Technology: Purchase of Nokia Only Matters if Microsoft Improves its Software

Microsoft’s $7.2 billion purchase of Nokia’s phone business (and its patents) sent the Finnish company’s stock up 1.2 percent while the Redmond software giant’s stock retreated by 1.5 percent.

Clearly, this was a good sell for Nokia since it was on the verge of bankruptcy but how does it look for Microsoft? After spending this past week focusing on Syria, I thought it would be good to change the pace a bit and focus on the global technology industry.

Clearly, this purchase turns Microsoft from just a provider of mobile phone software into a hardware company. This is not that big of a shift, however, since the Windows operator has slowly been making inroads into this sector for the past few years through its X-Box gaming console and Surface tablets.

However, its track record in this arena is far from stellar: the gaming console is a massive success while everything else including Surface have been big failures.

The market’s negative reaction to Surface is especially interesting since Microsoft is laying big bets on its mobile computing platform and the purchase of Nokia is another step in that direction.

However, did Microsoft have any choice with Nokia? The cell-phone company’s fortunes were directly tied to the software maker since its phones exclusively use Windows operating systems.

As its partner teetered on bankruptcy, Microsoft saw its tenuous entry into a profitable sector slipping and, consequently, was forced to buy the European company.

The next question is whether Microsoft over-paid for Nokia. I don’t have much information on the phone-maker’s patents but the maker of Windows likely thought it better to buy something now rather than fight it out with other suitors in bankruptcy court.

In addition, outgoing chairman Steve Ballmer likely did not want to saddle his successor (who may come from Nokia) with another headache on top of the many that he or she will inherit.

Finally, Microsoft is a very profitable company sitting on loads of cash so the price will not make a significant dent in their wallet.

On the other hand, the question of whether it will be able to use this purchase to become a player in the mobile market remains unanswered.

The fact of the matter is that the problem with Windows phones wasn’t the hardware – the reviews for Nokia’s phones were actually quite good – but the software.

Consumers have multiple legitimate choices from reliable suppliers and, therefore, they need a compelling reason to make a change. Unfortunately, Microsoft’s argument has not yet been compelling enough.

The question, therefore, is not whether Microsoft can improve Nokia’s hardware but if the latter can somehow improve the former’s mobile software and give it the needed incentive to provide the services demanded by consumers in a rapidly devolving market.