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Microsoft's deal with Nokia: Cheap bet or looming disaster?

By Jim Boulden, CNN
updated 3:34 PM EDT, Tue September 3, 2013
STORY HIGHLIGHTS
  • What does Microsoft see in Nokia, a business whose share of the smartphone handset market is sliding?
  • The answers to this question vary, Jim Boulden writes. But there is potential for this to be a win for both
  • Microsoft will need to figure out a way to tap the cheaper smartphone market
  • It will need to do this while also ensuring the two companies are merged -- not an easy task

Editor's note: Jim Boulden is a correspondent for CNN's international programming based in London. Follow him on Twitter.

London (CNN) -- It's easy to ask why Microsoft would want to buy Nokia when its share of the smartphone handset market is sliding. What can Microsoft possibly do to reverse Nokia's fading fortunes?

The emails from analysts pouring into my inbox are evenly split -- great idea or a disaster; relatively cheap bet by Microsoft (at $7 billion) or a share price-eroding move.

Read more: Why deal is good for both

As Microsoft sets out to buy Nokia, CNN takes a look through some of the Finnish mobile giant's unique designs. Pictured here is the Nokia Mobira Cityman, announced in 1989. As Microsoft sets out to buy Nokia, CNN takes a look through some of the Finnish mobile giant's unique designs. Pictured here is the Nokia Mobira Cityman, announced in 1989.
Nokia through the ages
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So, can Microsoft leverage its monopoly selling software and services contracts to corporations, and get a slice of the employees' mobile business? Or, by getting a product which it is already in partnership with, is Microsoft simply buying the cow when it's already getting the milk?

Is Microsoft simply buying the cow when it's already getting the milk?
Jim Boulden

Watch more: Microsoft's deal with Nokia

The deal comes as no surprise. When Stephen Elop left Microsoft more than two years ago to become Nokia's first non-Finnish CEO, it seemed logical the two companies would eventually meld.

One question rightly being asked, is whether rival handset makers or operators will simply stop making phones with Microsoft's mobile operating system.

In my view, it doesn't matter. Nokia and Microsoft joined ranks two years ago and the others were a fraction of Microsoft's fraction of the mobile operating market.

Read more: Is one mobile enough?

Who will replace Ballmer at Microsoft?

The question in my mind, is whether Microsoft can take its mobile operating system and make it a player in the burgeoning market of cheap smartphones.

Microsoft to buy Nokia's phone business

Nokia still makes more handsets than any other manufacturer, and now that's Microsoft's business. Nokia's market share was 23.4% in the last quarter of 2012, according to research firm Gartner. That's because Nokia sells an enormous number of cheaper mobiles in emerging markets.

Microsoft's task, then, is to stuff a cheaper version of its smartphone OS into these more affordable phones. The sales channel is there. The brand name of Nokia is known the world over. Microsoft is an expert at sales and marketing.

The bigger task may be to integrate more than 30,000 employees into the Microsoft ecosystem. Many companies gamble that a bolt-on acquisition is the sure-fire solution to a missing piece of the puzzle. But it can set a company up to fail.

A real competitor to Google-Android and the Apple iPhone could be around the corner. But it will be a huge task for Steve Ballmer's successor.

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