MIcrosoft Buying Nokia is a logical alternative in midst of changing Mobile-Computing paradigm shift.
One of the big news these days in the tech world is Microsoft buying Nokia entering hardware business. Business Insider (BI) today explained that Microsoft is expecting US$40/phone hardware profit, more than US$10/phone OS license profit only. BI further states that, however, the profit of hardware will be diminishing as competition grow. See the original article here: Windows Is Dead, Google Killed It.
While what BI presents today make common sense, we can view Microsoft's strategic move from another perspective: what else can Microsoft do for business growth?
The answer to this is that there are not too many alternatives of scale sizeable enough and quick enough for Microsoft to make an impact. And it seems that do nothing is not an alternative as Microsoft is quickly losing its market share. Under such perspective, buying Nokia seems like the only viable strategy. I am not saying that this is a sure win strategy but if I put myself into Microsoft's shoes, I'll probably make the same decision.
There is NO money to be made in selling OS software but Microsoft cannot get out of it!
The big assumption is "there are not many alternatives" in the software business for Microsoft (not for the industry but for Microsoft only) is a huge one. This is because of the Open Source Movement. In a way, software business has evolved from proprietary business into a low entry barrier commodities business. Being Open Source is really just a result of "There are many smart, small, cheap companies that can develop high quality OS so with such high competition we might as well give it away for free and make money from other sponsoring sources". As of today, Ubuntu, Firefox and even Chinese phone Xiaomi are contemplating developing their own Mobile OS. Under this scenario, there is NO money to be made by selling Mobile OS. And there is no way Microsoft can stop this movement. Phone manufacturers are likely flocking away from Microsoft instead of treating Microsoft as strategic technology partner. I don't think Microsoft has any real benefit by releasing it's mobile os as open source as it will be just be yet another mobile os. Therefore, if there is any business left in the mobile phone segment, Microsoft's only viable solution is to get out of mobile phone business or join the hardware making business. But mobile phone is really the future of computer so it is too big a market to get out. Get out from mobile might as well be getting out of business for Microsoft.
There is still Money from Hardware, Apps and Services
Making hardware is a tough business but the world still need physical device. If a company is good there is money to be made from hardware, just that it is a difficult business. For Microsoft it has to master the manufacturing skill so it can reap other benefits of owning the hardware. The other sources of money are : Selling Microsoft's apps, Providing a Marketplace to sell other companies' apps and Selling Advertisement.
I don't think Microsoft can beat Google in the advertising space yet. However, Microsoft is no stranger in building software solution and managing a software partners as it has been doing so in the PC era for decades. Again, with the new mobile paradigm, it's not an easy game but this is closer to Microsoft's DNA. In the past Microsoft enjoyed the market domination through wide spread partnership with hardware manufacturer. My guess is that due to such domination and hindering relationships with many partners, Windows has been trying to entertain too many unnecessary constraints. Thus for Microsoft to be successful again, Windows need to be straighten again. To do so requires streamlined focus on getting ride of too many unnecessary features and be better integrated with hardware.
Strategic Advantage for Enterprise Solution Integration
Please do not forget that there is still much business to be made in the Enterprise Space. Enterprise is still a big advantage for Microsoft. It's landscape is challenging and changing but there is still much business to be made in Enterprise Segment. Microsoft is investing into the future with its Cloud Services and even Office365 software as service. Having its own Mobile device will offer tighter integration and security required by enterprises. Who knows, may be such requirement will push consumer back into buying Microsoft Phone. Employees may need to go with their employer's requirement even under the Bring Your Own Device movement, providing that the Microsoft Phone is a reasonably good one.
I am not a big fan of any companies (Microsoft, Apple, Google, Samsung alike) and I am happy with my Android devices. I use Google's services extensively so I am kind of tie into the Android camp. However, it does not stop me from imagining that, if I were Microsoft, buying Nokia sounds like a good way to go. As to the future, just let it unfold. For Microsoft, I say the direction is right but it seriously need to transform itself into a better product company in making integrated hardware and software product. The challenge is not small but it's a way to go.
Actually the same logic goes for every big players in the market like Google, Apple and even Samsung. I guess this is why we see Google buying up Motorola and making its own Google Glass and Chromcast and so forth. As I step even a few more steps back to attempt to see the whole picture, every piece of technology is being commoditized as the humanity get smarter and smarter these days. Therefore all companies will unlike enjoy the market monopoly position like Microsoft enjoyed with its Windows product for decades. Thus a new paradigm will come: all kinds of good products will be offered at tremendously good price to consumer. This will drive the market size bigger. In a simple word: More people will buy these consumer electronic product and each person will likely to buy a lot more than one product.