Here’s Why Microsoft Buying Nokia Might Actually Make Sense

Old Nokias

Today’s wacky mobile industry rumour is that Microsoft could be interested in buying Nokia’s mobile phone division, on the heels of the companies’ Windows Phone 7 partnership.

Now, this is pretty out-there. The deal would be huge — Nokia’s market cap is $32 billion — and it would be a big shift in Microsoft’s focus. So it’s easy to laugh this off as a big, silly rumour.

But there’s one reason why Microsoft potentially buying Nokia actually makes sense.

Because it’s the only way that Microsoft could ever make enough money off Windows phones to matter.

Apple, HTC, and RIM have shown that when a smartphone company is performing well, there is a healthy amount of profit to be made. Apple likely makes a few hundred dollars in profit per iPhone sold, for example.

Meanwhile, Microsoft has been trying to use the Windows model for mobile operating systems for the last several years, and that just doesn’t really work in mobile. The per-device licence fees are just too small — likely less than $15 per phone — and don’t add up to big-enough numbers to make much of a difference, especially for a company as big as Microsoft.

If Microsoft did buy Nokia, and could somehow, miraculously, figure out a near-Apple-like quality of hardware and software integration, and sell a bunch of phones, there’s quite a lot of profit that can be made. (Especially if they can do something creative with Skype, which Microsoft bought last week.)

And that’s why Microsoft may want to own the whole thing, and not just sell Windows Phone 7 licenses to Nokia, who makes the real profit on the device sale.

(Yes, this could potentially alienate other potential partners, like HTC, Samsung, etc. But if it’s not going to get Android-like distribution from those companies, that’s a risk worth taking if Microsoft can make all of the profits from Nokia smartphone sales. Meanwhile, a Nokia-Microsoft deal would almost certainly end the potential for Microsoft to acquire RIM.)

Again, this is way out there, and would be very risky. But it’s not as crazy as it sounds.

Read: How To Use Your iPhone On Vacation (The Right Way!)