What Will Microsoft's Acquisition of Nokia Mean for Lync?

Microsoft announced that it will be buying Nokia's Devices and Services business for €5.44 billion, the equivalent of $7.18 billion in an all cash deal. Microsoft will be drawing on its overseas cash resources to fund the transaction. This follows two other major acquisitions, Skype in May 2011 for $8.5 billion and social networking company Yammer for $1.2 billion in June 2012.

Microsoft has been cozying up to Nokia for some time. In February 2011, Nokia CEO and former Microsoft executive Steven Elop, announced the company was phasing out its Symbian operating system and would focus all of its efforts on building devices that ran Windows Phone. With the acquisition Elop will be returning to Microsoft where he will head up a larger devices group and reporting to Ballmer.

What Microsoft has acquired is not a bastion of strength, though if successful, it could give the company a bigger stake in consumer markets. Of Microsoft's $73.7 billion in revenue for 2012, the Entertainment and Devices that includes the company's Xbox business, accounted for only $9.6 billion or 13 percent. So it is clear that Microsoft is still largely an enterprise driven company.

Nokia's revenues for devices and services were €15.7 billion for 2012 ($20.65 billion) of which smartphones accounted for 34.7 percent, down 50 percent YoY; basic phones accounted for 60.1 percent of revenues. While HTC, Samsung and others make devices that run Windows Phone, Nokia accounts for 87 percent of Windows Phone sales; Samsung is second with about 11 percent.

The acquisition is in line with the reorganization Ballmer outlined in July when he said, "Going forward, our strategy will focus on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most."

With Nokia, Microsoft will now control the software as well as the hardware for the Windows Phone ecosystem. Only Apple and BlackBerry have control of both a mobile device and a mobile operating system; you could argue that Samsung does as well with its Bada OS, but it is certainly not a major factor in the market. That plan has worked out well for Apple, but not so much for BlackBerry though the blame for that lies largely with a brain dead management strategy from Messrs. Balsillie and Lazaridis. While Google does have a handset manufacturer in Motorola, the company goes to great lengths to avoid any special treatment that might alienate the bigger manufacturers like Samsung that accounts for 39 percent of Android sales; Motorola's share is part of the "Other" category.

Outside of Xbox, Microsoft has not fared well on the device front. In July, the company took a $900 million write down on its inventory of Surface tablets and cut the price by $150. With Nokia's smartphone revenues off by 50 percent YoY, it's going to take a lot of turning to turn this around.

For readers of UCStrategies, the big question is, what impact will this have on the mobile capabilities of Lync? One hint about that is that the Microsoft presentation describing the goals of the acquisition did not make a single reference to Lync. Microsoft has introduced Lync Mobile client for Windows Phone as well as versions for iOS, and Android; BlackBerry makes its own Lync client.

However, Microsoft's attempt at a mobile UC client appears to have had no more success than those from its competitors with little uptake from users who find they are not well integrated with the device's native interface. At the moment BlackBerry Balance has what I think is the best dual persona capability, and shows what you can do if you control the hardware, software, and in BlackBerry's case, the management system as well.

The combination of Nokia hardware and Microsoft software could produce a product that truly integrates natively with Lync, but the reality of the smartphone business is that the consumer is king. The operators and the device manufacturers focus the vast majority of their attention on the consumer segment, and with the ongoing move to bring your own device (BYOD), that will be even more in evidence going forward. The InformationWeek survey on Mobile Security found that 68 percent of respondents now allow the use of personal devices for work, and another 20 percent were developing such a policy. So if a Lync phone is in the plans, I'm afraid it's pretty far down the list.

Windows Phone really is a decent OS, and Nokia has always built solid products; of course, the same can be said of BlackBerry. Success in the smartphone market requires a rich ecosystem, and apps are a key part of the equation. Apple and Android have both managed to achieve that, but in vastly different ways. Failing in the mobile market is not a death sentence for Microsoft, as the company remains strong in so many other areas. However, the shift to mobility holds the potential of making some of those other markets less relevant, and a foothold in mobility is a strategic imperative for Microsoft.

With Mr. Ballmer stepping down within the year, the job of making a success on the mobile front will fall to his successor. I'm just not sure if two weaknesses can add up to a strength.