Case Study The Nokia-Microsoft Alliance
Case Study The Nokia-Microsoft Alliance
Case Study The Nokia-Microsoft Alliance
Linda Jo Law
MGMT 610
Dr. Barta
NOKIA-MICROSOFT ALLIANCE IN THE GLOBAL SMARTPHONE INDUSTRY 2
The focus of this case study is the global alliance between Nokia-Microsoft and their
business partnership in the global smartphone industry that occurred in 2001. Their background
will be shared as well, as what went well, and what challenges they faced. This paper will also
address the solutions that can be used for a future joint venture, strategic business alliances.
First understanding the reason for the alliance and why this joint venture collaboration was
created is important to understand. When you look at the merger of these two giants in
their respective fields the partnership seemed like it was perfection on paper.
Microsoft was/is the largest software company worldwide, and Nokia was the largest hand-
held cell phone company in the world. This merger allowed Nokia to use the Windows based
phone operating system as their main platform for their smartphone. Nokia also benefitted from
Microsoft with technical, marketing and financial support to help increase market share of the new
Windows phone.
The marriage of the two created a mutually beneficial climate for both companies. Some of
the benefits to Microsoft-Nokia are noted below. Microsoft needed Nokia to compete against the
I-phone. They had lost a significant market share due to this and that the windows platform was
not widely used. They couldn't compete and this was a way to become a player again and
improve markets share in the mobile phone industry. Their collaboration allowed both players to
enter the market with more efficient, faster and lower expenses and increased profit (Deresky
2013).
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Benefits to Microsoft:
3. Increased speed to market since they didn't have to produce the phone
4. Increased productivity with less cost increased profits due to royalty paid to Microsoft
Benefits to Nokia:
4. Nokia received quarterly platform payments to the tune of 250 million every 90 days
Challenges
The initial flow into the marketplace made a decent splash, but it was met with challenges.
The excitement waned quickly and was nowhere near the market share that each company
experienced alone. The challenges were similar to any large company merger. Specifically, even
though documents were signed there were problems with each companies agenda.
Each companies priorities according to Singh (2104) were different in regards to urgency
and expectations. This created differing dedication levels into the creation and development of
the Window OS. Microsoft had many revenue streams coming from their desktop OS and office
NOKIA-MICROSOFT ALLIANCE IN THE GLOBAL SMARTPHONE INDUSTRY 4
suite products as well as software for servers. Microsoft's goal with this merger was to increase
the small market share they had in comparison to the aforementioned products.
The other challenge was their deal with Nokia wasn't exclusive to them. Huge miss on
Nokia's part as this left the door open to Microsoft to enter into other arrangements. From
Nokia's viewpoint, this was their lifeline to save their business. Nokia made business moves to sell
off portions of their companies performing assets for the Microsoft merger. Another big mistake
on Nokia's part. Their entire focus was to put all their eggs in the Microsoft basket by dedicating
all of their resources to the windows OS. They flooded the market with 10 different Lumina
phones showed this over indulgence. This created a path of no return. They were so fast to save
the sinking ship and they completely ignored the OS platform problems that Microsoft wasn't all
that motivated to fix. How is it possible to sell a form with OS issues and no apps? Well, the
answer is you can't. This lead to Nokia working on the Android platform in secret.
The merger benefitted Microsoft by increased stock prices and increased the revenue of 1.2
billion with the licensing of the windows platform OS. Nokia didn't fair as well. In fact, their
phone sales increased in the lower end of the market. You would think this would help Nokia but
that wasn't the case, they had a negative cash flow and this is because the royalty payments to
Nokia were not enough to offset their expenditures. This merger also had a negative impact on
stock price for Nokia and it dropped down to only $2 per share from $15. This quick partnership
The time it took to get the Nokia Windows phone to market took over 8 months and this
was too long for them to wait from a financial perspective. Their sales tanked to this, slow rollout.
This all led to the sale of Nokia to Microsoft for 5.44 billion EU. Seems the real winner
here was Microsoft. I wonder if this was all planned out by Microsoft initially. I would have to
Conclusions
The collaboration of these two companies experienced many challenges and Microsoft
benefitted more than Nokia. This merger essentially wiped out Nokia. Well played on the part of
Microsoft. Nokia had to be acquired from Microsoft to protect their Windows platform because
Nokia was going to focus on the Android system to save their company. Microsoft needed this
acquisition to protect their place in the smartphone industry, although still to this date they lag in a
I believe that had Nokia not been so desperate and had they slowed down to do a full
SWOT analysis they could have foreseen the outcome and they could have had a better contract
that protected them. The contract the way it was written benefited Microsoft and set Nokia up
for failure.
The lesson here is to slow down and look into the future and create a contract that is
mutually beneficial and not so one sided. It is also interesting to note by putting all their eggs in
one basket was another poor choice. They may have been able to make it had they not sold off all
their other business ventures to leave their future in the hands of Microsoft.
NOKIA-MICROSOFT ALLIANCE IN THE GLOBAL SMARTPHONE INDUSTRY 6
According to Norita (2016), Nokia was in the financial danger zone in 2010 and move
into the bankruptcy zone after the partnership with Microsoft occurred. I believe they were aware
of this and this is why they made the move that they did and they did it fast, which is what led to
some of the unforeseen problems with the deal that they made. Microsoft's goal was to
completely dominate the smartphone industry which put them in a powerful position. Nokia's
References
NOKIA-MICROSOFT ALLIANCE IN THE GLOBAL SMARTPHONE INDUSTRY 7
Deresky, H (2013). International Management, Management Across Borders. 8th ed. Upper
the problematic financial ratio with altman, springate and zmijewski methods.
from http://search.proquest.com/docview/1786613954?accountid=8289
Singh, N. P. (2014). Microsoft acquired nokia in unipolar operating system market. Independent
http://search.proquest.com/docview/1661321929?accountid=8289