Nokia to get 'huge' payments from Microsoft | Hacker News Reader

Nokia to get 'huge' payments from Microsoft

washingtonpost.com

45 pointstshtf39 comments

I have no way to prove/disprove if or not Elop did this with straight face and without any conflict of interests but thinking about the decisions that were made and information that was provided - it all makes sense only if seen from Microsoft side.

a) Nokia thought they could not differentiate enough with Android so they did not choose it. Then they said they will not customize the WP7 experience - so they would essentially differentiate on hardware/pricing alone. No reason they could not do the same with Android.

b) To let go of a significant capability such as developing their own smart phone OSes and UIs - however unsuccessful they may be in the market - and betting your business on an as-yet under performing platform takes some amount of stupidity.

c) Most of what Nokia sells today are not your typical smart phones. They are losing ground to people going Android and dumping their Nokia feature phones. But they still do not seem to have a "different" strategy for low end devices targeting the developed world and dumb phone users in developed world. WP7 is not it AFAICS. Both Google ($85 dual core Broadcom SoC) and Apple (with the recent rumors of half-iPhone for sub $200 unsubsidized) have a solid plan in place to attack that segment. It is a glaring omission from Nokia and WP7 strategy - especially so since that is an under explored market and they have the highest chance of succeeding. Even if they hope dumb phone users will somehow upgrade to premium WP7 handsets - they are still late to the game.

c) Nokia's competitors who have some WP7 footprint today - how they will react tomorrow? Microsoft hasn't made any special deals with HTC/Samsung for example and their special treatment to Nokia is so close enough to them buying and running Nokia that those guys are going to be forced to rethink their WP7 strategies unless Microsoft offers them something to level the playing field.

d) Microsoft paying them money sounds good in the near term but it comes at a cost of Nokia crippling themselves and risking a whole lot on Windows Phone 7 and Microsoft. The dependence on Microsoft is a huge deal - HP could've done that but they thought it was wiser to buy Palm and bet on their own capability.

e) Why was it so hard to execute? Elop lost a golden chance of understanding this and fixing it. They won't have to execute on OS development now but still there is hardware and software integration work to do that requires lot of execution - they aren't simply going to dump hardware on Microsoft and let them deal with it. It wouldn't scale if Samsung/HTC and others expect the same.

Don't "a" and "c" sort of cancel each-other out? If other makers back-off of WP7 because of the way Microsoft got into bed with Nokia, doesn't that mean that Nokia can differentiate just by being the company that produces beautiful devices running Windows Phone?

And even if HTC and LG continue their existing tepid embrace of WP7, Nokia is in a position to make the WP7 experience theirs. So much that if another maker produces a WP7 phone, it may well be seen as their "Nokia Competitor."

The assertion that this makes sense only from Microsoft's POV seems totally off to me. Points c, d, & e would really be the same if they'd gone Android but surely the FUD peddlers wouldn't have made so much hay over that. And to point "c" -- that there is a "glaring omission from Nokia and WP7 strategy -- dude, it was made public like 4 days ago.

>Nokia can differentiate just by being the company that produces beautiful devices running Windows Phone?

You think that's their plan? You think Microsoft is naive enough to let it happen? If the short WP7 history is any clue - it's not going to be easy for Nokia to differentiate at all.

>And to point "c" -- that there is a "glaring omission from Nokia and WP7 strategy -- dude, it was made public like 4 days ago.

Way to miss the point - "dude". That is eons+4 days late - which boils down to the same fact - they still do NOT have a "strategy" - which means the Microsoft deal was made without thinking through the strategy - Is it going to be Symbian or S40 or WP7 Starter Edition on low end devices to compete with iPhone Mini and Dual Core $29 Androids? And that's where Nokia is hurting right now. They could make a me too WP7 device and there is a fair chance to fail there - but if they made a capable low end device that does most of what iPhone 3GS and LG Optimus does - they have real chance of getting somewhere.

Everybody believes this is precisely Nokia and Microsofts stratergy.

WP7 will be the only phone that you are sure will play nicely with microsoft email etc

Business will follow the - never got fired for buying microsoft route

Nokia is the only brand these same businessmen have heard of - they aren't going to take a risk on some 'foreign firm'.

So Nokia becomes Microsoft's RIM.

> So Nokia becomes Microsoft's RIM.

This would have been a good point – and certainly so if this had happened even just a couple of years ago.

But it didn't, and business has begun to adopt the iPhone and even Android devices because of the large gap in the market, and because Apple & Google are driving devices that people actually want to use outside of business too.

There are so, so many businesses in North America that have not adopted iOS or Android so far and are still using Blackberries. This deal probably gives Nokia its best shot at getting a share of this market -- not necessarily a great shot, but better than it would have had otherwise.

It's still not clear how these payments are structured.

If Nokia gets paid for sales of all manufacturers' handsets (perhaps as royalties for the Nokia mapping software), that explains why Elop says that Nokia has a stake in the success of the platform as a whole.

But it's hard to imagine HTC or Samsung being thrilled for Nokia to get money for sales of their handsets...

From a strategic standpoint I think HTC and Samsung will be in favor of this deal. Nokia still has dominance in a lot of places around the world. This deal locks Nokia into WP7 and with that being true other manufacturers can enter Nokia dominant markets as the only Android alternatives.

Given these are companies that have bet their business on Android I suspect they think it's superior and welcome a chance to neutralize Nokia.

So while this deal with Microsoft may give Nokia a little of the other carriers money I'd think it will be well worth it .

How much in the minority am I for thinking this is a good plan for Nokia?

Echoing my post in another thread, Apple received $150 million in financing from Microsoft back in 1997 in exchange for including IE on the Mac (among other partnership goodies).

If you don't recall that period of computer history (when Apple almost went bust), you may want to watch this Steve Jobs Macworld 1997 presentation discussing their joint venture:

http://www.youtube.com/watch?v=WxOp5mBY9IY

"Kneeling before Zod" didn't turn out too badly for Apple.

I don't think the comparison between 1997 Apple and 2011 Nokia is particularly close, or instructive for understanding the deal.

But I do agree that this probably is a good deal Nokia; and for Microsoft. Nokia was never all tha great with software, and is generally a hardware engineering focused company. Basically, they're outsourcing all the software dev work to Microsoft. And, apparently, getting paid (possibly very well) to do so.

Microsoft, on the other hand, buys themselves exclusivity with a major hardware manufacturer. Instead of getting secondary consideration after Android from the likes of motorola or HTC, they get the whole smartphone focus from a company with a reputation for producing reliable and high quality hardware.

Honestly, and all jokes about two dinosaurs getting together to avoid extinction aside, this is probably the best move for both companies, if they're going to stand an chance of being able to compete in the upcoming smartphone market.

I never got this argument that "Nokia is a hardware company, they don't do good software." That's a shallow argument which doesn't really mean anything at all.

After all, most of their R&D budget is in software development. They have developed two dumbphone OSes (S30, S40) and two smartphone OSes (Symbian, Maemo), which are feature-by-feature the most complete software in the market. There's lots more of course.

But their software sucks.. Why?

Im fine with the dumb phone OSes they've produced - they're actually nice to use and probably the best of such systems that I've used.

My experiences with their symbian devices, though (all s60, devices) was terrible. Crashy, with ugly and poorly implemented features, and a ui experience well behind other devices. To be honest, I haven't tried the ^3 series, but the reviews I've read don't indicate to me that they've addressed the problems.

Maemo, I've played with a bit, and it seems fine, but not great and not compelling over iOS or Android. And ive only seen it on one of their tablets.

Maybe its personal preference, dunno.

> Echoing my post in another thread, Apple received $150 million in financing from Microsoft back in 1997 in exchange for including IE on the Mac (among other partnership goodies).

Actually, based on my hazy recollection, someone at Apple had discovered an IP violation by MSFT (something to do with QuickTime code having leaked over to MSFT). Apple at that time was in pretty dire shape. Steve basically called up (Bill or Ballmer, not sure which) and said here's the deal..., after which it was decided that rather than protracted litigation, Apple would take a $150M investment from MSFT, and would issue a special class of stock, which could be convertible to regular stock at a later date. I do believe there was some kind of agreement to include MSIE, and/or that MSFT would make Office for the Mac a guaranteed product for a certain period of time.

From what I read, no one lost money on the deal. The cash investment helped Apple survive the rough patch, MSFT sold off their investment at a later date, Office moved on to be a solid product on the Mac, etc.

I do not believe that MSFT would have done any of this without a little persuasive arm twisting.

Wait a second... so Microsoft is paying Nokia to use their software? Is "inverse licensing" a viable strategy now?

It is if you get 30% of sales on that platform.

Not sure if it is viable, but Google has been doing it for some time with Android. The open-source version is free, and if the manufacturer includes the various Google Apps on top, they get a cut of the ads revenue.

Not for a startup of course, but Microsoft sees this as an investment in business development. MS wants Windows to be a solid mobile platform, and they're pouring a bunch of money into the Nokia deal to increase the availability of Windows Phone 7 handsets. It's the chicken-and-egg problem that effects so many things; a platform can't be successful without software to run on top of it, but no one will develop software for a platform that isn't successful. This problem is much less hard when you have a ton of money and can just pay people to use your platform, which is what MS is doing here.

It's not much different than pouring a bunch of money into advertising; if you have a big partner like Nokia, it not only generates a lot of PR buzz, but it also means that since Nokia makes a lot of phones, there will be a lot of WP7 phones out soon, which is what Microsoft wants.

Ballmer absolutely ridiculed Google for making Android free. A couple of short years later and Microsoft goes with a negative price.

I doubt MS will extend this deal if they are successful in the market whereas Google would find it hard charging for Android.

Google doesn't have to charge for Android. They will make $10 per user from mobile ads alone, according to a recent report.

Actually, Google also seems to have a negative price for Android. As a device maker it's possible to get paid a percentage of add revenue on the devices you build.

I don't know that it is true 'inverse licensing', as nobody has ever disclosed the amount or structure of the deal.

I assumed it was an up-front deal which is more than covering the cost of Nokia getting the OS onto their hardware and maybe covering some cost of x-number of minimum handset licenses. Beyond that amount, I would think that Nokia would be paying microsoft per handset.

Headline:

    Nokia CEO: Co. to get billions from Microsoft

Fine print:

    Nokia will be contributing its Ovi mapping service and
    will be paying Microsoft royalties for the use of its
    software, as other manufacturers do. It will save money
    by not continuing development of its own software. The
    net benefit is still in the billions, he said.

In other words, Nokia is saving billions by licensing WP7 and laying off most of its workforce.

So it's exactly as everyone first assumed. Nokia is not getting "huge payments from Microsoft". Nokia is merely licensing WP7.

From someone who has not read the press-release/documents of the partnership, does teaming up with Microsoft, explicitly prohibits Nokia to use Android(or any other mobile platform) in the future, if need be?

Nokia and Microsoft don't yet have any kind of binding agreement. Only a term paper. This was mentioned in the press releases on friday.

As I mentioend in the comments of the other post, I believe the whole "Nokia will get billions" is a misunderstanding from the reporters.

Elop was speaking about Nokia getting substantial monetary value, measured in Bs not Ms. I don't think he was speaking about money changing hands.

Microsoft will be hoping to recoup losses by selling apps, services and advertising.

If xbox live proves to be a big hit on Nokia devices the strategy could work. Nokia will also need to sell hundreds of millions of devices and the Windows App Store will need to take off bigtime.

But it is a gamble: xboxes and Bing are loss-making at present.

Maybe they have something else up their sleeve?

I thought the entertainment division (Xbox+) had been profitable for some years now.

Not according to a story that was on HN a few weeks back (unless I'm mis-remembering). I'll dig around and see if I can find it.

They certainly lose money on each xbox but its possible that they make it back on the sale of games.

Looks like I mis-remembered:

http://www.betanews.com/joewilcox/article/Microsoft-Q1-2011-...

Q1 2011 Income by Division

• Windows & Windows Live: $3.32 billion, up 124 percent from $1.5 billion a year earlier (20 percent growth when adding deferral).

• Server & Tools: $1.63 billion, up 32 percent from $1.24 billion a year earlier. Business: $3.39 billion, up 20 percent from $2.83 billion a year earlier.

• Online Services Business: Loss of $560 million, up 17 percent from $477 million loss a year earlier.

• Entertainment & Devices: $382 million, up 47 percent from $260 million a year earlier.

although, this comment by puts it in perspective:

http://news.ycombinator.com/item?id=1842290

"In 2009 it finally posted it's first profit - $165 million, though it's probably worth noting that as a percentage of the $6 billion it had lost to that point this is basically nothing."

I wish nokia would have just continued with their meego platform as their flagship. M$ is always posion.

Headline: "Nokia to get 'huge' payments from Microsoft"

HN participants: "oh noes, that person just said 'M$'! must vote that down because clearly that is a baseless insult!"

Can't be "must vote that down because the entirety of the argument is 'M$ is always posion' and that falls just barely short of my standard for HN discussion."

You wouldn't still happen to have that collection of gifs depicting Bill Gates as a Borg, would you?

Apparently the Nokia CEO holds over $3M in Microsoft stock. In addition to this obvious conflict of interest, EU is going to be interested in this attempt to make a Finnish corp dependent on a US corp.

http://finance.yahoo.com/news/Nokia-CEO-Elop-Denies-Being-si...

Yes,

Considering that the EU also recently paid Nokia to keep developing Symbian, my naive thought is the EU would be very interested in this.

http://www.unwiredview.com/2010/11/02/explaining-symbeose-sy...

But I would easily admit my naive ideas about could be wrong given the many things that happen under the radar these days...

Edit: Elop denies being "the seventh largest Microsoft shareholder" despite being listed as such but confirms the level of share-holding which the list has. He's certainly not the seventh largest share holder of any kind, he certainly holds far less than Bill gates but it seems clear he is the seventh largest individual shareholder with ~$3 in shares.

He is, at most, the ninth largest known individual shareholder. He can't get rid of said shares for regulatory reasons. Please see the discussion at http://news.ycombinator.com/item?id=2212555.

Whether or not he can get rid of his shares in the short term, what is good for Microsoft is good for his net worth which, it would seem, creates a conflict of interest.

This seems to be mostly FUD, here is the HN discussion about it: http://news.ycombinator.com/item?id=2212555 (I don’t know why it was manually dead-ed.)

Reply on news.ycombinator.com