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Microsoft Deal for Nokia Cannot Hurt Apple

Douglas A. McIntyre

The primary speculation about Microsoft Corp.'s (MSFT) deal to buy Nokia Corp.'s (NOK) handset business is that it gives the huge software company a building block to catch, or at least replicate, the success of Apple Inc. (AAPL). Apple's rise has been led by the launch and upgrades of its spectacularly successful iPhone and iPad. Apple churns out new versions of these products at least once a year. The latest will be released in just a few days. The Apple iOS has been successful as well, heralded as easy to use and nearly bug-free. Microsoft faces the problem that, even if it can build attractive smartphones with wonderful features and functions, it has to enter a market that Apple and Samsung have dominated for years.

Microsoft and Nokia are up against the same barriers that have halted the advance of HTC, Motorola, Sony Corp. (SNE) and LG, the largest competitors to Samsung and Apple. Each loses large sums of money attacking the market. Another group of companies that include PC giant Lenovo also try to grab share. Apple and Samsung have portions of many markets that are well above two-thirds. In the United States, according to research firm comScore, Apple and Samsung had nearly 64% of the market in June. Those figures for both firms are rising. Additionally, Samsung products run Google Inc.'s (GOOG) Android OS, which comScore shows with a 52% market share among operating systems used in smartphones sold in America.

Apple and Samsung are among the best examples of what business school professors call the "first mover" advantage. However, not only were they early to market. Their products remain the best in the market, as far as consumers are concerned.

The success of Apple and Samsung help them in several areas. First, the sales of each support huge marketing budgets, as if they needed that to afford advertising campaigns, given the strength of their balance sheets. Each also dominates shelf space in telecom wireless stores and consumer electronic retail outlets. There is no reason for AT&T Inc. (NYSE: T) or Best Buy Co. Inc. (BBY) to move other brands into their places. Apple and Samsung drive sales. The promotion of new products is risky.

Apple pressed into the smartphone and tablet markets when there were no competitors. In essence, they created a market that did not exist when the first iPhone was released in mid-2007. Six years later, Microsoft has no chance of pushing into a sector that already is crowded with competition.