Tuesday, October 02, 2007

Nokia's content gamble

Nokia announced yesterday that it was spending a cool 8 billion to acquire Navteq, a provider of digital maps and navigation solutions. This is just part of a shopping spree that has seen the Finnish giant buy a mobile ad firm and a provider of navigation software.

The deal will only make sense if the value added to Nokia's phones and mobile services derived from the Navteq purchase outweigh the value destruction resulting from clients (existing and potential) turning away from Navteq as a Nokia subsidiary. In other words, I doubt that Motorola, Samsung or Sony Ericsson will be very enthusiastic about purchasing Navteq's maps from now on (Gamin, a leading GPS device maker, saw its stock drop sharply after the announcement).

I don't have an answer. However, these hardware/software synergies are often elusive. Just ask Sony how the Columbia Pictures acquisition worked out. But they're not doomed to failure, as the IPod/ITunes combo has shown, although ITunes is more a distribution platform than content per se.

Having said this, there is a wilder, intriguing possibility. Maybe Nokia wants to reinvent itself as a mobile services and software firm, eventually selling its hardware biz. This is not as crazy as it sounds. Competition in the handset market is intense and all firms have seen wild variations in their market share. Services are a higher margin, more stable business. And Nokia has undergone a radical transformation before (it used to be mainly a manufacturer of forest and rubber products).