International Negotiation Behind the Microsoft and Nokia Deal: Nokia

Builds Its BATNA

Microsoft and Nokia had been partners since 2011, when the Finnish firm
began installing Microsoft’s Windows Phone operating system (OS) on its
smartphones. But Nokia lagged far behind smartphone competitors in
innovation and market share, and the Windows Phone OS, used primarily on
Nokia handsets, was failing to meet expectations.
In January 2013, Microsoft CEO Steven Ballmer called Risto Siilasmaa, the
chairman of Nokia’s board of directors, to raise the possibility of Microsoft
buying divisions of Nokia. Soon after, the two men discussed the idea at a
conference in Spain. They agreed inefficiencies existed in their agreement
and brainstormed solutions, from minor tweaks to business mergers, reports
Ina Fried on the technology news website AllThingsD.com.
Nokia considered letting its deal with Microsoft lapse and trying to revive its
handset business by adapting its smartphones to Google’s Android system.
By cultivating this strong BATNA, or best alternative to a negotiated
agreement, Nokia gained the power to walk away from a subpar offer from
Microsoft.
Indeed, after hearing Microsoft’s first formal pitch for an acquisition in New
York, Siilasmaa informed Ballmer that they were too far apart on price and
other issues, such as which company would own Here, Nokia’s mapping
service. Nokia executives believed they needed to hold on to their ability to
sell Here to other companies. Meanwhile, Microsoft felt it couldn’t keep pace
with competitors without controlling the mapping technology it was using in its
phones, tablets, and PCs, and on the web, according to AllThingsD.com.
Subsequent meetings between the parties in London and Finland went
nowhere.
A Deal Takes Shape
A breakthrough came when Nokia informed Microsoft that it would proceed
with formal talks only if Microsoft agreed to abide by certain negotiating
conditions, most notably a commitment to set up a financing source for Nokia
and the caveat that Here was off the table.
Microsoft agreed. At a meeting in New York, the parties happened upon a
solution to the question of who would control the mapping service. Why not
share the code, with Nokia retaining intellectual-property rights to Here? Nokia
realized it could grant Microsoft a license to access and customize Here’s
source code and own any improvements it made. Nokia would retain
ownership of Here and the power to license the service to other companies.
Ballmer and Siilasmaa shook hands on the outlines of an agreement, which
was filled out over the next two months.
The Risks of Setting Negotiating Conditions
A negotiating condition is an “if” statement—such as, “If you agree to take this
issue off the table, I’ll negotiate”—that qualifies your entry into a negotiation or
acceptance of a deal. Setting negotiating conditions can be a particularly
useful tool when it comes to improving the appeal of another party’s onerous
request or demand, notes Harvard Business School and Harvard Law School
professor Guhan Subramanian
But insisting that the other party agree to certain terms as a precondition to
negotiation can be risky. In their 2012 labor dispute, for example, the
musicians of the Minnesota Orchestra said for many months that they would
negotiate with the orchestra’s management only after a lockout ended. But
management was loath to accept this negotiating condition, aware that the
players would have little motivation to accept significant salary cuts if they
were performing and being paid.
Before stipulating a negotiating condition, remember that your counterpart will
weigh the costs and benefits of accepting your negotiating conditions against
their alternatives away from the table. If you have a strong BATNA, as Nokia
appeared to, then it may make sense to take this risk. But note that even in
this case, Microsoft made inroads on the mapping service issue that Nokia
had claimed was nonnegotiable. Microsoft may have salvaged the deal by
refusing to assume that Nokia’s negotiating conditions were nonnegotiable—a
move Microsoft’s leaders likely later came to regret.
Two key lessons on negotiating terms and conditions emerge from
these failed negotiation examples. First, you should demand only those
conditions that are truly deal breakers for you. Second, try to craft negotiating
conditions in ways that provide benefits or concessions to your counterpart.
Even when you have the power to get what you want, your efforts to help your
counterparts get what they want will pay off in the form of stronger
relationships and longer-lasting deals.