NOKIA-MICROSOFT ALLIANCE IN THE GLOBAL SMARTPHONE INDUSTRY 1

Case Study: “The Nokia-Microsoft Alliance in the Global Smartphone Industry

Linda Jo Law

MGMT 610

Dr. Barta
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Case Study: “The Nokia-Microsoft Alliance in the Global Smartphone Industry

Case Study: Background & Challenges & Solutions

The focus of this case study is the global alliance between Nokia-Microsoft and their

business partnership in the global smartphone industry that occurred in 2001. Their background

will be shared as well, as what went well, and what challenges they faced. This paper will also

address the solutions that can be used for a future joint venture, strategic business alliances.

First understanding the reason for the alliance and why this joint venture collaboration was

created is important to understand. When you look at the merger of these two giants in

their respective fields the partnership seemed like it was perfection on paper.

Microsoft was/is the largest software company worldwide, and Nokia was the largest hand-

held cell phone company in the world. This merger allowed Nokia to use the Windows based

phone operating system as their main platform for their smartphone. Nokia also benefitted from

Microsoft with technical, marketing and financial support to help increase market share of the new

Windows phone.

The marriage of the two created a mutually beneficial climate for both companies. Some of

the benefits to Microsoft-Nokia are noted below. Microsoft needed Nokia to compete against the

I-phone. They had lost a significant market share due to this and that the windows platform was

not widely used. They couldn't compete and this was a way to become a player again and

improve markets share in the mobile phone industry. Their collaboration allowed both players to

enter the market with more efficient, faster and lower expenses and increased profit (Deresky

2013).
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Benefits to Microsoft:

1. Increased exposure for their windows platform in the smartphone industry

2. Nokia was the manufacturing partner that they needed.

3. Increased speed to market since they didn't have to produce the phone

4. Increased productivity with less cost increased profits due to royalty paid to Microsoft

for software in the Nokia phone.

5. Benefitted from service platform integration between both

Benefits to Nokia:

1. Needed Microsoft to regain market share in this competitive smartphone industry

2. Increased brand recognition with the Microsoft platform

3. Benefit of financial, technology and marketing support from Microsoft

4. Nokia received quarterly platform payments to the tune of 250 million every 90 days

5. Nokia restructured to make faster decisions and streamline operations

Challenges

The initial flow into the marketplace made a decent splash, but it was met with challenges.

The excitement waned quickly and was nowhere near the market share that each company

experienced alone. The challenges were similar to any large company merger. Specifically, even

though documents were signed there were problems with each companies agenda.

Each companies priorities according to Singh (2104) were different in regards to urgency

and expectations. This created differing dedication levels into the creation and development of

the Window OS. Microsoft had many revenue streams coming from their desktop OS and office
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suite products as well as software for servers. Microsoft's goal with this merger was to increase

the small market share they had in comparison to the aforementioned products.

The other challenge was their deal with Nokia wasn't exclusive to them. Huge miss on

Nokia's part as this left the door open to Microsoft to enter into other arrangements. From

Nokia's viewpoint, this was their lifeline to save their business. Nokia made business moves to sell

off portions of their companies performing assets for the Microsoft merger. Another big mistake

on Nokia's part. Their entire focus was to put all their eggs in the Microsoft basket by dedicating

all of their resources to the windows OS. They flooded the market with 10 different Lumina

phones showed this over indulgence. This created a path of no return. They were so fast to save

the sinking ship and they completely ignored the OS platform problems that Microsoft wasn't all

that motivated to fix. How is it possible to sell a form with OS issues and no apps? Well, the

answer is you can't. This lead to Nokia working on the Android platform in secret.

The merger benefitted Microsoft by increased stock prices and increased the revenue of 1.2

billion with the licensing of the windows platform OS. Nokia didn't fair as well. In fact, their

phone sales increased in the lower end of the market. You would think this would help Nokia but

that wasn't the case, they had a negative cash flow and this is because the royalty payments to

Nokia were not enough to offset their expenditures. This merger also had a negative impact on

stock price for Nokia and it dropped down to only $2 per share from $15. This quick partnership

to try and save their company was a complete disaster.

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The time it took to get the Nokia Windows phone to market took over 8 months and this

was too long for them to wait from a financial perspective. Their sales tanked to this, slow rollout.

This all led to the sale of Nokia to Microsoft for 5.44 billion EU. Seems the real winner

here was Microsoft. I wonder if this was all planned out by Microsoft initially. I would have to

say yes (Singh, 2014).

Conclusions

The collaboration of these two companies experienced many challenges and Microsoft

benefitted more than Nokia. This merger essentially wiped out Nokia. Well played on the part of

Microsoft. Nokia had to be acquired from Microsoft to protect their Windows platform because

Nokia was going to focus on the Android system to save their company. Microsoft needed this

acquisition to protect their place in the smartphone industry, although still to this date they lag in a

distant third to the android and google models.

I believe that had Nokia not been so desperate and had they slowed down to do a full

SWOT analysis they could have foreseen the outcome and they could have had a better contract

that protected them. The contract the way it was written benefited Microsoft and set Nokia up

for failure.

The lesson here is to slow down and look into the future and create a contract that is

mutually beneficial and not so one sided. It is also interesting to note by putting all their eggs in

one basket was another poor choice. They may have been able to make it had they not sold off all

their other business ventures to leave their future in the hands of Microsoft.
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According to Norita (2016), Nokia was in the financial danger zone in 2010 and move

into the bankruptcy zone after the partnership with Microsoft occurred. I believe they were aware

of this and this is why they made the move that they did and they did it fast, which is what led to

some of the unforeseen problems with the deal that they made. Microsoft's goal was to

completely dominate the smartphone industry which put them in a powerful position. Nokia's

goal was to survive in business. Well played by Microsoft.

References
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Deresky, H (2013). International Management, Management Across Borders. 8th ed. Upper

Saddle River, NJ: Pearson Prentice Hall

Norita. (2016). An analysis of telecommunication vendor company bankruptcy potency based on

the problematic financial ratio with altman, springate and zmijewski methods.

International Journal of Organizational Innovation (Online), 8(4), 234-250. Retrieved

from http://search.proquest.com/docview/1786613954?accountid=8289

Singh, N. P. (2014). Microsoft acquired nokia in unipolar operating system market. Independent

Journal of Management & Production, 5(3), 598-622. Retrieved from

http://search.proquest.com/docview/1661321929?accountid=8289