Microsoft is Said to Pay Nokia Over $1 Billion in Windows Phone Deal

Nokia’s jaw-dropping decision to adopt Windows Phone 7 as its handset operating system was juiced by an equally jaw-dropping payout from Microsoft of over $1 Billion.

Nokia CEO Stephen Elop (left) and Microsoft CEO Steve Ballmer address the Senior Leadership Event before they announce plans for a broad strategic partnership to build a new global mobile ecosystem. Nokia and Microsoft plan to form a broad strategic partnership that would use their complementary strengths and expertise to create a new global mobile ecosystem. Photo: Nokia

While speculation into the Nokia-Microsoft merger has suggested that a large payoff would be headed from Redmond to Espoo, little is known about the deal’s exact price tag. Until now.

According to Bloomberg’s Businessweek, Microsoft could pay mobile phone maker Nokia $1 Billion under the terms of the companies’ deal that’s set for ‘over five years’ to work closely together on Windows Phone mobile operating system.

Reports confirm, however, Nokia CEO Stephen Elop’s previous statements that Nokia will in turn pay Microsoft a licence to use the Windows Phone software.

Bloomberg also reports that Nokia will offset licencing costs by cutting its own $2 billion research and development budget.

And speaking of unloved, Bloomberg also notes that Nokia’s shares have shed over a quarter of their value since the announcement of the Windows Phone 7 deal less than one month ago.

Although the new deal has still not yet been signed, the source reports that some of Microsoft’s money will be paid upfront, while Nokia will begin to pay licence fees once phones are being sold with Windows Phone software. Microsoft is also set to pay Nokia for the use of its patent portfolio.

Microsoft spokeswoman Melissa Havel declined to comment on the specifics of the agreement. Laurie Armstrong, a spokeswoman for Nokia, said the final contract hasn’t been signed and the company will share further details when they are complete.

Speaking at the launch Mr Elop said one reason he signed up with Microsoft rather than Google’s Android mobile phone operating system was that it allowed Nokia to extract value from its skills in mapping technology. Nokia bought Navteq, a mapping firm, in 2007, and its ‘Ovi Maps’ application has been one of the firm’s few major successes.

In addition, one of the chatty tipsters noted that the choice of Windows Phone Deal will give Nokia the opportunity to “stand out” from the crowd of Android phones increasingly flooding the mobile market.

That assertion, when you think about it for a moment, is an odd bit of reasoning: choosing an operating system on the virtues of it being comparatively unpopular is hardly a slam-dunk bit of marketing genius.

Two other tidbits in the sources’ tattling make more sense, however. One is that as part of the deal, Microsoft will get access to Nokia’s patent portfolio, and the other is that Redmond-based company will gain the right to leverage Nokia’s Navteq mapping technology to support location-based advertising.

After all – as Google has amply proven – it’s an ‘Ad World,’ and a collaborative location-based advertising effort could bring billions in revenues to both Nokia and Microsoft over the course of the deal.

Peter Klein, Microsoft’s chief financial officer, told an investor conference last week that the deal was “a very mutually beneficial deal economically for both companies”. Mr Elop has repeatedly claimed that partnering with Microsoft will add “billions of dollars” to Nokia’s value. [Business Week via CNET]

Share this article

We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Coinspeaker Ltd.