Should Microsoft buy Nokia?

The rumors are swirling that Microsoft is going to buy Nokia and we break down the pros and cons of a deal.
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A hot rumor is going around that Micosoft will go all out and purchase the mobile handset division of Nokia and this would have a major impact on the industry. Let’s take a look at why this would benefit Microsoft and why this could be a disaster.

The rumor comes from a relatively credible source, as Eldar Murtazin is the same person who nailed the Windows Phone 7 deal and he routinely gets access to Nokia hardware early. Nokia has issued a response trying to discredit the source but the company didn’t deny the deal outright.

Go for it
The deal makes sense for Microsoft because being in control of the hardware and software could better prepare it for the rapidly-growing smartphone market. While the company has made billions licensing desktop software to manufacturers, that doesn’t appear to be as lucrative of a model in the mobile space.

Apple is obviously the chief example, as the company has an integrated, vertical solution where it controls the hardware, software and app ecosystem of its iOS products. This had been very successful, as Apple is by far the most profitable handset maker even though it no longer had the larger market share by operating system.

Microsoft could potentially do this with Windows Phone 7 and Nokia, as the world’s largest handset maker still knows how to crank out great-looking, highy-capable devices - just look at the N8. While a deal wouldn’t be cheap (probably $30 billion or more), a purchase would enable Microsoft to hit the ground running in markets around the world at a time where it’s still playing catch up.

When you factor in the recent acquisition of Skype, Microsoft’s app and content ecosystem and Nokia’s manufacturing chops, Microsoft could deliver a lineup of strong smartphones that could appeal to the high and low ends of the market.

Additionally, Microsoft would also be in control of its own destiny in the smartphone space. It’s success or failure would rest solely on its ability to execute high-quality products.

Pump the breaks
While the Apple solution sounds great, Microsoft isn’t Apple. Heck, no other company is going to have an easy time marrying design, software and hardware as well as Apple does. Buying Nokia won’t guarantee that the light bulbs go off for Microsoft.

Research In Motion has a similar model where it controls most aspects of its devices and the BlackBerry is now stumbling. The vertical solution is not helping it adapt to a rapidly shifting market where consumers’ expectations are outpacing RIM’s capabilities to innovate.

Additionally, a Nokia purchase would definitely alienate the other Windows Phone 7 partners out there. You could say good-bye to Windows Phone 7 devices from Samsung, HTC, LG or others if Microsoft starts making its own phones.

Having partners is very important because operating system market share is going to be an important part of being successful in the mobile space. I also believe it might be short-sighted to say that the only way to be profitable in the mobile arena is by making hardware because then Google wouldn’t be giving away Android for free.

Google believes that it can monetize off Android through mobile advertisements and other services as the platform gains scale. The potential for mobile ads is through the roof because these could involve location-based searches that are more relevant to end users.

Microsoft knows how lucrative the mobile search and advertising market can be, that’s why it made a big deal to be the “preferred” search and map provider for future BlackBerry smartphones. There’s nothing to stop the company from continuing this approach even if it did buy Nokia but I’d imagine other handset makers wouldn’t be as eager to help its direct competitor gain more resources.