Microsoft Seeding Windows Phone 7 On Nokia With A Billion Dollars Up Front

The strategic partnership between Microsoft and Nokia, announced in February, was regarded as auspicious by some and desperate by others, yet some specifics of the agreement were largely a mystery until today. Most notably, Microsoft was rumored to have led the partnership with hundreds of millions of dollars, outbidding Google (!) to woo the once-magnificent Finnish giant. Considering Google’s sights are increasingly set on the low-cost phone market, it’s interesting that they didn’t just write a blank check. Or maybe Nokia didn’t want to appear to be flattened underneath the Android machine. Either way, Microsoft won out in the end, and the settlement paid has been reported by Bloomberg to be over a billion dollars.

Considering the sums involved in control of even a small segment of the mobile world, a billion doesn’t even seem like much. But it is, of course, a billion dollars. The question is: even at that price, did Nokia sell itself short?

Nokia still has an impressive amount of brand strength, though nonstarters MeeGo and Symbian 3 have made that remaining brand an exceedingly precious resource. To be sure, as was discussed after the partnership was announced, a complete outsourcing of the OS to Microsoft sacrifices some of their brand, but in the end Nokia needed a competitive product, something they haven’t had for years. Strange, then, that they went to Microsoft, whose own mobile brand has been practically effaced from the earth, instead of the all-conquering Android. I’m sure they had their reasons. A billion of them, actually.

The upfront price being paid by Microsoft is an investment by a still-rich company that could pay itself off fairly quickly. A billion dollars is a lot of money, but it’s defraying the cost of R&D at Nokia, who then will pay Microsoft a license fee for every copy of Windows Phone 7 they ship. The agreement, according to the source (who cautions that it is not finalized), runs for five years.

Think about it. A billion dollars for a five-year partnership with Nokia? I think Microsoft is taking Nokia to school here.

Yet it’s a good thing for both, since by hitching their ships together, only one has to turn around to make it worth it for the other. On the other hand, the investment is lopsided in that if Nokia keeps going down, it’s still a coup for Microsoft, who will at the very least have shipped a few million more WP7 handsets than they would have otherwise. Microsoft loves to spend money on presence like that, and this billion-dollar purchase, while bigger than others it has made, is just the latest in a long line of similar moves.

There are some other provisions, less clear from this source, suggesting Microsoft is acquiring a number of patents and using some Nokia services in WP7. I’m afraid with Bing, Live, and Ovi, there might be too many cooks in the kitchen, but they’ve got time to work that out.

I’m hopeful, personally — not to say optimistic. Nokia just has so much inertia, and their mobile vision has always been so much different from Microsoft’s (both from WinMo and WP7), that I fear the product created will be a sort of worst-of-both-worlds monster. But with the wolves shooed from the door by this cash infusion and a little fire in the veins courtesy of executive mea culpas, they might just make something exciting happen. And if it doesn’t work out, hey, I can think of worse ways to spend a billion dollars.