At a high level, it may sound like Microsoft’s $7.17 billion deal to buy Nokia’s Devices and Services business is similar to Google’s $12.5 billion acquisition of Motorola in 2011. As such, Microsoft will still be licensing its software to hardware partners, just as Google does, right? Not so fast. Although Microsoft still hopes to do so, it’s not going to happen.
The deals are structured differently
First, there’s a key difference in the structure of the two seemingly similar deals. When Google bought Motorola, it pledged to keep the company as a separate subsidiary. And, to put hardware partners at ease, the company said it would put a “firewall” between Google and Motorola.
Meaning: Motorola would receive the same Android code and support as all Samsung, HTC, LG and others. The company has generally made good on that promise. Case in point: When the Moto X arrived to market last month, it had Android 4.2.2 installed. Google released Android 4.3 to all partners at the same time; there was no special treatment for Motorola, which launched the first phones with Google design input.
With its deal, Microsoft is doing the complete opposite. It’s absorbing Nokia’s phone business — not just Windows Phone, but Asha too — and bringing over Nokia executives at the highest level, all the way up to Stephen Elop. Phone manufacturing and 32,000 employees come with the deal as well. They’ll all be Microsoft employees and Nokia won’t be a separate subsidiary of the company.
Cheer up hardware makers, Microsoft still loves you!
The difference in the approach is monumental to hardware partners. Whereas Google went out of its way to convince its partners they have nothing to fear from the Motorola deal, Microsoft has done no such thing unless you count this excerpt of a blog post today from Terry Myerson EVP, Operating Systems, Microsoft.
“As the engineering leader for the Windows Phone efforts, I was there at the birth of Windows Phone, and a key part of our original partnership with Nokia. I know firsthand how critical it was for me and the team to be a valuable partner to Nokia, in addition to building out a great ecosystem of partners, hardware and software alike.
Today’s announcement doesn’t change that – acquiring Nokia’s Devices group will help make the market for all Windows Phones, from Microsoft or our OEM partners.”
You could have at least named the partners, Terry!
Let’s be honest though: This news is just the final nail in the coffin for hardware makers to license Windows Phone, and Windows RT, for that matter.
Handset makers only committed as a hedge bet against Android
Outside of Nokia’s Lumia brand, most Windows Phones from partners have been afterthoughts: Hardware originally designed for Android and later made to run Microsoft’s operating system. The designs have been largely uninspiring because, for these companies, Android is priority one: Windows Phone devices were sloppy seconds. So Samsung and HTC, both of which have made some recent Windows Phone, may be done. LG was never truly committed to the platform and few others ever bothered in the first place.
Windows RT is the same but for different reasons. The platform simply hasn’t caught on and traditional hardware partners outed devices late last year but have largely ceased support. Samsung, Asus, Lenovo and others haven’t seen the demand they hoped. Samsung even decided to kill its Windows RT product in some countries early on. At this point, Dell and Acer may still be in the game, at least for a little while a longer.
What happens to Surface RT?
Oh and then there’s Microsoft with its own Surface RT. I had thought the company would be working on a second generation of the device, possibly in time for this holiday season, but now I’m not so sure. Why? The company took a $900 million inventory hit on the first generation for starters. And then there was a leaked Windows RT tablet that Nokia is working on, complete with the type of specs that could help turn the device into a winner. Could it be Surface 2? Perhaps not in name, but in spirit.
Ironically, when reporting the Nokia tablet news last month, I closed out with this thought; rather timely given the current news:
“The interesting side-story here is that Nokia seems to be gathering momentum first with Windows Phone and now, potentially, with Windows RT, just as Microsoft’s CEO is planning to retire. A deeper Microsoft partnership with Nokia could bring a new CEO back to the company in Stephen Elop, while also getting a hardware company or division that has more expertise in building phones and tablets. Hmm……”
Regardless, the ultimate point here is that Microsoft is doing exactly what it said when the Ballmer retirement was announced: It’s becoming a devices and services company. And because of that, the days of licensing Microsoft software — at least in the case of Windows Phone and Windows RT — are coming to a close.