Why the Google-Motorola deal matters for Microsoft-Nokia

September 4, 2013: 10:02 AM ET

Software hasn't just supplanted hardware in the past decade. It needs hardware as an ancillary business.

By Kevin Kelleher, contributor

130904094246-nokia-microsoft-620xaFORTUNE – Imagine it's 1999. Scratch that, it's 2006.

The computer in your office is made by ... well, it doesn't matter who it's made by. Unless you are in a creative profession, that computer is run on Microsoft Windows. And the phone in your pocket is made by Nokia (NOK), or -- if you're feeling stylish -- Motorola. Apple (AAPL) made your mp3 player (yeah, back when we still called them mp3 players), and Samsung made your display screen, or your TV screen, or both.

Just close your eyes and go back to that crazy 2006 mindset (here's a link to help, if you need it). Apple was killing it on iPods and iTunes, not in its original mission of personal computers. Google (GOOG) was just a search engine, a filthy rich search engine. Nokia still ruled mobile phones, although Motorola's Razr owned popular culture. And Microsoft (MSFT)? It was still Microsoft, the grating white noise of personal computing that Bill Gates designed the company to be.

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In the seven years since, so much has changed, which in the tech world isn't notable. What's strange is how it changed. Apple's mp3 player mutated into a mobile phone that changed everything. And it mutated again into the iPad, changing the personal computer. Yet somehow Samsung sold more smartphones using an operating system powered by, of all companies, Google.

And Motorola? Its mobile-device business was bought by Google. And Nokia? Its core devices business has been bought by Microsoft. The software companies began to eat the hardware companies because they needed to act like Apple, which married software to hardware ... oh, three decades ago. And search ate Motorola smartphones. And Windows consumed Nokia smartphones. And Samsung, the maker of those excellent TV screens in 2006, sat there sticking its tongue out at everyone else.

And no one -- no great master of the chess board that is the technology landscape -- saw this coming. Maybe one part of it, yes, but not all of it. Because if you live in the past or the present, none of it could possibly make sense. This is all about a bunch of wild guesses about the future.

So what are we to make of Microsoft and Nokia? In the past day or so, there has been so much to say. Opinions on the deal run the gamut from approval to scoffing to the purely perplexed. (Mostly scoffing, however.) But how are we really to know? The evolution of the mobile web has surprised longtime web observers the same way the desktop web surprised everyone involved with the tech industry that preceded it. Only, in some ways, the mobile web has offered even more surprises.

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People who in 2006 couldn't predict what 2013 would bring to tech giants like Microsoft, Google, Apple, Samsung, Nokia, and Motorola are now confidently tweeting the future of Microsoft and Nokia. People who could make no good sense of Google-Motorola two years ago (I'd wager Larry Page was among them) have a sure view of where Microsoft-Nokia will go. And good for them.

Yes, this deal may very well amount to tying two sinking bricks together, etc. And both Microsoft and Nokia face uphill battles. But at the same time, in the early days of September 2013, the only honest analysis you can give is that a mobile web everyone saw coming yielded a competitive landscape few expected. And if we can't foresee which company will be on top in another several years, the best we can do is look at similar deals that have happened in recent years.

Which brings us to Google's purchase of Microsoft, announced a little more than two years ago. At the time, people struggled to understand the sense of it. People speculated, as they do with Microsoft's Nokia investment, it had to do with patents. That Google would simply spin off Motorola's manufacturing operations. At the time, it seemed like the most likely explanation.

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But Larry Page, Google's new CEO, took a different direction. He held onto the Motorola devices that had been outmoded by Apple's iPhone. Although Motorola has been a drag on Google's earnings since then, the move seems prescient now. Software hasn't just supplanted hardware in the past decade. It needs hardware as an ancillary business. Microsoft's unexpected introduction of the Surface underscored that idea. And now its Nokia deal makes it seem that much more inevitable.

In other words, many companies can produce software on their own, but once you get big enough, you need hardware in the mix to stay on top of the game. The old cliché that the line between hardware and software was blurring has become an industry maxim. Software giants are doubling as hardware companies -- Google 2010 (Motorola), Microsoft 2012 (Surface) and 2013 (Nokia). Others going it alone -- like Amazon (AMZN) and Samsung -- will have to adapt. Still others, like Apple (early 1980s), took this route years ago.

The mobile revolution at the center of technology innovation today may be protean and hard to predict, but one thing is certain: The old lines -- like what is a PC and what is a portable device, or what is a software company and what is a hardware maker -- are dissolving. Yes, Microsoft and Nokia may be several years late to this game, but at least they're there.

And this mobile game isn't finished offering up its surprises.

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