Over the years, Microsoft has bought many companies. Traditionally, they've been software companies. Software is, after all, Microsoft's thing. It's in the name. Nokia, however, is a hardware company. It designs and builds phones, and that's a huge departure from Microsoft's traditional business.

Historically, this is anomalous. The many companies that Microsoft has bought have been almost all software companies, or at least online service providers. But it's entirely consistent with outgoing CEO Steve Ballmer's repositioning of the firm as a devices and services company. It makes it clear that Ballmer, at least, is very serious about the devices business; Surface isn't an experimental misadventure, it's the first step in the evolution of the company.

The news that Microsoft was buying Nokia's Devices & Services division was both surprising and unsurprising.

Unsurprising because the two companies have been working closely together since 2011, with Nokia essentially committing entirely to Windows Phone as its smartphone platform. A purchase has long been seen as the next logical step, and for many, it has been a question not of if, but of when.

Nonetheless, the fact that Microsoft had finally gone ahead and done it was surprising. Why do it, and why now?

The official argument

Microsoft's case for the purchase is straightforward. Microsoft wants to make consumer goods, because consumer goods are influential over the enterprise space. If your company makes routers or multimillion dollar storage systems, sure, a consumer presence doesn't matter. But for PCs, tablets, smartphones, communications software, office productivity, and related technologies, it's clear that success in the consumer sphere can drive success in the enterprise sphere. Ceding the consumer space limits enterprise success.

As for why Redmond wants to build smartphones rather than merely develop their software, that too is straightforward. The company says that it has a gross margin of less than ten dollars per Nokia Lumia device under the current partnership. Post-purchase, the company reckons it will make a gross margin of over 40 dollars per handset. $40 per device sold is obviously a lot better than $10 per device sold. The new vertically integrated organization will, it says, save $600 million a year in "synergies," and break even with sales of about 50 million handsets a year.

So far, so feasible. Windows Phone is on track for around 35 million sales this year, and the majority of those should carry the Lumia brand. Nokia has backed Windows Phone in a way that HTC and Samsung haven't, with a wide range of devices available at just about every price point. Combining striking looks and some unique technology, Nokia's approach looks like it may be starting to work out. 50 million is within reach, with IDC forecasting 170 million Windows Phone shipments in 2017.

As rationales go, there's nothing wrong with this argument. We've argued before that Microsoft should build its own phones because it's better to make (say) a 15 percent margin on a $300 piece of hardware than a 75 percent margin on a $30 piece of software bundled with that hardware.

Previously we were concerned about the chilling effect that Microsoft-brand phones could have on the other Windows Phone OEMs. That's not a problem any longer. Microsoft says that it will continue to license Windows Phone to other OEMs, but at this point it's hard to see how either the OEMs or the buying public will care. They don't right now.

The money argument is certainly important. When Microsoft first announced the Nokia partnership, some commentators said that Redmond had essentially bought the phone maker for $0—Nokia became dependent on Microsoft, with Microsoft's decisions setting Nokia's direction.

But that is only true when Nokia isn't making money off Windows Phones. When Nokia's phone division loses money, Microsoft still gets its $10 or so margin, and Nokia has to foot the bill for the losses. If, however, it starts making money, Microsoft doesn't get a cent of it. It's stuck with its $10 per handset, leaving Nokia to make tens or hundreds of dollars per phone. To get that money, you need to make the hardware, which makes purchase better than partnership.

However, while the rationale makes sense, and is important, it doesn't really answer all the questions about the deal.

The parts left behind

The first peculiarity is what Microsoft did and didn't buy. Three Nokia divisions are remaining with Nokia: telecoms equipment manufacturer Nokia Solutions and Networks, mapping division HERE/Navteq, and Advanced Technologies, which develops and licenses telecoms-related intellectual property. Leaving NSN is unsurprising; it has no meaningful overlap with any of Microsoft's interests.

Instead of buying Advanced Technologies, Microsoft has bought licenses to many of its patents. This also makes some sense, as it allows Advanced Technologies to pursue legal action against those infringing on its patents without substantially opening itself up to retaliatory action. NSN might still be a target, but a lesser one than the smartphone business.

HERE, however, would on the face of it appear to be a sensible acquisition. Mapping and location data is critically important to smartphone platforms—it's not for nothing that Apple has moved its mapping in-house rather than licensing it from Google. The HERE-powered apps on the Lumia devices are generally compelling, useful applications that make Nokia's Windows Phones more desirable than those from HTC and Samsung. Microsoft already licenses Navteq data for Bing Maps and Streets and trips/AutoRoute, and the photo cars that collect street view imagery sport both Bing and Navteq branding.

Given this extensive use and broader strategic importance, it seems a little surprising that Microsoft didn't toss a few billion more dollars at the Nokia board to grab HERE too.

Update: This post citing anonymous sources says that Microsoft did indeed want HERE, but that the Nokia board refused to sell it. It's still remarkable that no deal could be struck.

On the flip side, Microsoft isn't just buying Nokia's smartphone business; it's also buying the dumbphone business (and its Asha brand) too. Nokia's dumphone business is huge, but declining. Nokia's long-term ambition was to convert these Nokia Asha users into Lumia users. With common(ish) styling between the ranges and the Nokia brand name spanning both Asha and Lumia phones, the company may well have been able to win some converts.

Post-purchase, however, that's going to be rather more difficult. That's because Microsoft isn't buying the right to use the Nokia brand name on any future smartphones. Future Asha devices will still be able to wear the Nokia brand, but future Lumias will not. The continuity and name recognition that Nokia once counted on won't exist.

It's hard to imagine that Microsoft has any real interest in Nokia's dumbphone business, and with the original long-term migration plan disrupted by the purchase, why buy it? It might well be the case that it's simply too inextricably linked to the smartphone business to pick up one without the other. Long term, however, it plainly has no future.