What Will Microsoft Do With Nokia’s Feature Phones?

There are many things curious about this deal. Particularly, the things Microsoft did get and the things they did not get. By not acquiring the totality of Nokia, Microsoft got a steep discount in order to acquire the parts they did. But looking over at the way the deal was structured, it is logical to assume that Microsoft did not have to include the feature phone business from Nokia and could have let that business run its course.

So the key question is what why did Microsoft include the feature phone business. Let’s explore some scenarios.

First, if you subscribe to the theory that Microsoft acquired Nokia because they were going to lose Nokia as a partner, either to Android or to bankruptcy, then it would make sense to not leave a bit of hardware business to Nokia to continue making devices that they can chose to switch to Android. The deal instead states that Nokia can not use the Nokia brand name on any device until the end of 2015. So technically, Nokia could again start making hardware in 2016 but can not use the Lumia name since Microsoft owns that as well. At the outset it seems unlikely that Nokia will make hardware again in the future. However, should things go south over the next few years with this deal with regards to the Nokia assets, name, brand, etc., the door is still open. But by absorbing the feature phone business, Microsoft ensures that by this time next year there are no Nokia Asha handsets running Android in emerging markets or elsewhere.

So what to do with it?

Nokia still sells a lot of feature phones. Even though it is declining, every quarter the industry still sells several hundred million feature phones. Last quarter over 200m feature phones were sold with 12-14% approximately carrying the Nokia brand.

Take a look at the chart below which shows global handset vendor market share by sales to end users.

Screen Shot 2013-09-04 at 3.09.20 PM

Although on a downward trend, Nokia still held 14% respectively, of all phones sold over the past two quarters. Again the vast percentage of those being non-smartphones like their Asha line.

Here is another chart showing global mobile phone OS usage share as measured by web usage.

Screen Shot 2013-09-04 at 3.08.06 PM

I bring up this chart for reason. Nokia’s Asha brand running the S40 operating system is practically a smart phone. It runs Java apps, has an app store, has a UI that feel smart phone like but few consider it a smartphone. This phone targeted emerging markets exclusively and strategically was the device that would be used to transition emerging markets from feature phones to Nokia smart phones.

By keeping this group Microsoft could simply bring Windows Phone to all hardware, including Asha, and keep the low-price points the same in those countries and within a few quarters garner double digit global market share for Windows Phone. Believe it or not many in these countries buying these low cost Android phones have no preference of OS yet. This is why I’m convinced in markets like India, Africa, and even parts of China if Microsoft just put Windows Phone on the very low end the would get market share.

Market share alone may not be enough to build the ecosystem out. I try to remind our readers that market share is fine but it is more important to have the right market share. It is yet to be seen if these low end consumer contribute any real value to ecosystem. But if Microsoft can get some of these customers early in their maturity cycle then it will at least be a start.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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