Microsoft's planned acquisition of Nokia's handset division is designed to bolster the software company's position as a hardware manufacturer and solidify a mobile platform for its flagship Windows operating system. But the move may also boost the tech giant's payments aspirations.
A close integration of Microsofts assets with Nokia mobile devices could mean a more comprehensive product offering as mobile devices brings together consumers' lives at work, home and on the go, says Michelle Evans, a consumer finance analyst at Euromonitor International.
"All of this also could extend to financial services and payments offerings, too, as Microsoft now has the potential to provide consumers with a fully integrated financial services experience," Evans told PaymentsSource in an email. "Conceivably, the consumer could easily jump from budgeting on their home laptop, to paying bills on their tablets, to paying for purchases at a POS terminal from their mobile device as the software becomes fully integrated across devices."
If the $7.16 billion deal is approved by regulators and consummated, Redmond, Wash.-based Microsoft will acquire Nokias smartphone and mobile phone businesses, device design team, and its manufacturing and assembly facilities. In addition, Microsoft will license Espoo, Finland-based Nokias patent portfolio and use of its mapping services.
Nokia has been Microsoft's strongest mobile technology ally since it adopted Windows as its primary operating system in 2011. However, the operating system is also used on other hardware manufacturers' devices. Meanwhile, the Surface tablets that Microsoft released earlier this year were the company's first attempts at manufacturing its own mobile devices, with the tablets debuting alongside devices built by other manufacturers.
Working with a customized version of VeriFone's Payware technology, Microsoft revamped the checkout process at its more than 75 retail stores in North America with a mobile point of sale system using Nokia Lumia 900 devices running the Windows Phone 7 operating system. VeriFone went on to later make the technology available to other customers, and it's expected to bring a new Windows 8-based tablet point of sale system out of pilot testing sometime in September.
Given Microsoft's long history with partners, it's unlikely to follow Apple's lead and only allow its platform to be used on Nokia devices, Adrian Drozd, European research director for information and communication technologies at Frost & Sullivan, wrote in commentary Tuesday.
"In order to grow market share, Microsoft will need to keep Samsung and HTC on board, and will need to alleviate any concerns that emerge as a result of the acquisition. Microsoft can use Nokia to really drive innovation on the platform, as Google is doing with Motorola. However, in order to succeed it will need to ensure it maintains good relationships with its partners."
The Windows Phone operating system posted the largest year-over-year increase among the top five smartphone platforms during the second quarter of 2013, reinforcing its position as the third-ranked smartphone operating system, according to International Data Corp. Nokia handsets accounted for 81.6% of all Windows Phone smartphone shipments during 2Q13, IDC adds.
"But beyond Nokia, Windows Phone remained a secondary option for other vendors, many of which have concentrated on Android," the company said in its Worldwide Quarterly Mobile Phone Tracker report.
And with less than 4% market share of mobile operating systems, Microsoft has a long way to go to encourage broader adoption of its Windows Phone platform and ultimately, establish itself as a viable competitor to Google's Android and Apple's iOS operating systems. Developing new payments innovations could help in those efforts.
"Aspiring mobile payment entrants will have to provide a product that affords the same or higher level of security, convenience and incentives than the traditional products already available to the market," says Evans. "The new project has to be intrinsically better, not just different, if it hopes to gain a foothold in the industry."
Microsoft has been active in a number of payments-related efforts, including a Near Field Communication-based mobile wallet for loyalty cards, tickets and payments, and a partnership with mobile carrier billing provider Fortumo. Microsoft also recently joined Eurosmart, the Belgium-based association that develops security standards for smart cards, terminals and other electronic applications.
Microsoft's mobile wallet lets consumers make bank transfers, check into flights and buy tickets from their mobile devices. Noting the similarities to Apple's Passbook, Evans adds that Microsofts mobile wallet "goes a step further by also offering debit and credit payment at a POS terminal."
"Microsofts mobile wallet has the potential to provide the consumer with a seamless consumer payment experience that could be attractive for early adopters The problem is that phones containing the Microsoft operating system woefully lag behind those devices sold with the Android and iOS systems, so consumers simply dont have this option in their hands," she says.
In detailing the strategic rationale for acquiring Nokia, a Microsoft presentation notes the geospatial-based opportunities in combining Nokia's mapping data with other data services. It's an interesting prospect, given that Microsoft is also said to be competing with American Express for an equity stake in Foursquare Labs, creators of the popular location-based mobile app.
While the acquisition would foster an environment ripe for mobile payments innovation, it may be some time before the fruits of those labors reach end-users. Google's acquisition of Motorola Mobility in August 2011 led to similar speculation that the search engine company was strengthening its position in mobile payments, but Google Wallet has yet to gain widespread use and has even recently seen some of its features eliminated.
And perhaps in a sign that Microsoft's competitors aren't resting on their laurels, the news of Nokia's acquisition comes on the same day that Apple formally announced a Sept. 10 event where it's anticipated that the next version of the iPhone will be unveiled.