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What Microsoft’s $7.2 Billion Acquisition of Nokia’s Devices and Services Division Means For Windows Phone

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Microsoft have bought Nokia’s devices and services unit, in a move that sees Nokia’s Lumia hardware division finally under Redmond’s roof. The deal, set to close in the first quarter of 2014, includes Nokia’s business and patents and will end up costing Microsoft in total $7.2 billion – thats just $1.3 billion off of what Microsoft paid for Skype in 2010. But its not the numbers that are interesting, its more what Microsoft expect to get out of the deal thats the interesting part.

Ever since the two entered into a partnership together two years ago, industry analysts have predicted Nokia would be in some talks to sell its hardware business to Microsoft, as it looks to grow its Windows Phone platform. And after Nokia’s Lumia lineup managed to invigorate some sort of interest back into Windows Phone, its made a lot of sense for Microsoft to want to work more closely with the company, especially now it sees both a hardware and software company can work in unison with one-another.

Will the benefit of having complete end-to-end control in mobile that only the likes of Apple and Blackberry have enjoyed - to some extent - help them grow its Windows Phone business?

But will the benefit of having complete end-to-end control in mobile that only the likes of Apple and Blackberry have enjoyed - to some extent – help them grow its Windows Phone business? Microsoft’s licensing deal doesn’t include future Lumia models – effectively getting rid of Nokia’s high-end smartphone brand altogether. And with the rumours that Microsoft could be looking at building a ‘Surface Phone,’ we might just possibly see a competitive answer to Apple’s hardware.

Rather interestingly, Nokia’s low-end ‘Asha’ brand which focuses on emerging markets, has been acquired outright by Microsoft, allowing it to focus on bringing the Windows Phone brand to these emerging markets and hopefully make it more popular. But if Apple play their hand in the next couple of days and bring out the hotly rumoured low-cost iPhone model, Microsoft could have headaches if it doesn’t provide a similar software experience to Apple’s.

In their press conference explaining the rationale behind its deal with Nokia, Microsoft stated that it aims to grow its Windows Phone marketshare by three-times what it is now by 2018. How it plans to do that exactly is down to two big businesses that were included in Nokia’s devices and services business deal; Nokia’s HERE mapping technology and its hardware. Redmond sees mapping and geospatial services as core to its strategy going forward, saying that there needs to be “an effective alternative to Google” and “more than one ‘digital map of the world.” It also believes that the companies patent portfolio is valuable, and that the licenses Nokia has in place could give it a valuable income stream in the future.

Redmond sees mapping and geospatial services as core to its strategy going forward, saying that there needs to be ”an effective alternative to Google” and ”more than one ‘digital map of the world.”

The companies ultimate goal for platform growth however, is to create great Nokia products. The best way you can do that is with communication, something Google lacked when they built the MotoX in conjunction with the mobile hardware company they bought last year, Motorola. And whilst Redmond is still committed to its other smartphone manufacturing partners, Microsoft believes that once it gets more attention from the market, more opportunities should start to arise for the partners that chose to stick with the platform.

Microsoft expects the deal with Nokia to bring them in $600 million annually for the first 18 months thanks to cost synergies. Currently Microsoft only makes $10 per-device sold in their partnership with Nokia, but that will grow to over $40 per unit once it finalises the takeover of Nokia’s devices and services division. Whilst that isn’t Nokia’s most profitable division, Microsoft believes it can break even once sales of phones and tablets crack 50 million units. Global Lumia shipments have grown by 40 per-cent per-quarter over the past two and a half years, and with the company looking at branching into the tablet market, its certainly a realistic target for Microsoft to set the company, especially since they have a ten-year license to use the Nokia brand on feature phones.

For $7.2 billion, Microsoft have effectively bought its way into a “devices and services company.” It gives them complete, quality control over their Windows Phone platform, allowing it to further build on what it set to do with Nokia all along, which is show their other hardware partners how to build a Windows Phone device. And with Nokia CEO Stephen Elop joining the company just as longtime Microsoft CEO Steve Ballmer announced he will be stepping down within the year, its certainly looking like a time for Microsoft to make some big moves with its Windows Phone platform.

Could The Wearable Tech Market Be A Way Out For Blackberry?

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This week seen the struggling, Ontario-based smartphone maker Blackberry, announced that it is exploring “strategic alternatives” which could mean the sale of the company. This announcement was to be expected at some point this month, as Reuters reported last week that the company are “open” to going private, after years of their share price falling by 90 per-cent after it hit its peak in 2008.

The report by Reutersnoted down Silver Lake Partners , the private equity firm currently in the works of sealing a deal to take Dell private for $25 million, as the potential source of funding that could allow them to make the changes necessary, outside of the public eye. Other reports suggest Blackberry could be bought out by Microsoft, as they look more interested in getting involved in the hardware business after they released the Surface RT. Both sound like solid suggestions, and both involve a partnership of some sort. Which leads me to believe that rather than sell of bits of their business, Blackberry could stay in the game. But how?

The smartphone market is probably the most competitive its ever been

The smartphone market is probably the most competitive its ever been. You have Google, who own over half of the smartphone marketshare, and have recently made their Android OS on par/better in areas than iOS. Then you have Apple, who own around twenty five-to-thirty per-cent of the market, and are currently in the works revamping the visual elements of iOS. Finally its Microsoft, who are trying their best to build out a developer friendly environmentthat draws developers into the expanding Windows Phone platform.

Whats interesting about each of those that I’ve mentioned is their endeavours recently, in the wearable tech industry. Google are breaking in with Glass, and Apple are rumoured to be working on a watch similar to the Nike Fuelband. Microsoft meanwhile, don’t have any offering at the minute. They are instead focused on making Windows 8 right and anticipating the release of the Xbox One. But could Blackberry allow Microsoft to enter this area?

One thing that has to be said about Google’s and Apple’s wearable tech offerings, is that they are both for consumers. They are both designed for consumers, with them in mind. Whilst we haven’t seen an iWatch or any sort of attempt at breaking into the wearable tech market by Apple, you can be sure that like every product they make, it will be oriented at consumers. But what if Microsoft made one for the enterprise market? A wearable piece of tech designed for the modern businessman, designed and built in a joint venture between Microsoft, Blackberry and Dell.

Both Blackberry and Microsoft have the enterprise pedigree, and coupled with Dell who have the manufacturing resources, they might just be able to pull off such an ambitious move on the market. I say this because, like the smartphone market seven years ago, wearable technology is an emerging market, which means all of the marketshare and establishment I mentioned above is non-existant. Sure brand awareness is there, but if the product is good enough, I don’t see why people wouldn’t want it.

Its not just a way out for Blackberry, its a gateway into a market they could gain traction in if done right.

Enough funding could come from Silver Lake and other private equity investors to keep Blackberry in the smartphone business, so they can create hardware in conjunction with Dell for Windows Phone – kind of like Motorola is to Google without the cultural clashes – and Dell could produce quality tablets that have Microsoft and Blackberry enterprise software on them, all the while proving to investors that they still have what it takes to innovate.

Its a long shot, and must be done in such a way that structuring is done carefully in order to avoid clashes and product delays – something Blackberry have a track record of in the last year. And of course, Windows would have to be the front of all this, but the technologies in Blackberry 10 can be implemented into the Windows Blue ecosystem. Ultimately, I think this is something new. Its not just a way out for Blackberry, its a gateway into a market they could gain traction in if done right.