Stephen Elop and Steve Ballmer at the announcement of the Nokia-Microsoft tie-up

Microsoft has reportedly paid Nokia more than $1bn to run with its Windows Phone 7 platform. News of the recent deal between the pair had left many observers pondering the wisdom of Nokia’s decision to effectively become a one-trick pony on the platform front, but if the reports from Bloomberg are accurate, it’s a little easier to understand why the OEM would be prepared to take a risk with WP7.

Under the terms of the agreement, the final version of which has yet to be signed, Nokia will pay a fee for each copy of W7 it ships on its phones. According to observers, this will allow the manufacturer to cut costs on software research and development. For Microsoft, Nokia represents an opportunity to scale in a market where many feel they’ve already lost the race against Android and Apple. Interestingly, the deal – which is expected to last five years – is reported to give Microsoft access to Nokia patents for the duration of the agreement, putting an interesting slant on observations that the sum of money involved is indicative purely of Redmond’s desperation in the face on Android’s growth.

Nokia shares have dropped by 26 per cent since the announcement of the Microsoft deal while operating margins have reportedly shrunk to under five per cent from almost 20 per cent ten years ago. Microsoft, meanwhile, is under increasing pressure to score in the mobile space in the face of massive competition from Apple and Google. The deal with Nokia will allow Redmond to offer potentially lucrative location-based services through the manufacturer’s Navteq mapping products.

To date, Microsoft’s efforts to get in on the services act in a meaningful way has been less than impressive. This week, it admitted that its new Deals social shopping service doesn’t work on Windows Phone 7, even though it will run on both Android and Apple devices. Since launching late last year, WP7 has received good reviews but has so far made little impact on the market. Recent figures give it just 8 per cent market share in the US compared with top-placed Android, which has over 31 per cent.


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