Devices and services. Devices and services. Until a new chief executive says differently, this is Microsoft's mantra. But the success of the Xbox aside, the company still has a lot to learn about hardware devices and their attendant ecosystems.
Enter Nokia. When Microsoft agreed to acquire Nokia's devices business for $7.17 billion in September, many wondered what benefits there could be beyond the existing partnership. After all, Nokia and its chief executive, Stephen Elop, had already thrown all of their eggs into Microsoft's basket, pledging the venerable Nokia name as a vassal of Microsoft and Windows Phone.
And let's face it: Before Nokia signed on as a Microsoft partner, we mostly associated the Finnish company with its nearly ubiquitous candy-bar phones, including the Nokia 6110--a descendant of which, the Nokia 301, was launched at Mobile World Congress in 2013 (yes, candy-bar phones persisted as late as last year).
So what does the Nokia acquisition actually offer Microsoft? Both companies plan to announce their respective earnings today--an ideal time, some say, for the companies to announce that the deal has closed and to begin talking about their combined direction.
Before they do, here's our take on what Nokia and its stable of talent bring to Redmond.
1. The camera's the thing
The best camera, they say, is the one you have with you. And for a significant portion of the population, that camera is the one in your smartphone. In 2011, market research firm NPD estimated that 27 percent of all photos were snapped with smartphones, and that number feels extremely low today. For example: Four of the top five cameras used by Flickr members are smartphone cameras--all iPhones, as it turns out.
As TechHive's review of the Nokia 1020 notes, the highlight of Nokia's phone is its 41-megapixel camera, which at least on specifications alone blows away anything else on the market. The things that make for a great smartphone camera--a large sensor size with high resolution, high-quality optics, and superlative image processing--aren't out of reach for either Nokia and Microsoft. Samsung's Galaxy Camera was one of the few attempts at placing a serious "professional" camera inside a smartphone body--but it lacked a phone. Until Nikon or Canon tack a phone onto a point-and-shoot, Nokia has a real opportunity to establish itself as a "serious" camera manufacturer.
Usurping the iPhone as the cameraphone for creative types will be no easy task. But market-leading optics will attract the attention of at least a portion of the iPhone installed base and give Nokia a positive reputation in the shutterbug community. That, in turn, could create an entire ecosystem of filter and app developers. If Microsoft and Nokia are discussing further avenues for investment, the Lumia camera would be an ideal place to start.
2. Location, location, location
In September 2009, I remember wandering through the back streets of Alameda, California, trying to find the location of the USS Hornet with my BlackBerry. Two months later, Google released Google Maps Navigation for the Motorola Droid--for free. The GPS market imploded, sales of Android devices soared, and smartphone buyers started worrying about whether their phone's battery would last the length of a car trip. But until 2013, neither Apple iOS nor Windows Phone offered a free, turn-by-turn navigation app worth using. Even Nokia's own turn-by-turn app, known as Here, botched the first attempt.
The partnership between Microsoft and Nokia's mapping services dates back to 2011, when Microsoft agreed to use Nokia's mapping data (which Nokia had acquired from NAVTEQ). A year later, Microsoft began using Nokia's traffic services. Eventually, it all evolved into Here, now the default navigation app for Windows Phone.
Microsoft isn't buying the Here services, only licensing them for a period of four years. During that time, one might expect that Microsoft will replace Here with its own integrated Bing Maps brand, then try to chase Google into interior mapping and other location-based services. Whatever Microsoft's choice, one thing is clear: App developers and advertisers alike are increasingly asking for precise data on a user's location, so that they can be targeted with ads. Microsoft needs to take Nokia's mapping expertise and integrate it as tightly as possible, and as soon as it can.
3. Asha offers a path into emerging markets
Some technology publications ignore Asha--Nokia's lineup of low-cost phones for emerging markets--at their peril. But Asha addresses the reality of the situation: Apple's iPhones are aspirational products that many would love to afford, but can't. Android, with its lack of licensing fees, is currently filling that niche. But Windows Phone is catching up.
In November, for example, Kamtar Worldpanel reported that Windows Phone had overtaken iOS in Italy and had made rapid progress in Europe and South America. "Nokia dominated in Latin America for many years, and while its popularity declined with the fortunes of Symbian it now has an opportunity to regain the top spot," Dominic Sunnebo, strategic insight director at the analyst firm, said in a statement. "The majority of consumers in Latin America still own a Nokia featurephone and upgrading to an entry level Lumia is a logical next step. Price is the main barrier in developing markets and the budget Lumia 520 opens the door to smartphone ownership for many."
So far, the Asha lineup runs on its own Asha OS. Microsoft has two options here: to bring Windows Phone to the Asha lineup or to encourage existing Asha owners to "trade up" to a Windows Phone. In July, Nokia brought its Here traffic app to the Asha line, helping to build a bridge between the two platforms. But knowing how to design, buy components for, market, and sell a low-cost phone is invaluable knowledge that could be used to expand Microsoft's market share.
4. The more software engineers, the better
Of the 32,000 employees that will transfer to Microsoft by way of Nokia, an undisclosed number of those will be software engineers. Microsoft needs as many as it can get, for three reasons:
Internal app development: Microsoft's Windows Phone developer ecosystem is a fragile thing, lacking the breadth and depth of the Android or iOS developer communities. In many cases, Microsoft has had to bite the bullet and write its own apps. This strategy has proven to be alternately successful (see: Facebook) and catastrophic (see: YouTube). Still, "sisters doin' it for themselves" has kept companies like Nintendo (barely) afloat through multiple generations of game consoles. It could work for Microsoft, too.
Support: As the latest botched Surface update demonstrates, Microsoft still struggles to provide a seamless upgrade experience. (Microsoft's servers also strained under the load of the Windows 8.1 upgrade, but that's slightly different.) Consumers tolerate Google's perpetual betas and shrug off Apple's iOS 7 "quirks." But if Microsoft screws up--just once--geeks eagerly dogpile on its lack of technical competence. Microsoft has little margin for error these days.
Ecosystem services: The i-mate Intelegent isn't the future of Windows Phone-Windows 8 integration. Neither is the reported Android-Windows Phone "Normandy" device. (Ugh.) But until Windows 8 and Windows Phone come closer together, Microsoft is going to have to do as much as possible to share data between platforms. Some of that is as simple as communicating common Bing searches between platforms, sharing location, remote PC access, and second-screen apps. Tie a customer's data to the Windows ecosystem, and you tie Windows to the customer, too.
5. A solution to Microsoft's "fun problem"
Nokia? Fun?! Yes, fun. Finns know fun, too, right?
Look, Microsoft has a fun problem. Both Windows 8 and Windows Phone are designed around matrixes of dynamic, brightly colored Live Tiles that scream "consumer"--but consumers haven't exactly flocked to either platform. That has forced Microsoft to pretend that the OS's are tools for business, instead. While that strategy has proven somewhat successful, Microsoft still needs to lure back the consumer who jumped ship for Android or iOS.
How? Nokia's brightly colored Lumia hardware already complements the Windows Phone and Windows 8 user interfaces. This should continue, so that the Lumia (not Nokia) brand becomes synonymous with Microsoft's efforts in the consumer space.
That, in turn, will free up Surface to become Microsoft's business brand. And this is already happening, as our review of Nokia's Lumia 2520 tablet demonstrates: "Sitting next to the Surface 2, the Lumia tablet looks like Andy Warhol sitting next to Darth Vader," Jon Phillips wrote. Exactly.
In a conversation at International CES in Las Vegas, Surface executives showed me poker faces when I asked about a possible Surface two-in-one and a smaller, entertainment-focused tablet. But in reality, the Lumia 2520 should spearhead a line of consumer tablet products, leaving Surface to serve the business market.
Under that scenario, a rumored Surface Windows Phone becomes much more viable. Replace the candy-colored plastic with brushed aluminum, and mute the crazy-quilt UI into more sedate tones. Dial back the refresh rate of the Live Tiles, and use the upcoming Windows Phone notifications to supplement them. Finally, consider creating a default tile layout with a standardized icon size, and offer to arrange the tiles automatically in that format. Finally, offer a similar theme for the Surface's Start menu. (Heck, Microsoft already offers two UIs within Windows 8; what's another?)
Done right, Microsoft could carve Lumia and Surface into two distinct brands, each with its own identity yet sharing a common hardware, software, and services platform. Bingo.
Ideally, Microsoft would discover and promote some visionary genius within Nokia, who would guide Windows Phone back to prominence. Instead, that looks to be the role of Stephen Elop, who has already unsettled Microsoft faithful with reported plans to sell the Xbox division.
On Thursday Nokia will deliver its final earnings report before its devices business is handed over to Microsoft. That afternoon it will be Microsoft's turn in the hot seat. Eventually, Microsoft will need to justify its $7.17 billion purchase price for the handset maker. These five reasons are a good place to start.