DonAithnen (donaithnen) wrote,

Microsoft's standard business plan

For anyone who hasn't been paying attention to the Mobile World Conference this week, the biggest new out of/around it is Nokia's multi-billion dollar deal to switch from their own OSs (Symbian and the upcoming MeeGo) to Microsoft's Windows Mobile 7 OS for almost all of their "high end" phones.

Despite their lack of mindshare in the US, Nokia is individually the biggest manufacturer of cell phones in the world and Symbian was actually the #1 most shipped OS in the world. They actually still have the biggest slice of the market, but last quarter Android shipments finally surpassed them. This was the culmination of a trend that's been apparent for about a year, and clearly had the Nokia management panicked. A lot of people were predicting that they would drop their own OS, but a lot of those people were also predicting that they would go with Android. However Nokia's newly hired CEO is an ex-Microsoft officer so in that context it's not surprising that they went with Windows instead, and there's been some reasonable argument that Nokia's board of directors was already thinking that way when they decided to go with him as CEO in the first place.

Nokia has definitely been having issues recently, but the choice to form such a close relationship with Microsoft seems to be kind of an all or nothing proposition. If Windows Mobile 7 takes off then Nokia is going to be in the pole position for that OS. If Windows Mobile 7 crashes (figuratively speaking =) it might just take Nokia down with it. A lot of stock holders are more concerned about the latter possibility given the 20% or so drop in Nokia stock over the past week. The "billions" that Microsoft is supposedly giving Nokia ought to help in theory, but i'm not sure if the exact terms of the deal have been revealed or not. I would laugh if it turns out that Microsoft is giving Nokia several billion dollars so that it can purchase several hounded million Windows Mobile 7 licenses from Microsoft :)

As much as this is going to have a huge effect on Nokia, i'm actually a little more interested in the view of things from Microsoft's perspective. To me this seems a lot like some of the deals Microsoft made in the days of the first XBox. The XBox barely managed to outsell the Gamecube, with both being dwarfed by the PS2. However what was considered by at least some to be a diaster for Nintendo was considered an amazing success for the newcomer Microsoft. However it's questionable if Microsoft would have been able to achieve even that much if not for their purchase of Bungie, who was working on Halo for the Mac and PC at the time Microsoft bought them for about $30 million.

$30 million for exclusive rights to the game series that may very well have saved the XBox from total humiliation. It's probably one of the best examples of Microsoft using large piles of cash from it's primary business to buy its way into new markets, and in this case they got a great deal for a relatively small pile of cash. Or rather it's one of the best examples of that tactic _working_.

Another high profile video game purchase made by Microsoft a little later was the acquisition of Rare just two years later. For $375 million. Rare used to be a very prolific third party developer before becoming one of Nintendo's second party developers in 1994. They were responsible for a lot of the most popular games for the Nintendo 64. When Microsoft purchased them in 2002 it was considered quite a coup. Well, sorta. Even at the time some people pointed out that some of the key people had already left the studio and they hadn't put out anything especially popular recently. True to those predictions Rare's work for Microsoft has certainly been technically competent, but with the possible exception of Viva Pinata nothing has really gotten anyone excited, certainly not to the point of being a system seller. I have no idea how the financials work out in terms of the initial $375 million investment, but they certainly haven't gotten anything like the return they did with the purchase of Bungie for one tenth the price.

So will the purchase of Nokia turn out like that of the up and coming Bungie or the Rare that had already hit it's peak and was (possibly) in a gradual decline? And how will that affect the future of Windows Mobile 7?
Tags: smartphones, technology

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