Why a Microsoft Takeover of Nokia Could Pay Off

Clearwire's gamble  may all depend on cheap chips

Microsoft has been on quite a spending spree of late, acquiring Skype and agreeing to spend about a billion dollars to place its Windows Phone platform on most new Nokia handsets. Recent reports have Microsoft looking to extend its binge next week by entering talks to acquire Nokia’s mobile business outright for a price tag that could be in the range of $30 billion.

That hefty amount of cash has led some to dismiss those rumblings as simply a weird rumor. To be sure, a Nokia acquisition has its risks: The mobile handset market is already extremely competitive, and jumping into the manufacturing game could alienate Windows Phone partners like HTC and Samsung, which could mean that Microsoft’s future in mobile would hinge on such a deal. Nokia is also a company with an ingrained culture that’s slow to change, even by Microsoft’s standards, which could hold Microsoft back as the mobile markets continue accelerating. And Microsoft has been down this road before. It purchased Danger for $500 million and saw only the failed Microsoft Kin handset as the fruits of that labor.

But Windows Phone sales still appear to be sluggish, so while it would be a huge gamble for Redmond, there are several reasons to believe Microsoft might benefit by such a takeover. Here are a few:

  1. An acquisition opens the door for a Skype handset. Skype recently topped 145 million monthly users, and Skype Mobile has been downloaded by more than five million iPhone users  alone. Meanwhile, carriers that once feared Wi-Fi calling — which is a key feature of Skype Mobile — are now beginning to embrace the technology as a way to offload traffic. Those trends could lay the groundwork for dramatic uptake of Skype usage on Wi-Fi for carriers that allow it.
  2. Nokia still makes great hardware. As my colleague Kevin C. Tofel noted last fall, Nokia makes great devices but has failed in recent years to produce mobile software and services that can compete in an increasingly crowded platform market. An acquisition would enable Microsoft to most fully reap the rewards of a marriage between Nokia’s top-notch gadgets and its own impressive new operating system.
  3. Ovi is a massive channel for distributing mobile content and services. Ovi services will already be integrated into Windows Phone 7 under terms of the existing tie-up, but Nokia plans to use the storefront to deliver apps for all its future smartphones. Acquiring Nokia’s mobile business could enable Microsoft to simply take over the Ovi Store (which is undergoing a name change), giving it outright control over the business.

Microsoft has seen little success in mobile data in recent years, and a botched takeover would likely mean the end of the company’s hopes to become a major player in the space. But it might be the only way for Microsoft to truly compete with Apple and Google in the era of the superphone. For more thoughts on why such an acquisition could work, please see my weekly column at GigaOM Pro (subscription required).

Image courtesy Flickr user Jack Heff.

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