Microsoft, Amazon To Benefit From Nokia's Desti Purchase

BMI View: Location- and personalisation-based services are key drivers of growth in the digital economy and the potential of such services has often been hampered by the limitations of devices accessing third-party services. The success of Apple's Siri voice-driven search platform and the potential of Google Glass' voice-powered user interface show how successful vertical integration of proprietary apps and devices can be. Nokia's acquisition of Desti therefore poses significant opportunities for partner Microsoft as the latter looks to rebuild Windows' share of the smart device market.

Nokia has acquired Desti to bolster its mapping business, HERE. The value of the deal was not disclosed, but Desti's pedigree suggests a considerable sum was involved. Desti's roots are in SRI International, the technology company that developed the Siri voice recognition platform bought by Apple. Desti notes that the technology being acquired by Nokia is based on the Virtual Personal Assistant (VPA) technology developed in the wake of Siri.

Nokia's HERE mapping and location information business is small relative to its network infrastructure and intellectual property businesses and, following the divestiture of the handsets business to Microsoft earlier in 2014, BMI questioned the long-term value of HERE to Nokia. Microsoft has a five-year licence to utilise HERE applications in its devices and its software platforms but has made little overt use of the technology so far. Desti's artificial intelligence and natural language processing technology enables contextual search, potentially adding considerable value to HERE and perhaps tempting more consumers to purchase Windows-powered devices.

HERE There Be... Shopping Baskets?
Nokia Here Quarterly Sales (EURmn)

BMI View: Location- and personalisation-based services are key drivers of growth in the digital economy and the potential of such services has often been hampered by the limitations of devices accessing third-party services. The success of Apple's Siri voice-driven search platform and the potential of Google Glass' voice-powered user interface show how successful vertical integration of proprietary apps and devices can be. Nokia's acquisition of Desti therefore poses significant opportunities for partner Microsoft as the latter looks to rebuild Windows' share of the smart device market.

Nokia has acquired Desti to bolster its mapping business, HERE. The value of the deal was not disclosed, but Desti's pedigree suggests a considerable sum was involved. Desti's roots are in SRI International, the technology company that developed the Siri voice recognition platform bought by Apple. Desti notes that the technology being acquired by Nokia is based on the Virtual Personal Assistant (VPA) technology developed in the wake of Siri.

HERE There Be... Shopping Baskets?
Nokia Here Quarterly Sales (EURmn)

Nokia's HERE mapping and location information business is small relative to its network infrastructure and intellectual property businesses and, following the divestiture of the handsets business to Microsoft earlier in 2014, BMI questioned the long-term value of HERE to Nokia. Microsoft has a five-year licence to utilise HERE applications in its devices and its software platforms but has made little overt use of the technology so far. Desti's artificial intelligence and natural language processing technology enables contextual search, potentially adding considerable value to HERE and perhaps tempting more consumers to purchase Windows-powered devices.

As Desti currently runs exclusively on the Apple iOS platform, a Windows-compatible version may not be imminent but will be inevitable. Nokia's launch of an Android-powered smartphone suggests the company may also see value in developing an Android based version of Desti, even though this conflicts with its primary mission of restoring Microsoft's share of the global smartphone market.

Further pressure to develop an Android version comes from the fact that Amazon has licensed HERE software for use in its devices, which are currently limited to e-readers and Android-powered tablets but may yet launch its own smartphone. Amazon primarily uses devices to drive the purchase of physical and digital content and, therefore, a foray into the smartphone business would be more attractive if location- and personal preference data could be leveraged in some way.

Notably, HERE mapping solutions are delivered to 10mn car-mounted personal navigation device (PND) terminals worldwide. Voice-based navigation would be immensely attractive to both autos and PND manufacturers alike, given the disruptive effects of smartphones in this field, and the licensing business could prove to be very lucrative to Nokia.

HERE generated revenue of EUR209mn in Q114, down from EUR225mn in Q413 and EUR216mn in Q113. We do not expect to see a significant increase in HERE revenues in the short to medium term, but from a long-term perspective, the value proposition of HERE has become much more attractive.

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