News of Microsoft Corporation (NASDAQ:MSFT)’s acquisition of Nokia Corporation (ADR) (NYSE:NOK)’s mobile device division early this week has dominated headlines. Was it a good idea? A bad idea? Analyst downgrades. Should Nokia investors take the opportunity to sell shares? While this is all fascinating stuff for a technology and finance nerd like myself, I’d rather examine what it means in relation to a larger trend: More companies are becoming more like Apple Inc. (NASDAQ:AAPL).
Microsoft in mobile
Microsoft Corporation (NASDAQ:MSFT) has long been a platform company. It had the dominant platform in PCs — it still does — for more than a quarter of a decade. But it was late to the mobile game. It partnered with Nokia Corporation (ADR) (NYSE:NOK) in 2011 to promote its Windows Mobile platform, and introduced its own tablet, the Surface, last year. Meanwhile, Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) had four years of market penetration already.
Now, with the PC market shrinking, and the mobile market growing extraordinarily quickly, Microsoft Corporation (NASDAQ:MSFT) is making a hard push to stay relevant in the age of mobile devices. With the acquisition of Nokia’s device business, it now has a vertically integrated mobile strategy — it makes the software and the hardware — just like Apple Inc. (NASDAQ:AAPL). The question it faces now, though, is will other manufacturers shy away from manufacturing Windows Phones due to Microsoft’s new presence in the hardware business?
When Google got into hardware
Google Inc (NASDAQ:GOOG) made a similar purchase to Microsoft’s recent deal back in 2010 when it bought Motorola. It has been able to keep its hardware partners, however, for a couple reasons. First, it promised to keep the Motorola Mobile division a separate subsidiary from the parent company, treating it just like any other partner — which it has largely kept its promise on. Second, other manufacturers didn’t have much of a choice — it was either Android or develop a new mobile OS.
Microsoft doesn’t benefit from either of these. Microsoft will absorb Nokia’s phone business instead of keeping it a separate entity. Most of Windows’ mobile partners don’t really support the platform — it’s just not a big money maker compared to Android. Nokia Corporation (ADR) (NYSE:NOK) was the only manufacturer producing leading-edge technology for the Windows Phone platform. Other manufacturers are taking six-month old Android models and adapting them for Windows.
Now, there’s almost no incentive for consumers to buy a Windows Phone from anyone but Microsoft, thus no incentive for other manufacturers to support the platform. Until Microsoft can grow support for the platform on the software side (apps), it won’t see great support on the hardware side. Therefore, it’s likely Microsoft will favor its own manufacturing operations over its partners, who offer the platform little support.