Inside the Nokia-Microsoft Alliance

— February 15, 2011

We’ve all heard the news: Microsoft and Nokia are teaming up to create smartphones and feature phones leveraging the Windows Phone 7 platform and the Finns’ hardware and technology, including advanced photography capabilities and mapping services. But what can we expect from this initiative going forward? And is the partnership enough to help either company regain a foothold in a mobile phone race that’s largely dominated by Apple and Google?
“The game has changed from a battle of devices to a war of ecosystems,” Nokia CEO Stephen Elop said at the press announcement last week. But can two troubled ecosystems team up to create one good one?
Jason Hiner of ZDNet doesn’t think the deal does enough for either company. “It’s not the immediate game-changer that others would like you to believe. It’s certainly doesn’t transform the smartphone market into ‘a three horse race,’ as…Elop said on Friday,” he explains.
Gigaom’s Ryan Kim agrees. “In just a couple of years, the smartphone market has become a two-horse race, leaving former powerhouses Microsoft and Nokia on the outside looking in.”

The two companies have much to gain—or much to lose. “The decision to tie an incomplete operating system with an ailing handset design company is a very risky proposition,” says ABI Research senior analyst Michael Morgan.
Washington Post Faster Forward columnist Rob Pegoraro questions the wisdom of the alliance. “If [Nokia] couldn't integrate its own software with its own hardware in a way that surprised and delighted customers, can it do any better with Microsoft's operating system?
Interestingly, Microsoft and Nokia plan to focus not just on smartphones, but also on cheaper feature phones as well. Peter Bright of Ars Technica says the companies’ plan to bring the Windows Phone 7 OS to a broader range of price points may scare off developers. “Diverse hardware specs make it harder to ensure performance is adequate and user interfaces scale properly,” he explains. “If the two companies push the platform down-market, with smaller screens and slower processors, the platform could become a whole lot less appealing.”
BusinessWeek’s Darrell Etherington agrees that developers might not want to work with the new Microsoft-Nokia platform. “Now that [Nokia] is basically telling devs they should throw out what they've learned and switch to a completely different set of tools, I wouldn't be surprised if most [developers] just throw up their hands and move to a stable model with a proven ability to generate revenue, like iOS.”
Ars Technica’s Bright argues that OEMs may play a role in the success of the alliance. “If Microsoft gets too chummy with Nokia—and it's already looking as if it will—it's easy to see the other OEMs doubling down on Android and abandoning the [WP7] platform,” says Bright. “After all, if Nokia gets all kinds of special privileges and special treatment, how are they going to compete with that? There's not much point in participating in a field stacked against you.”
Kevin Burden of ABI Research agrees. “With Nokia taking over the Windows Phone 7 universe, the other OEMs who have initially supported Window Phone 7 may rethink their commitment, and eventually end support of Windows Phone 7 the way they did with Symbian, due to Nokia’s dominance and influence over the platform.”
Hiner also agrees. “[Samsung, HTC, and LG] seem to be using WP7 as a hedge against Android so that if Google gets too pushy they can always threaten to put more of their resources into WP7. The Nokia deal will likely keep them focused on Android with WP7 a second-class citizen.” 
At the very least, Nokia is trying to differentiate itself in a mobile market dominated by sameness, says Andrew Munchbach of Boy Genius Report. “The company is looking to make its offerings stand out in a market place where, concurrently, at least four other major hardware manufacturers will be offering devices running identical software.” 

Bright agrees. “Nokia plainly doesn't feel that being ‘just another Android vendor,’ in a market tarnished by low-budget, low-margin handsets with non-standard, typically ugly software is the best way to reinvigorate its smartphone niche,” the Ars Technica editor explains.
ZDNet's Hiner disagrees, arguing that Android would be a safer bet for the Finnish company. “In the short term, going exclusively with WP7 will likely cause Nokia phone sales to plummet even further in the market share race as traditional Nokia fans flee the flock. Fewer would have fled if Nokia offered Android phones,” he says.
Munchbach agrees that alienating current Symbian users is risky. “There are close to 112 million Symbian smartphone users that, in the next few years, will be forced to move platforms… and that move could be away from Nokia. Forcing users off of a platform, without a clear succession path, seems like a recipe for disaster,” he cautions.
And what about Microsoft's troubles on The Continent? Microsoft has had much-publicized legal difficulties with the European Union. “The European Union has been a constant thorn in Microsoft’s side because of its Windows and Office monopolies on PCs,” Hiner explains. “European companies have generally been a lot more aggressive about adopting open source, especially where it can replace Microsoft solutions.”
Perhaps most significant is Nokia’s willingness to settle for being more of an OEM than a vertically integrated mobility retailer. “We fear…that with this move Nokia has lost its identity. It is no longer a leader, but a follower,” Munchbach laments.
In the end, it may not be all doom and gloom. “If the two companies play this well, the results could be phenomenal,” says Bright of Ars Technica.
“The deal between the two could mean that we get the best of both—strong software from Microsoft, strong hardware from Nokia, Nokia's global reach, and Nokia's phone expertise helping Redmond keep abreast of developments and trends in the phone markets.” 


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