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Was Nokia's Android Phone Behind Microsoft Buyout?
Posted September 16, 2013
Was Nokia's Android Phone Behind Microsoft Buyout?
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By Barry Levine. Updated September 16, 2013 10:05AM

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Did Microsoft buy Nokia to keep that phone maker from moving to the Android platform? That is the question being raised again following confirmation that the Finnish company had developed an Android-based Lumia handset.

According to a story in the New York Times on Friday, an internal Nokia team had such a phone operational well before the two companies began negotiating the acquisition, which resulted in the $7.2 billion deal that was announced earlier this month. The Times cites two people "briefed on the effort" who chose to remain anonymous because the project had been confidential. The sources also told the newspaper that Microsoft executives were aware of Nokia's Android project.

It's not surprising that Nokia had an Android development project in the works, Current Analysis analyst Avi Greengart told NewsFactor. At the time, he pointed out, "Nokia was considering its options, since it knew that Symbian was dying." He added that it had invested in its own operating system, MeeGo, and wondered "whether it should further invest in that effort," or move to an established operating system.

Just Another Android Vendor

Greengart noted that when the latter choice was made, the question then became whether to adopt Android or Windows Phone, and Nokia "conducted a little bake-off." He added that if Nokia had gone with the open-source Android, "they would have competed with Samsung, and they would have been just another Android vendor." But, by going with Windows Phone, he said, "they thought they could catalyze the ecosystem."

Microsoft's recent purchase, Greengart said, came two years later, when the key question was not whether "Nokia should move away from Windows Phone phones, but if it should get out of the phone business entirely" because it was losing so much money.

A data point in support of that argument is the recent loan of nearly $2 billion from Microsoft to Nokia in the form of bonds. That loan was made even though the acquisition deal has not yet been finalized, and indicates that Nokia is very much in need of cash.

Option to Exit

Both Nokia and Microsoft have declined to comment on the Times' story. Nokia adopted Windows Phone as its phone platform in 2011, but had retained an option to get out of that commitment by the end of next year. If it had done so, the obvious choice -- if it remained in phones -- would have been to move to Google's Android operating system.

But, one way or the other, losing Nokia's design, manufacturing and distribution ecosystem would have been a dagger to the heart of Microsoft's plans to gain a firm footing in the mobile phone space, given that Nokia sells over 80 percent of all Windows Phone handsets.

Greengart said Microsoft "recognized that if it didn't buy Nokia's business, it probably would not have many Windows Phone devices on the market."

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