According to a report in Bloomberg, Microsoft has paid Nokia $1 billion as part of the deal between the two companies, and this will be paid out over the five years that the two are partnering to produce Windows Phone 7 based smartphones, with Nokia having abandoned Symbian as a platform.
However, as Nokia will also pay a fee of $15 to Microsoft for each WP7 phone sold, it looks like Microsoft could easily recover their investment in less than a year from the first devices hitting the market. So, does this mean that Nokia has undervalued their side of the deal?
Perhaps yes, and perhaps no. Symbian was largely accepted as a failing platform, and Nokia has been losing share in the high end smartphones market for a long time now, first to Apple and RIM, and now, heavily, to Android. The tie-up with Microsoft was the only alternative to going Android, something Stephen Elop has been quite vehemently against.
Eric Schmidt had said in the past that Google tried hard to persuade Nokia to switch to Android, but was it just money that was able to swing the deal, or was Ballmer able to offer a significant amount of money to sweeten the deal? By going with the partnership, the two companies are getting a seat back at the table with Android and iOS, and it’s a table that they practically built themselves, so it’s understandable that they want to do what it takes.
For both Microsoft and Nokia, the $1 billion isn’t really about the money, it’s just a way of papering over the cracks and settling all the differences so that they can get on with the actual business of rebuilding both Nokia and Windows Phone, so that Nokia-Microsoft can actual become a viable entity in the mobile space again.