Microsoft's big Nokia deal may be too little, too late

Dan Steinbock charts the shift in mobile-era communications to Asia

PUBLISHED : Tuesday, 10 September, 2013, 12:29am
UPDATED : Tuesday, 10 September, 2013, 2:45am

Obviously, Microsoft’s US$7.2 billion acquisition of Nokia is an important deal, but it may be more about the past than the emerging challenges of the future.

For Steve Ballmer’s Microsoft, the deal is a bold but possibly too-little-too-late effort to transform its business for the mobile era that has largely passed it by.

At Nokia, it means the end of an era. What the Finns built in the past 150 years is being sold off after only three years of controversial restructuring, led by CEO Stephen Elop, a former Microsoft executive who will now return to the fold.

To Google’s Android platform, the Microsoft-Nokia deal is “much ado about nothing”. Before the deal, Windows Phone, through alliances, had 3.75 per cent of the smartphone market. After the deal, the share will remain the same, but Microsoft will have direct control. Google’s Android will still hold 80 per cent of the market.

[The deal] may be more about the past than the emerging challenges of the future

The industry, however, is migrating to Asia. Pioneered by Guglielmo Marconi, wireless telegraphy created the first customers and business models in the industry, particularly in the maritime sector. Over time, it was superseded by AM and FM communications, which provided a military advantage to US defence forces in the second world war and a competitive edge to electronics giants, such as Motorola.

The cellular concept was discovered as early as 1947 at Bell Labs, but commercialisation followed only in the 1980s with analogue cellular networks. These services appealed primarily to car drivers and corporate markets.

Things changed with the digital transition, driven by the European-based standard, the Global System for Mobile Communications (GSM). It was pioneered by Euro-Nordic operators and vendors, particularly Nokia in handsets and Ericsson in network infrastructure. America lost its edge, except for research and development giants such as Qualcomm.

At the turn of the new century, service innovation migrated to Japan, where NTT DoCoMo pioneered userfriendly services. But the Japanese failed to leverage their standards internationally. In turn, South Korea engaged in broadband innovation, which contributed to the expansion of producers like Samsung and LG.

In the early 2000s, worldwide mobile markets witnessed the first transition to multimedia cellular networks (UMTS in Europe, 3G in the US). Amid the boom and bust in the technology sector, growth markets took off in China, India and other large emerging economies. Those Western companies that failed to make the transition went bankrupt. Those that succeeded thrived.

Concurrently, the old mobile industry was morphing into a new IT industry. When Apple launched its first iPhone in 2007, the innovation edge shifted back to the US, but only temporarily. If Nokia knew how to globalise but failed to innovate fast enough, Apple knew how to create new things, but failed to globalise fast enough.

At the same time, the industry shifted towards a reset. In terms of worldwide smartphone shipments, China already has almost 37 per cent of the rapidly growing global marketplace, against 14 per cent in the US and India’s 4 per cent.

Among the vendors, Samsung (32 per cent market share) and Apple (13 per cent) dominate, but Chinese producers, including Lenovo and Yulong, are growing explosively. Meanwhile, new challengers, such as Huawei, already seek to dominate the 5G market by 2020.

Today, the Microsoft/Nokia deal may dominate headlines, but innovation and market creation are shifting to Asia.

Dr Dan Steinbock’s studies on the mobile and IT industries include The Nokia Revolution (2001), and Winning Across Global Markets (2010), plus studies on mobile revolutions in the US, Europe, Japan, China, and India