More Proof Everyone Wants to Be Like Applehttp://www.fool.com/investing/general/2013/09/09/more-proof-everyone-wants-to-be-like-apple.aspx Adam Levy
September 9, 2013
News of Microsoft's (NASDAQ: MSFT) acquisition of Nokia's (NYSE: NOK) mobile device division early this week has dominated headlines. Was it a good idea? A bad idea? Analyst downgrades. Should Nokia investors take the opportunity to sell shares? While this is all fascinating stuff for a technology and finance nerd like myself, I'd rather examine what it means in relation to a larger trend: More companies are becoming more like Apple (NASDAQ: AAPL).
Microsoft in mobile
Now, with the PC market shrinking, and the mobile market growing extraordinarily quickly, Microsoft is making a hard push to stay relevant in the age of mobile devices. With the acquisition of Nokia's device business, it now has a vertically integrated mobile strategy -- it makes the software and the hardware -- just like Apple. The question it faces now, though, is will other manufacturers shy away from manufacturing Windows Phones due to Microsoft's new presence in the hardware business?
When Google got into hardware
Microsoft doesn't benefit from either of these. Microsoft will absorb Nokia's phone business instead of keeping it a separate entity. Most of Windows' mobile partners don't really support the platform -- it's just not a big money maker compared to Android. Nokia was the only manufacturer producing leading-edge technology for the Windows Phone platform. Other manufacturers are taking six-month old Android models and adapting them for Windows.
Now, there's almost no incentive for consumers to buy a Windows Phone from anyone but Microsoft, thus no incentive for other manufacturers to support the platform. Until Microsoft can grow support for the platform on the software side (apps), it won't see great support on the hardware side. Therefore, it's likely Microsoft will favor its own manufacturing operations over its partners, who offer the platform little support.
Meanwhile, Google provides equal support to all of its partners, including Motorola, and its partners support it right back. Perhaps adopting a strategy similar to Google's, where it makes apps for all platforms, is Microsoft's best bet to get people into its mobile ecosystem. After all, it's biggest strength is as a software maker.
Why everyone wants to be Apple
Apple's strategy may have been about controlling the user experience, but it also turned out to be a great business strategy. Creating a popular device -- or three -- means huge revenue and profits for the company compared to a licensing strategy.
Microsoft intends to emulate the significant profit and revenue growth Apple saw with its own devices. Where it currently grosses less than $10 per Windows Phone device sold, Microsoft executives believe the acquisition will allow it to generate more than $40 per phone it manufactures and sells.
Of course, that all depends on Microsoft being able to grow its market share significantly in the next few years. It's estimated Microsoft will have to sell 50 million units just to break even. Nokia's current run rate is less than 30 million after selling 7.4 milli