The on-again off-again talks for Microsoft to buy Nokia appear to be off, and that's a good thing for Microsoft. With a brightening future for Windows Phone, there's no longer a need for Microsoft to buy the company, unless it can get it at cut-rate prices.
The Wall Street Journal reports that the two companies have been talking again recently, and have made "significant progress" on a deal for Microsoft to buy out Nokia, but that the talks have broken down. The Journal says that they're not likely to be revived, but I wouldn't count out a deal.
It's this simple: Microsoft shouldn't buy Nokia except at cut-rate prices. There was a time months ago when such a deal might have made sense for Microsoft -- in fact, I thought back then that Microsoft should even overpay for Nokia if necessary. Windows Phone had no traction, and was seemingly mired forever in a stagnant position. Nokia was the only partner truly committed to the Windows Phone platform, and Microsoft needed to make sure that Nokia continued to back it. Buying the company would have ensured that.
But times have changed. There's plenty of evidence that Windows Phone is gaining serious traction. A recent Canalys report says that by 2017, Windows Phone will be nipping at the iPhone's heels, with a 12.7% share to iPhone's 14.1%. Jessica Kwee, Canalys Analyst, explains:
"The scalability of Microsoft's platform will be critical to its success and it has made progress here by enabling Huawei and Nokia to deliver Windows Phone products at aggressive price points."
But she sees Nokia as only a short-term Windows Phone savior. In the long run, she expects that Chinese manufacturers will spur the platform's growth:
"Longer-term it is the Chinese vendors that are best placed to challenge Samsung's market dominance. Microsoft already has a relationship with Huawei and ZTE in the phone space, and Lenovo is a major partner in the PC space. These partners will be needed to help deliver the scale that Microsoft needs."
Also in Microsoft's favor is that Windows Phones are popular with a growing demographic -- first-time smartphone buyers. A recent Kantar Worldpanel ComTech's report found that to be Windows Phone's sweet spot. Kantar Worldpanel ComTech analyst Mary-Ann Parlato said:
"Windows strength appears to be the ability to attract first time smartphone buyers, upgrading from a featurephone. Of those who changed their phone over the last year to a Windows smartphone, 52% had previously owned a featurephone...with over half of the US market still owning a featurephone, it's likely that many will upgrade over the coming year, which will ultimately contribute to more growth for the Windows brand."
Kantar Worldpanel ComTech says that Windows Phone is the fastest growing smartphone operating system, with a 5.6% market share for the three quarters ending April, up from 3.8% a year previous. iOS grew from 39.1% a year ago to 41.4% currently, Android went from 50.3% to 51.7% currently, and BlackBerry droppedfrom 5.3% to 0.7%.
With such sizable projected growth and Chinese manufacturers coming onboard, why would Microsoft buy Nokia unless the price is right? Why take on a struggling company that last year announced it was eliminating 10,000 jobs?
At the moment, the price clearly isn't right. So unless it comes down, don't expect Nokia to enter the Microsoft fold any time soon.