Microsoft 'paid Nokia $1bn' for WinPho 7 deal

It's an ad, ad, ad, ad world

Nokia's jaw-dropping decision to adopt Windows Phone 7 as its handset operating system was juiced by an equally jaw-dropping payout from Microsoft of over $1bn, according to a report citing people with knowledge of the deal.

Bloomberg reports that Redmond will ship that $1bn to Espoo, Finland, in support of Nokia's efforts to "promote and develop" smartphones based on Microsoft's as-yet-unloved mobile operating system in a deal that's set for "over five years."

And speaking of unloved, Bloomberg also notes that Nokia's shares have shed over a quarter of their value since the announcement of the WinPho 7 deal less than one month ago.

The sources also said that Nokia will pay Microsoft a licensing fee for each copy of the operating system it installs on its handsets, but that the $1bn-plus payout will begin before any of those fees cross the pond on their way to Redmond.

In addition, one of the chatty tipsters noted that the payout was a bribe inducement to keep Nokia from selecting Android as its go-to mobile OS. Looking at it another way, a source said, the choice of WinPho 7 will give Nokia the opportunity to "stand out" from the crowd of Android phones increasingly flooding the market.

That assertion, when you think about it for a moment, is an odd bit of reasoning: choosing an operating system on the virtues of it being comparatively unpopular is hardly a slam-dunk bit of marketing genius.

Two other tidbits in the sources' tattling make more sense, however. One is that as part of the deal, Microsoft will get access to Nokia's patent portfolio, and the other is that Redmond will gain the right to leverage Nokia's Navteq mapping technology to support location-based advertising.

After all – as Google has amply proven – it's an ad, ad, ad, ad world, and a collaborative location-based advertising effort could bring billions in revenues to both Nokia and Microsoft over the course of the deal.

Microsoft's CFO Peter Klein certainly thinks the deal was worth a cool billion. Speaking at the ISI Annual Conference shortly after the Nokia deal was announced, he said: "Certainly this deal is a long-term, multifaceted deal which has lots of commitments by both companies, and there's going to be search revenue and there's going to be royalty [revenue]. There's going to be joint go-to-market opportunities. And obviously both parties are aligned, and we think this has great long-term financial opportunities."

Perhaps so. But as with any such mega-deals between industry heavyweights, implementation is all – and if Bloomberg's sources are correct, Nokia has a $1bn head start. ®