Microsoft Declines to Buy Nokia’s HERE Maps

Here MapsIn an exchange on Twitter last night shortly after the Microsoft-Nokia announcement, Marc Prioleau pointed out to me that Nokia’s mapping business (HERE), is not being acquired. Redmond is licensing HERE for Windows Phones as part of the $2+ billion (of the total $7+ billion) being paid for licensing fees.

As a general matter the Nokia hardware acquisition is both defensive and offensive according to Microsoft CEO Steve Ballmer. However it feels much more defensive. While the company wants to “accelerate innovation,” the growth of smartphones and tablets represent an existential threat to Microsoft.

Microsoft now sees smartphones (and tablets) as critical to the future success of its entire business. And the possibility that a struggling Nokia might start selling Android handsets (my inference) was too threatening, given that Nokia represents 80% of Windows Phone sales.

Microsoft also believes that it can bring out better, more “integrated” devices faster through this acquisition. Although the Lumia devices are the focus of the deal, Nokia’s lower-end ASHA phones may turn out to be more significant. That’s because ASHA phones have been more successful (in developing markets) than the Lumia line.

Nokia, which is divesting its struggling mobile hardware business much like IBM unloaded its PC business to Lenovo, will continue on. What remains of Nokia are the following business units:

  • Nokia Solutions and Networks (the old Nokia Siemens Networks)
  • HERE
  • IP licensing

As an aside, Microsoft is reportedly using offshore cash to pay for Nokia. That may be one of the driving factors behind the deal; the company now won’t have to pay repatriation taxes on that cash.

As indicated, last night I made the initial assumption that HERE was part of the $7.2 billion deal, which makes logical sense given how entangled Bing Maps and HERE now are. Indeed Windows Phone 8 features “Nokia Maps,” not “Bing Maps.”

Prioleau believes that Nokia will now turn around and sell HERE. While that’s possible it’s much less clear to me. But the ensuing distraction and confusion resulting from this deal could adversely impact HERE’s momentum (e.g., HERE Auto).

On the investor conference call this morning Microsoft CEO Steve Ballmer emphasized the importance of what he called “geo-spatial systems” (maps) and their importance to the mobile experience. There was a very strong suggestion that Microsoft considered buying HERE but decided against it for undisclosed reasons.

Ballmer argued that HERE would now go on to become a dominant mapping platform and rival Google. The following is a HERE-related slide from the presentation made during the investor call this morning:

HERE slide

While there is a great deal of financial and strategic logic to the Nokia hardware acquisition it all comes down to whether Microsoft can now deliver products to the market that consumers want to buy. It has thus far not been able to do that in mobile. And for all the superlatives thrown around about Lumia phones and the greater opportunity Microsoft still has to climb out of a hole largely of its own making.

A final, interesting question to consider is about branding.

Microsoft is buying the Lumia brand and licensing the Nokia brand (for phones and mobile devices) for a term. That means there will be three or four brands: ASHA, Lumia, Nokia and Windows Phones. Microsoft will need to keep Windows Phones as a separate brand for third party OEMs (to the extent that they keep putting out Windows Phones) but it will need to create a more coherent brand around its new device lines.

Doing all of this successfully will be a huge challenge for Microsoft.

Nokia’s HERE mapping team will be talking about indoor location and mapping at the Place Conference on October 8.

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