Ina Fried

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Why Microsoft Might Yet Need to Buy Nokia

Conventional wisdom says Microsoft got everything it wanted from Nokia when it struck its deal in January to make Windows Phone the Finnish company’s smartphone operating system of choice.

Even if it is forking over a few billion dollars in marketing aid, technical help and other incentives, that’s still a fraction of what an outright purchase would have cost. For that price, Microsoft managed to get one of the biggest names in cellphones to commit to a Microsoft-centric future.

And yet, there’s a case to be made that Microsoft might still need to bite the bullet and buy Nokia.

Here are a few reasons why a full-on acquisition might be necessary.

Windows Phone is still growing very slowly
It’s getting nice reviews and customer satisfaction numbers, but Windows Phone is falling further behind Android and iOS in market share every day. Even CEO Steve Ballmer admits sales aren’t where they need to be.

The benefits of the Nokia deal depend on Nokia remaining healthy through the transition
The company has already issued one earnings warning this year and it’s not clear that sales will stay strong enough through the transition to keep Nokia the healthy partner that Microsoft needs.

Aside from Nokia, Microsoft is still getting sloppy seconds
Samsung and HTC — two of the biggest names in smartphones — are doing Windows Phones, but the vast majority of those companies’ resources are devoted toward Android devices.

Microsoft would be able to offer truly integrated phones
Perhaps that happy medium between Apple and Android isn’t so happy after all. If it isn’t going to get the diversity of devices that Google has, Microsoft could decide it needs to handle everything itself.

All that being said, there are still plenty of downsides that make a deal very much a long shot.

A deal would be expensive, even by Microsoft standards
Nokia would make Microsoft’s biggest previous acquisitions — Skype and Aquantive — seem small by comparison. Nokia is measured in the tens of billions of dollars.

Nokia has a huge low-end phone business
A good chunk of the company’s revenue comes from feature phones and other devices that are lower in cost than even the least expensive Windows Phones. (Microsoft could always sell off that part of the business.)

The challenges of integration
Nokia and Microsoft are miles apart — and not just geographically. While Nokia’s CEO is an ex-Microsoftie, the two companies are still very different beings. Nokia is a hardware manufacturer at heart.

[ATM photo via Shutterstock]

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