Microsoft takes aim at Google with Nokia's mapping products

Microsoft wants to build a better mobile phone through its acquisition of Nokia’s mobile phone business. One way it hopes to do that? By improving its maps applications to better compete against Google’s.

“An effective alternative to Google,” and “more than one digital map of the world” is needed, Microsoft said in a presentation on the strategic rationale for the deal, which was posted to the company’s website.

Microsoft will acquire several new mapping and location services as part of its acquisition of Nokia’s Devices & Services business, announced Monday.

Chief among them are Nokia’s HERE Drive, HERE Maps (shown above) and HERE Transit. All three were designed to help people travel more efficiently and reduce carbon emissions in the process.

HERE Transport was geared toward public transportation, offering public transportation route planning in hundreds of cities around the world, according to the Nokia Apps & Services landing page.

HERE Maps and HERE Drive, meanwhile, were designed to help people in cars “plot the most optimal route to their destination,” Nokia said.

The three mapping apps were made available for all Windows 8 smartphones in July.

Microsoft’s Bing search engine already offers mapping services such as public transportation routes. And last year, Bing grew the number of indoor places indexed by its Venue Map product in the U.S. and internationally, through a partnership with Nokia.

Through the Nokia acquisition announced Monday, Microsoft “gets [the] flexibility to integrate HERE with other experiences,” the company said. Microsoft declined to comment on how exactly Nokia’s mapping services might be integrated into other Microsoft products, or which products.

The acquisition gives Microsoft rights equivalent to ownership for the HERE mapping apps, Microsoft said on its website, noting that Nokia will continue to improve the apps for other platforms.

“Geospatial” imagery and location services, and mapping, are “essential to integrate for mobile,” Microsoft said.

Google is a dominant player in mapping and location services. It is continually improving its Maps app too—most recently through adding real-time traffic reports. Those features and others came following the company’s acquisition of the crowdsourced mapping app developer Waze.

The U.S. Federal Trade Commission launched a probe in June into possible antitrust issues related to the Waze acquisition.

Google could not be immediately reached to comment on Microsoft’s mapping plans.

Apple is also looking to become a stronger competitor in mapping services. The company reportedly acquired app developer Embark late last month. Embark makes a mobile mapping app to help people navigate mass transit systems, similar to how Nokia’s HERE products work.

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Update: Microsoft to acquire Nokia's mobile phone business

By John Ribeiro, IDG News ServiceIDG News Service - BANGALORE - Microsoft is to acquire Nokia's Devices & Services business, which includes the smartphone and mobile phones businesses, and license the Finnish company's patents for a total of $7 billion in cash, the companies said Monday.

The Redmond, Washington, software company will pay €3.79 billion for "substantially all" of the Devices & Services business and €1.65 billion to license Nokia's patents at the close of the transaction.

Nokia CEO Stephen Elop will be coming back to Microsoft and lead an expanded devices team, Microsoft CEO Steve Ballmer said in an email to employees. Microsoft said it will draw on its overseas cash resources to fund the transaction.

"Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia's Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing," it said in a statement.

Nokia has been building smartphones around Microsoft's Windows Phone operating system in a bid to boost flagging market share, besides focusing on feature phones for emerging markets.

Following the transaction, Nokia plans to focus on its network infrastructure and services business called NSN, its HERE mapping and location services, and Advanced Technologies, focused on technology development and licensing. It will continue to own and maintain the Nokia brand but will license it to Microsoft for a 10-year period to use the brand on current mobile phones and some subsequently developed phones.

Risto Siilasmaa will take over as interim CEO for Nokia while continuing to serve as chairman of Nokia's board. He will have four direct reports: Michael Halbherr, executive vice president of HERE; Elop as executive vice president of Devices & Services; Timo Ihamuotila, Nokia CFO and interim president; and Jesper Ovesen, executive chairman of the NSN board of directors, Nokia said.

The Finnish company will continue to have its headquarters in Finland. About 32,000 people are expected to transfer to Microsoft at closing, including approximately 4,700 people in Finland. Nokia employed about 56,000 people in addition at the end of the second quarter of 2013.

Microsoft will also acquire Nokia's design team, manufacturing and assembly facilities around the world, and operations, sales, marketing and support teams, Ballmer wrote in his email to employees. Ballmer announced recently that he was retiring at some point in the next 12 months from the post of CEO of Microsoft. Elop has been cited in reports as a possible contender for the post.

As part of the transaction, Nokia will give Microsoft a 10 year non-exclusive license to its patents as of the time of the closing, and Microsoft will grant Nokia reciprocal rights related to HERE services. Microsoft will have the option to extend the mutual patent agreement to perpetuity.

Nokia reported a net loss in the second quarter, even as sales of its Lumia smartphones picked up to 7.4 million units. Net sales totalled €5.70 billion in the quarter, down 24% year-on-year.

The company also reported a net loss of €278 million, which was smaller than the year-earlier loss of €1.53 billion. Nokia had a 15.8% share of the mobile phone market in the second quarter to Samsung Electronics' 27.7% and Apple's 8.1%, according to research firm Strategy Analytics.

"This is a smart acquisition for Microsoft, and a good deal for both companies. We are receiving incredible talent, technology and IP. We've all seen the amazing work that Nokia and Microsoft have done together," Ballmer said in the email to employees.

Nokia decided to adopt Windows Phone as its principal smartphone strategy as part of a large deal with Microsoft in February 2011, which included collaboration on joint marketing initiatives and a shared development roadmap.

Success in phones is important to success in tablets, which in turn would help PCs, Microsoft said in presentation slides. Integration of hardware and software will help Microsoft offer competitive alternatives to Apple and Google.

Microsoft's getting into selling smartphones and feature phones may not go down well with some of its hardware partners that use Microsoft software, as they are used to dealing with Microsoft as a supplier of software, rather than as a competitor.

Its own recent bid to counter Apple and Samsung in the tablet market has not been very successful, and the company said in a regulatory filing with the U.S. Securities and Exchange Commission in July that its Surface tablet had earned revenue of $853 million in its fiscal year ended June 30. The company earlier took a charge for Surface RT inventory adjustments of approximately $900 million.

The transaction with Nokia is expected to close in the first quarter of 2014, subject to regulatory approvals and customary closing conditions. Microsoft will submit the proposed acquisition for approval in the E.U., U.S., China, India, Brazil, Russia, Canada and other countries.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com.

Reprinted with permission from IDG.net. Story copyright 2012 International Data Group. All rights reserved.

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Microsoft to acquire Nokia's devices business for $7.17 billion

Microsoft announced Monday night that it will purchase Nokia’s devices business in a deal that will bring the Lumia smartphone line—along with Nokia CEO Stephen Elop—under the Microsoft umbrella.

The deal has been valued at 5.44 million euro ($7.17 billion), wth 1.65 billion euro of that going to license Nokia’s patents. Microsoft will also provide Nokia an additional 1.5 million euro ($1.98 billion) in convertible notes that Nokia can exercise. Microsoft isn’t buying Nokia as a whole, as the Nokia Siemens Networks enterprise business, Nokia’s HERE brand, the office of the CTO, and Nokia’s patent portfolio are not direct components of the deal.

”One brand, united voice,” Microsoft said in a presentation packet explaining the deal.

The synergies of the aquisition are obvious. Elop led the Microsoft Business Division until 2010, at which point he became Nokia’s chief executive, forging deep ties with Microsoft, and almost totally committing his company to the Windows Phone platform. Elop will lead “an expanded Devices business” at Microsoft, the company said, and will report directly to soon-to-be-departing CEO Steve Ballmer. Julie Larson-Green, who currently leads the Devices and Studios business (which includes the Xbox One and Surface tablets) will report to Elop after the deal is expected to close in the first quarter of 2014.

The most important piece of the puzzle is Nokia’s phone business, including the Lumia brand. Nokia sold 7.4 million Lumia phones in the second quarter of 2013, and 53.7 million units overall. For now, Microsoft said that it would license the Nokia brand and use it with current Nokia phone products. Lumia, presumably, will fall under the Microsoft brand name.

”One brand, united voice,” Microsoft said in a presentation packet explaining the deal.

image: michael homnickThe Lumia 1020 and its stablemates are destined for Microsoft ownership.

Of course, the deal is a slap in the face to HTC (among other handset makers), which must now assume it will play permanent second fiddle to Nokia in the Windows Phone smartphone game. Indeed, the HTC 8X was a key hardware element of Microsoft’s Windows Phone 8 launch, but overall the Lumia name has become synonymous with Windows Phone. Overall, Windows Phone ranks third among smartphone platforms, with a tiny 3.2 percent in May.

Nevertheless, Microsoft’s Steve Ballmer, who roiled the waters when he unexpectedly said he would step down within a year’s time, painted the deal as a positive for the company.

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies,” Ballmer said in a statement. “Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

All told, approximately 32,000 Nokia employees are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide, Nokia said.

“For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO. “After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders.”

Microsoft has not been the only OS company to buy its way into the hardware market— Google bought Motorola in 2011 for about $40.5 billion, a deal suspected to be as much for Motorola’s enormous patent portfolio as for its hardware business. That much, at least, seems to be true: Motorola hadn’t released a phone until its update to the Droid line this summer, as well as the Moto X.

But with Nokia, Microsoft also gains a long-term patent licensing agreement with Qualcomm, as well as other licensing agreements. Nokia will retain its patent portfolio and will grant Microsoft a 10-year license to its patents at the time of the deal closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity, the company said. Microsoft will become a strategic licensee of the HERE platform, and will separately pay Nokia for a four-year license.

Microsoft said that it will continue to support the iPhone and Android platforms, but that it “cannot risk having Google or Apple foreclose app innovation, integration, distribution, or economics”.

”This is a smart acquisition for Microsoft, and a good deal for both companies,” Ballmer wrote in a note to employees. “We are receiving incredible talent, technology and IP. We’ve all seen the amazing work that Nokia and Microsoft have done together.  Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we expect a smooth transition and great execution.”

Microsoft plans to hold a conference call Tuesday morning to explain the deal to Wall Street analysts.

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