Microsoft Pays Nokia $1bn, Share and Shares Fall

The rumours surrounding Microsoft’s alliance with former heavyweight champ Nokia suggested a large cash sweetener, and that particular part of the rumour has been confirmed by a Bloomberg report.

The decision by the Finnish giant to adopt the embryonic Windows Phone 7 took many by surprise and the reception the decision received was mixed. Some called the decision a “coalition of the losers” while others suggested that faced with the alternative of becoming another Android handset seller moving to WinPho7 was the lesser of two evils.

Nokia will pay Microsoft a license fee for each handset it ships, but how many handsets will need to be sold before Microsoft recovers it’s $1bn isn’t known.

The confirmation that Microsoft paid Nokia to use it’s operating system comes at the same time as figures from ComScore that show Microsoft’s US smartphone market share continuing to slide.

MS went from 9.7% in the quarter to October 2010 to 8% in the quarter to January 2011, Windows Phone 7 handsets went on sale in November. These figures back up our own figures from the UK market in showing that the new OS hasn’t slowed the decline.

The Bloomberg report also mentions that Nokia shares  have lost a quarter of their value since the announcement of their partnership with Microsoft.

Windows Phone 7 has had the odds firmly stacked against it; it’s come along two years late to a mature market and is up against Android – who’s market share has jumped up 7.7% in the same period.

Windows Phone 7 has been widely described as a beta product in the tech press, and it’s clearly still in it’s infancy, but in the face of slipping market share it’s plain to see that the Microsoft/Nokia partnership has to produce something ground breaking, and soon.

It’s entirely possible that they will do just that. Both companies have pedigree, in it’s heyday Nokia was head and shoulders above the competition and made solid, feature rich handsets. Microsoft – love them or hate them – bought the computer desk top to the masses, and against all expectations at the time they took a serious chunk of the games console market. More recently they released the hugely innovative Xbox Kinect.

This partnership is a huge risk for both companies, and it’s one that will either produce something stunning or disappear without a trace, with their current position and the strength of the competition a mediocre result just won’t do.

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