In a surprising move early Tuesday, Microsoft announced that it would be acquiring Nokia's devices and services division, effectively making the Finland-based phone maker a first-party hardware manufacturer for Windows Phone devices (and their related services). Stephen Elop will step aside as CEO of Nokia and return to Microsoft as head of its devices team — this all on the heels of the recent announcement that Steve Ballmer would step down as Microsoft CEO within the next 12 months.
The Verge had a chance to speak with Steve and Stephen — as well as Nokia board of directors chairman Risto Siilasmaa — about the massive transition. Ballmer was particularly talkative, though he sounded weary, either from jet lag or a very long month. However, the current CEO wouldn't give up details on whether Elop was a prime candidate for the top slot at the company (as many have speculated). "Our board is going through a process open to internal and external candidates. It's a process that they wanted well-known so they could consider everybody, internally and externally. Stephen Elop happens to be going from external to internal, but our board will consider everybody. They will do it in private — that's the right way for the board to conduct its business."
The deal was in place before Ballmer announced his retirement
According to Ballmer, the deal was in place before the public announcement of his plans to exit the company. "Before I announced my plans, shortly before, I called Risto because I wanted him to understand that the transaction was important to us despite my plans, that it was consistent with the strategy of Microsoft and our board. It wasn't my action, and I wanted them to know about it before we finalized this deal. I talked to Stephen Elop about it, everybody remained enthused about the deal and about Stephen joining Microsoft, so that's all happening, and independently our board will go through with the succession activity."
On the transition itself, Ballmer said he felt this was all part of a longer plan, hinting that perhaps the first few years of a tight partnership with Nokia were a trial run for the deal today:
"I wouldn't say this was always in the cards. Over the last few years we have thought about our possibilities and strategic options to make sure we had success in phones. I would say I was going through a fairly diligent examination of that at about the time Nokia decided to take a look at opportunities two and a half plus years ago ... And we leapt at the opportunity to form a strategic partnership, we invested in that partnership, as has been well documented. We love the partnership.
"And yet by the early part of this year it was clear to me that perhaps acquisition would be a way to accelerate. I called Risto right after the first of the year sometime in January, early February. We met at Mobile World Congress. He wanted to make sure we exhausted all possibilities since we were going to be partners in any event, whether we did a deal like this or had a variety of other modifications to our operating partnership. I think that was a valuable exercise in terms of really identifying what are the key things for us to do to really accelerate our partnership.
"And I think we are better in announcing this deal on both sides for having gone through that exercise. But ultimately this is where we landed."
Ballmer added that the company is not just interested in the hardware business, but deeply invested in Nokia's services as well. "People will focus in on the phone side. I think it's as important that we were able open up a set of innovation possibilities, working with Here location services — which we are not acquiring. But the way in which we formed a deal where we could do more innovation around building off of the great core technology and data assets at Here is also an important part of the deal today. We look forward to being one of the big customers of Here.
"Nokia will be a company that goes on, and is in the business of network infrastructure, mapping, advanced technologies. But the team that we acquire from Nokia … Stephen will lead the Microsoft devices efforts and the Windows Phone will be the anchor tenant in terms of volume of our first-party hardware. And of course that’s the Lumia product line."
"We're not naive about the amount of work that we have in front of us."
It's unclear how ownership of Nokia's hardware division will allow Microsoft further agency or purchase when it comes to gaining ground in the phone market, but Ballmer clearly thinks the acquisition makes the process simpler — and can lead to deeper market penetration. "I think we have done good work. We're not naïve about the amount of work that we have in front of us. The key is to drive volumes. Driving volumes will activate the software and the hardware ecosystem. We do see an ability to speed our agility in hardware and software innovation. We do think that making the brand and the product line simpler and easier to acquire and being able to invest with greater agility should do a lot to help us continue to improve our market-share and position, which certainly will help our apps."
Ballmer even lightly broached the topic of a struggling ecosystem on the software side. "And we do know and are focused in on, in every way, shape and form, addressing both the app side of the ecosystem as well as the operators, with whom Nokia has actually build phenomenal relationships. I think they, so far, have been uniformly enthusiastic about our ability as one company to invest even more successfully in Windows Phone."
"We actually have an opportunity to create better opportunities for OEMS."
As to whether this move threatens partners that Microsoft has been working with in the phone space, Ballmer was predictably upbeat — though it's hard to imagine HTC and Samsung are feeling particularly warm about their Windows Phone offerings at the moment. "We actually have an opportunity to create better opportunities for OEMS," Ballmer said. "The number one thing that it takes to create opportunities for OEMs is a large market. And our first party in phones will blaze the trail, and perhaps as importantly having phone be a healthy part of the Windows ecosystem will help the OEMs, the many OEMs we have who are focused on tablets, PCs, and All-In-Ones, etc."
"So both on the phone side, and it particularly helps our OEMS on the tablet and PC side."
Whether or not this ultimately helps Microsoft? Well, that's a drama yet to play out. But Nokia stock is trading up over 45 percent in Helsinki a few hours after the acquisition was announced.