Who wins in the Microsoft-Nokia $1 billion deal?

If Windows Phone goes down the tubes in this mobile alliance, Microsoft loses a few hundred million dollars but Nokia loses the farm

A recent report in Bloomberg quotes two company insiders as saying that Microsoft and Nokia have reached a financial arrangement to go along with their highly publicized announcement that Nokia will rely on Windows Phone as its primary smartphone platform.

According to the two unnamed sources, Microsoft will pay Nokia more than $1 billion to "promote and develop" Windows-based phones. The timing of the payments isn't clear, although reportedly "some of the payment to Nokia would be made before the company starts selling the phones."

In addition:

  • Nokia will pay Microsoft a royalty for each phone sold. (I've seen estimates of between $10 and $15 per phone.)
  • Microsoft will use Nokia's Navteq mapping software and will have access to some of Nokia's patents.
  • Microsoft and Nokia will split revenue from advertising, search, and other services.

According to the report, the agreement will run for more than five years and isn't exclusive. Nokia will continue to sell its cash-cow Symbian phones, which do well in less-advanced markets, and it still expects to ship a MeeGo handset later this year; in fact, Nokia just appointed a new head of the MeeGo effort. Microsoft will continue to sell Windows Phone to other phone manufacturers -- if it can.

Timing's crucial. The current expectation is that Microsoft will ship Windows Phone "Mango" late this year. Apparently Nokia won't ship a Windows Phone handset until Windows Phone "Mango" hits the stands.

Of course, all of this is playing out against the debacle of Microsoft's continued problems delivering even the simplest of patches to Windows Phone 7.

Reading between the lines, it's apparent that Google wouldn't pony up a billion bucks to buy Nokia's business. Nokia didn't want to become a "me too" Android player. Microsoft needed a well-respected name to churn out handsets. The pieces fit rather predictably.

Short term, Nokia's coffers go ka-ching. Nokia, which rules the near-commodity-level handset market worldwide, can fire most of its R&D force: Symbian developers get released by the truckload and nobody expects much (if any) MeeGo hiring. Nokia's R&D expenses will approach zero. Longer term, Nokia has a fighting chance to join the smartphone parade -- if Windows Phone succeeds.

Short term, Microsoft loses some cash. (The company definitely has a few greenbacks lying around, but nobody knows how much.) Longer term, Microsoft has for all intents and purposes bought itself a manufacturing facility and a brand. It remains to be seen if the company can do anything with it, and the current indications are not positive.

If Windows Phone goes down the tubes, Microsoft loses a few hundred million but Nokia loses the farm.

If Windows Phone succeeds, Microsoft makes a mint and Nokians keep their jobs -- some of them, anyway.

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