Nokia: going (Micro)soft - TechCentral

Nokia: going (Micro)soft

[By Alistair Fairweather]

Ten years ago it might have seemed like a match made in heaven: the world’s greatest software company teaming up with the world’s leading cellphone manufacturer. But when Nokia and Microsoft announced their partnership on 11 February, it seemed more like the last roll of the dice for two struggling giants.

It’s no secret that Nokia has been in trouble for years. It leads the world in pure market share, but nothing else. I wrote last year that Nokia was capturing less than a quarter of the world market’s profits, while Apple and RIM (which makes the BlackBerry) were scooping up over two-thirds of it.

Since then the situation has only got worse for the Finnish titan. It is losing market share at an alarming rate — over 8% in a single year — and profits are continuing to shrink. One major cause of its woes is its software platform, or platforms to be more precise.

New competitors like Apple’s iPhone, followed closely by Google’s Android platform, have proved that the future of cellphones is actually in mobile computing. In that market, software is every bit as important as hardware. But software has never been Nokia’s strong point and, thanks to years of indecision, Nokia has three platforms (not counting the many incompatible versions of each operating system), and it will now have a fourth with Windows Phone 7.

That matters because a huge component of the success of both the iPhone and Android platforms is the hundreds of thousands of applications (or “apps”) developed by third parties for them. Apple has sold over 10bn of these apps, and Android is hot on its heels. But third party developers will only bet on your platform if it’s stable, easy and popular — Nokia’s previous three platforms were none of those things.

So Windows Phone 7 makes complete sense, right? Wrong. Microsoft has, so far, been spectacularly unsuccessful in the mobile space. It has poured billions into projects such as the much derided Windows Mobile and the ill-fated Kin phone (which was pulled from shelves after only weeks in the market), and has almost nothing to show for it. Its mobile partners also have a nasty habit of either closing down or abandoning the good ship Microsoft soon after leaving port.

Windows Phone 7, with its slick touch-screen interface, is certainly an improvement over Microsoft’s previous attempts. But your grand entrance in your new outfit doesn’t matter if you arrive at the party after everyone else is already drunk. WP7 has to go from a standing start to competing with a market that has already spent four years maturing.

Regardless of whether it can make this new partnership work, Nokia has instantly alienated hundreds of thousands of developers and companies who spent time and effort developing apps for the Symbian platform. That includes thousands of Nokia employees, many of whom walked off the job after the announcement on Friday.

The market didn’t like the news either. Nokia’s shares fell 14% in a single day, despite Nokia CEO Stephen Elop hinting that Microsoft were paying billions for the privilege of putting their software on Nokia’s phones.

If this is true then Elop deserves some credit for engineering a very favourable short-term deal for Nokia. Microsoft are obviously so desperate for market share in the mobile sphere that they are willing to literally buy it.

In an internal memo, leaked to the press, Elop compared Nokia to a man standing on a burning oil rig, trying to decide whether to risk the icy waters below. Clearly he sees Microsoft as a life boat — not surprising since he used to work there.

But while the deal may prop up Nokia for a while, the rough seas of the mobile market are likely to overturn them both. Elop seems to think that the market is now a “three-horse race” between his company, Apple and Google. What he doesn’t want to admit is that the BlackBerry platform is already larger and more profitable than both Nokia and Microsoft Mobile. Third still sounds okay, but distant fourth sounds, well, desperate.

I may be wrong. The partnership may invigorate both companies and begin a new age of mobile computing. These companies are, together, worth more than a quarter of a trillion dollars and they have hundreds of millions of customers.

But, big as they are, neither of the partners has any experience in coming from behind. And neither of them has ever had to choose between the fire and the deep blue sea.

12 Comments

  1. “Apple has sold over 10bn of these apps” – 10bn apps have been downloaded, not sold. Might sound like semantics, but it’s a fairly important distinction in the context of a financial-oriented article.

    Symbian clearly wasn’t the way forward. It’s good that Nokia (this wasn’t Elop’s decision, like everyone seems to report) recognized this before Symbian became the new WM6 – far outstaying its welcome and becoming the butt of jokes for the industry. Their only real options were Android and WM7, as they’re the only OSes that come with ecosystems, which is more important than the actual OS in this day and age. With Android, Nokia would just be swept up with the tide in a massive market where they’re not a majority player, but with WM7 they get in on the ground level and have the opportunity adopt it and shape its future. They’re already talking about making a “WM7 lite” to displace Symbian on their lower-priced devices.

    The angry employees/alienated developers? Sure, was bound to happen, the employees are lucky they weren’t retrenched ages ago – Nokia spends more on Symbian than Apple does on iOS – the employer has the right to be angry, not the employees! As someone who has worked with the dev tools for both WM7 and Symbian, I can quite confidently say the developers will calm down once they start working with the new development environment. It’s unfair to even compare them, the MS dev tools are in a league of their own. The fact is that Symbian is losing market share at alarming rates, and WM7 is selling devices faster than iPhone/Android did at their launches, so if developers calmed down and looked at the situation

    “But, big as they are, neither of the partners has any experience in coming from behind. ” … not really true, MS has succesfully done this in recent years with consoles and virtualization.

    Engadget did an excellent interview with Elop yesterday that clears up many of the points in this article –
    http://www.engadget.com/2011/02/15/the-engadget-interview-nokia-ceo-stephen-elop-talks-microsoft/

  2. @Greg Microsoft has neither come from behind in Consoles and by their own admission not even close in virtualization.

  3. @Ludi Not come from behind in consoles? Are you kidding? The original Xbox went up against the entrenched Playstation and was laughed at… look at the X360 now. Holding its own against the big boys, and most certainly a major player!

    The last independant stats I saw about Hyper-V pegged them at around 25% virtualization marketshare, mostly stolen from entrenched systems. Hyper-V is essentially a free product, and they keep adding features their expensive rivals have, slowly nibbling away at the clients.

    We must have different definitions of “coming from behind”

  4. The 360 is only really a major player in the US and UK and is lagging badly everywhere else in the world despite having a lead start on the PS3 and despite the many mistakes Sony made along the way (late launch, expensive launch price) etc. I’d be reluctant to call that a major success – more like getting a little help from your opponent’s hubris. And even so, Nintendo, which had bad market share with the Gamecube (worse or about the same as the Xbox), is still thrashing Microsoft with a gimmicky, underpowered toy.

  5. Microsoft did not pay Nokia to get WP7 on their devices. They are offering development help and MS services to them but are not paying them in cash like you say.
    http://www.engadget.com/2011/02/15/debunk-elop-never-said-microsoft-is-paying-nokia-billions-of-do/

    RIM is fading away in the international market. It is doing extremely well here at the moment but is dying fast especially in the States.

    With the additions of Multitasking, IE9, extended API and C+P, all of which will be here before the end of the year, WP7 will indeed be a very competitive product.

    We will have to see what happens.

  6. @Jim Despite X360 being weak in the East, one cannot deny they’re a massive force in the console world. Before they entered the market, it was utterly dominated by Sony. As far as I’m aware, that’s the very definition of coming from behind? If WP7 does as well in the phone market as X360 has in the console market, I think everyone would have to consider it an unreserved success.

  7. Nokia have all the elements needed – symbian ecosystem, apps stores – they just need to deliver it in a more sexy way. There is pretty much nothing that you can do on an iphone/android that you can’t do on the average Nokia.

    Its all about the ‘cool’ factor, and leveraging an exceptionally big customer base. Nokia have lacked an over-arching vision, and fragmented execution (ovi store / Nokia music etc).

    And no, WM will never be cool. I sense Nokia is doomed.

  8. Nokia should have bought Palm WebOS when it was for sale. It is a technically advanced OS with good UI, and existing app and developer ecosystem. And Nokia would have owned it. They could even have rebranded it to Symbian4 🙂

    Microsoft is doing a come-from-behind at the moment with Bing. Latest talk has it that Google is worried, with Bing steadily gaining search market share.

    Will I buy a Nokia with Windows Phone 7 on it? Probably would, if only to see what it is like. By most accounts WP7 is surprisingly good, and sufficiently different from the competition to warrant a closer look.

  9. An excellent summing up of this marriage not made in heaven. Two bad swimmers do not make a good swimmer. Microsoft/Nokia smartphones. Not waving but drowning.

  10. @SmartphoneEd The deal was more about the ecosystem than the OS. The fact that WP7 is a great OS is a bonus, but MS brings a massive, proven, mature ecosystem with it.

    The PalmOS app and developer ecosystem was surpassed by WP7 in under 3 months, when they overtook the number of apps in the Palm app store, and it has the potential to grow at an insane rate, because there are many millions of developers with the skills for coding for the platform (C#, .net) that haven’t even considered it yet.

    MS is definately a company on the up at the moment, it’s hard to think of a mis-step they’ve taken in the last few years, and when they’re doing well they’re a worthy opponent for any company. As a current WP7 user, and an ex-iOS and ex-Android user, I’m rooting for the platform, it’s really really nice. It deserves to at least be one of the 3 big players.

  11. @Greg I am bored with my Android devices and don’t like iOS so am keen to try something new. Planning on getting an HTC Pro soon.

    But don’t write off WebOS just yet. HP launched three new devices earlier this week and is talking about putting WebOS on all their pcs in the future.

  12. @SmartphoneEd I was in EXACTLY the same place as you. Needed something fresh. I have another upgrade due in July, and thought if WP7 sucked, I’d grab some insanely specced Android device, but I doubt I’ll bother with that now.

    WebOS is indeed intriguing. When HP bought Palm I thought they’d wasted their money, but was really impressed with what they announced the other day. Unfortunately, I don’t think it’ll get the love it deserves – with Windows 8 coming to ARM in similar timeframes as WebOS going to PCs, and Nokia/MS joining forces in the mobile market, HP might just have too much of a hill to climb.