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Microsoft’s Nokia deal crucial for Ballmer’s legacy

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Microsoft CEO Steve Ballmer speaks during the news conference of Finnish mobile phone manufacturer Nokia in Espoo, September 3, 2013. REUTERS/Markku Ulander/Lehtikuva

As it cracks open its wallet to the tune of US$7.2 billion to purchase Nokia’s handset business, Microsoft has solved one problem, but according to analysts continues to face a far larger one.

Positively, the acquisition gives Microsoft control over handset design, integration and marketing, something it lacked when Nokia was simply a hardware partner. It also brings 32,000 Nokia employees into the Microsoft fold.

Going vertical, just like its competitors

This model, similar to vertically integrated strategies at Apple and Googlewhich in 2011 purchased Motorola’s handset business – is crucial to Microsoft’s aim of transforming itself from a traditional software company to a so-called “devices and services” organization.

The challenge remains growing market share for its Windows Phone platform against overwhelming competition from Apple and Google. While Windows Phone recently passed BlackBerry for third place in global smartphone shipments, Krista Napier, senior analyst, Mobility, IDC Canada, says Canadian unit shipments in 2013 are echoing the numbers from 2012, with Windows Phone ranking 4th behind Android, iOS and BlackBerry.

“The Windows Phone platform is still going to have to compete against iOS and Android, which are leading the smartphone market head and shoulders above Windows at this point,” says Napier. “The Windows platform holds single digit market share in terms of unit shipments. So the deal is likely intended to help Microsoft gain greater control and streamline the business, but they still have an uphill battle ahead of them given the competition they face.”

One ingredient of many

While Windows Phone has been critically lauded for its fresh, live tile-based interface, it competes in a market where the end-user experience is only one of many crucial ingredients.

“Succeeding in this market requires that you offer not just great hardware or software, but an integrated and streamlined experience, great relationships with developers, a brand that attracts buyers, and a strong app offering,” Napier says. "There is still work to be done on a number of those fronts for Microsoft to improve on its positioning in the mobile devices market.”

Microsoft’s once and future leader?

As recently as 2007, Nokia dominated the global handset business with 40 per cent market share, but stumbled badly as the market transitioned from basic feature phones to smartphones. The deal, which builds on a 2010 strategic partnership between the two companies that saw Nokia commit almost completely to Windows Phone, will see the return of Ancaster, Ont., native Stephen Elop to the Microsoft fold. Elop, who headed Microsoft’s business division until 2010 before becoming Nokia’s CEO, will lead the devices division and report directly to CEO Steve Ballmer. Speculation is already building that the move positions Elop firmly in the race to succeed Ballmer, who last month announced he’d be stepping down within the next 12 months.

Napier says his background makes him an easy choice as a potential future CEO because “he knows software and he knows hardware, so he has the type of experience that would make him a prospect to replace Ballmer.”

Crucial to Ballmer’s legacy

In an email to employees, Ballmer focused on how important mobile devices are to the company’s future.

“Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most,” he wrote.

The markets will ultimately decide whether this acquisition will create value that attracts more consumers and businesses to Windows Phone. Steve Ballmer’s legacy ultimately depends on it.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca