a relationship between tablets and PCs. So, in some senses, a successful investment in Windows Phone, and the Windows ecosystem, should help raise the tide of everything that we do, and we know that that rising tide attracts application developers, and we recognize the gaps we have in application ecosystems today, particularly on Windows Phone."

12. Will Microsoft Be Less Inclined To Develop For The iOS And Android Platforms?

Steve Ballmer, CEO, Microsoft

"We will, as we do today, support both iPhone and Android Galaxy phones with our services. We're not holding back services from other phone vendors or platforms in any way. On the other hand, we cannot do a full and first-class experience on those platforms. The level of integration, the level of device support, the level of economic tax taken by the platform vendor, all of those things we run the risk that Google or Apple will foreclose our ability to innovate, to integrate our applications the way we have in Office, to do distribution, or to impose economic terms. And for all of those reasons, not only in an offensive aspect, but in a defensive aspect, we think it's very important to have an absolutely first-rate Microsoft Phone experience with integrated software and services."

13. From Nokia's Perspective, What Does This Deal Mean?

Stephen Elop, executive vice president, devices and services, Nokia

"We believe this transaction will accelerate the momentum of the devices and services business. By bringing our teams together, we can increase our share in smart devices through faster innovation, through better products, and through unified branding and marketing. In short, we can reduce the natural frictions in the system between our two companies. We can invest more resources into the effort, and we can build on the momentum that has already been established.

As well, the potential for what we can do with mobile phones goes up, as we are presented with the opportunity to bring a rich array of Microsoft services to first-time smartphone users, and as we create an on ramp to Windows Phone for people that are having their first smart experiences. Our likelihood of success with devices and services goes up as a result of this transaction."

14. Talk More About The Patents And Licenses You'll Gain Access To

Brad Smith, executive vice president and general counsel, Microsoft

"If you look at what we're getting in this agreement, it really breaks down into a few pieces. No. 1, there are some IP assets that are being transferred from Nokia to Microsoft. This includes about 8,500 design patents. These are the patents that distinguish the physical features of a product from another product. It includes the transfer of two important brands, the Asha brand and the Lumia brand. And we secured a 10-year license to use the Nokia brand on feature phones. So that's what is being moved over in terms of ownership.

When we look at the industry, and in particular, when we look at patents that are relevant to wireless connectivity using the CDMA standard or the GSM standard or 3G or 4G technologies, we really believe that Nokia has one of the two most valuable portfolios in the industry. The other is Qualcomm's."