Microsoft Corporation (NASDAQ:MSFT) is going to pay Nokia $1 billion to develop devices based on the Windows Phone 7 operating system. Nokia will be paying Microsoft a royalty for each license of the Windows Phone operating system they use. Nokia will be saving money from their own R&D by paying Microsoft to do the mobile software development work instead.
The final contract as not been signed as of yet, but the agreement will run for over 5 years. Nokia has been looking for ways to cut costs for some time now. They spent 3 billion euros last year in research and development itself.
Some of the reasons why Nokia made the agreement with Microsoft is because the software giant made a better offer than Google. Nokia also chose Microsoft because they have a smaller number of handsets for sale compared to Google. This gives them a better chance of standing out.
Microsoft will be using Nokia’s Navteq mapping software for geolocation services and will be selling ads based on the user’s location. Nokia and Microsoft will also be splitting revenue from search and ads.