Ina Fried

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Steve Ballmer on Why Buying Microsoft’s Biggest Phone Partner Makes Sense

Given that Nokia was already putting all its smartphone eggs in the Windows basket, it’s a logical question to ask how Microsoft believes it will gain an advantage by purchasing Nokia’s phone business.

No surprise, since he did the deal: CEO Steve Ballmer thinks the business will be stronger.

In an interview with AllThingsD, Ballmer laid out three reasons why things will be different once Microsoft owns Nokia’s phone business.

First, Ballmer said, as close as the two companies were, there were legal and logistical barriers to total cooperation. Each company had to temper its investment based on separate business needs.

“As long as we were on a model with two different companies … there was always some kind of a boundary along which it was hard to innovate from a hardware/software perspective,” Ballmer said. “It doesn’t mean we didn’t do it, but we know we can improve our agility.”

Second, Ballmer noted that each company was separately trying to build its own brand — a duplicative effort that diffused impact and wasted money.

“Just think about the Nokia Lumia Windows Phone 1020, and you will that know we can make simpler, clearer messages to the market,” Ballmer said, noting that Nokia accounts for 80 percent of all Windows Phones, although Microsoft still hopes others will continue to make it even after Microsoft takes over from Nokia.

Finally, Ballmer said that as two companies, Nokia and Microsoft had to make different choices about where and how much to invest.

“We know, as we scale, we need to invest behind this business,” Ballmer said. “It simplifies the business decision-making and thinking having the economics be more unified.”

Translating from this business-speak, buying Nokia’s phone business gives Microsoft a greater business opportunity, if it can succeed. Microsoft noted in its case for why the deal makes sense that it currently gets less than $10 in revenue from each Nokia Windows Phone sold, as compared to the $40 or so in profit margins Nokia stands to make.

Of course, Nokia — and soon Microsoft — also has to build the phones, manage inventory, deal with carriers and more. Plus, there’s still that pesky challenge of growing beyond single-digit market share.

“We’re the No. 3 smartphone player,” Ballmer said. “We have a long way to go, and we have a lot we want to do.”


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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik