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Microsoft's Nokia deal: why Skype could hold the key to success
Microsoft’s acquisition of Nokia is a natural step for the software giant as it prepares for a future dominated by mobile technology, but could it be too late to challenge the early adopters?
Microsoft has long understood the upward trend of mobile technology and has continuously strived to create credible mobile offerings that will capture the consumer imagination and secure its foothold in this growth market. Its operating system is solid, but it is only this year that it has started to capture significant market share in the UK smartphone market, rising to 9.2% in July 2013, up from 4.2% at the same time last year.
One of the key drivers of that success has been the resurgence of Nokia and the lower price point of its latest Lumia model that offers real value in an increasingly competitive market. Formalising the winning partnership with Nokia, then, makes perfect sense as they both look to challenge the stranglehold that Google and Apple have on the mobile ecosystem.
But the challenge is significant. No matter how good the product, Microsoft and Nokia need to find a way to lure away the millions of iPhone and Android addicts in a field where brand loyalty is deeply entrenched. Success will not come cheaply.
Their ability to get new offerings to market quickly that capture the consumer imagination will largely depend on how successfully they integrate the two businesses. Microsoft has improved its track record in integrating acquisitions in recent years, but the success of this £5bn gamble will largely depend on its ability to gel the companies quickly and ensure the whole becomes greater than the sum of its two parts, all set against the background of Steve Ballmer’s forthcoming exit.
However, Microsoft and Nokia do have a potential ace up their sleeve – the 2011 acquisition of Skype. As a vice-president at Skype, I was responsible for their global mobile division, before exiting when Microsoft came in. We all saw at the time the potential for Microsoft to fully embrace internet-enabled communications in its mobile offerings, but thought they would need to bring a hardware provider in to create an outstanding product.
It may be that they are two years too late to make a difference, but if Microsoft and Nokia can find a way to offer fully integrated and optimised Skype video calling on their mobile platforms, they could prompt the next revolution in mobile communications, especially as more and more carriers offer 4G and LTE networks to support a great mobile video experience.
Unsurprisingly, mobile carriers have been reluctant to embrace free calls on their networks, but they are slowly coming round as they understand the value of delivering exceptional customer experiences. Further, they are likely to embrace the creation of a new powerhouse to rival the hegemony enjoyed by Apple and Google, even if they have to accept a more prominent role for Skype in the offering.
More recently than we appreciate, the digital generation switched their Nokia 3210s for iPhones. If Microsoft, Nokia and Skype get their offering right, we could see the mobile industry turn full circle. If they can do it, the $7.2bn for Nokia and $8.5bn for Skype will seem insignificant in comparison to the value they will create through this potential “third ecosystem”.
Russ Shaw is a former vice-president and general manager at Skype with responsibility for its mobile division and is founder of Tech London Advocates, a private sector-led coalition of over 250 expert individuals from the tech sector and broader community who have been brought together to champion London’s potential as a world-class hub for tech and digital businesses
