(CBS News) LOS ANGELES -- One day after Verizon and Vodafone announced their break-up,in a deal worth more than $7 billion.
There are now more than 1 billion smartphones in the world, but just a fraction of them are made by Microsoft and Nokia -- once the world's largest cell phone maker.
"Today's announcement is a bold step into the future," said Microsoft CEO Steve Ballmer.
Microsoft is buying Nokia's. The plan is to help Microsoft attempt to catch up with its smartphone rivals.
"Windows phone has grown over 78 percent in the last year and is now clearly the number three offering in the marketplace," Ballmer said.
But it is a very distant third in a market dominated by Apple and Android devices.
Android phones now make up 51 percent of U.S. smartphone sales. The iPhone makes up 43.4 percent of sales. Microsoft's Windows-based phone: just 3.5 percent, according to a July 2013 report by Kantar Worldpanel ComTech.
"Microsoft had to get more serious about mobiles," said Brian Cooley, editor-at-large for technology website CNET. "They can't check out and say we're just not going to compete in that business fully. That's not an option anymore."
"We are right now in a place in the mobile electronics world where we are questioning: Are there two chairs at the table, or three?" he added. "There may not be a third. Microsoft needs to make the chair, and then sit in it. It's twice the work."
Microsoft's fortune was built on its desktop software. But desktop computer sales have dropped 16 percent since the end of last year, in large part due to the explosion of smartphones and tablet computers.
Last summer, the company launched a tablet called Surface. It hasn't clicked with consumers, selling about 1.7 million units in the same time Apple sold 57 million iPads.
The deal between Microsoft and Nokia shows how far and fast Nokia has fallen. In 2007, Nokia had 48 percent of the cell phone market and was worth $10 billion more than Apple. Just five years later, Nokia's market share had dropped to about 3.5 percent.