The Microsoft Corporation purchased the Nokia phone business in 2014 for approximately $7.2 billion. Although Nokia could be labeled as a profitable business during that time, it was a downstream customer for Microsoft. Thus, it was unclear whether the deal was beneficial for Microsoft since Nokia was not even a leader in the mobile phone industry.
The issue that Microsoft had to resolve was the negotiation process between the companies as the negotiators were from different cultural origins: Microsoft is an American company, while Nokia is a European (Finnish) one. What is more, the strategies and aims of both companies were different: while Microsoft was trying to become present in the mobile phone market, Nokia wanted to be provided with a serious capital that could help it deal with expensive operations and productions. However, it should be noted that negotiations between the two companies took place before Microsoft acquired Nokia: in 2011, the Windows 7 Platform was presented on Nokia phones. At first, the companies only cooperated to develop new devices and products. Only three years after the first cooperation Nokia was purchased by Microsoft. This decision implies that this type of partnership was profitable for both companies at first.
Another problem of these negotiations is the fact that companies often do not see their counterparts as individuals; thus, one of the companies (Nokia) had to abandon its identity to receive benefits from the synergetic deal. However, as it can be seen from the case study, Windows phones were not as popular as it was expected and did not bring Microsoft visible presence and recognition in the mobile phone market, where Apple and Android were the main leaders.
While the deal might appear as unprofitable at first, it may present some benefits in the long run. Nevertheless, Microsoft is not the first company that chose to purchase a “downstream customer” in order to target a new market where the corporation was not present. Acquiring a company that is not a leader anymore can be a risky decision, and, in Microsoft’s case, it led to a reduction in the value of the company. Moreover, it also brought little benefit to Nokia, although the Finnish company had expected other outcomes. While Microsoft tried to resurrect the former leader in the mobile phone market, Nokia experienced losses and thousands of job cuts due to Microsoft’s workforce management policy in 2014. Thus, the deal was not as profitable as both companies had expected.
One question remains to be answered: why did Microsoft decide to involve in this deal if it was clear that the deal was not profitable? On the one hand, this deal was unlikely to harm Microsoft’s core business. On the other hand, the corporation tried to present a new product (Windows Phone) by purchasing a (once stable) company in decline – not an entirely new approach. It can work if the odds are in your favor. However, as it can be seen, Windows Phone cannot compete with iPhones and Android devices, and Microsoft’s presence in the smartphone market is still relatively small. Android is capable of expanding because this operating system can be installed on multiple devices from various manufacturers (Samsung, LG, Lenovo, Huawei, etc.). Windows 7 and 8 for mobile phones are mostly used on Nokia smartphones that cannot compete with Samsung, not to mention other companies. Thus, Microsoft’s acquisition of Nokia was unprofitable. It is possible to assume that this deal will bring more additional losses in the future.