By Alistair Fairweather

It’s no secret that Nokia is in trouble. It lost close to US$1,5bn in 2011, its market share, particularly in the profitable smartphone market, continues to plunge and its big bet — a partnership with Microsoft — has yet to produce significant revenues.

So when I received a review model of Nokia’s newest phone, the Lumia 800, I was sceptical. This is its first release to be powered by Microsoft’s current mobile platform, Windows Phone 7, and as such is a harbinger of either doom or salvation.

I had already played with a device powered by Windows Phone 7 a few months before and found it surprisingly good. Microsoft has long been anathema to elegance or usability, but its mobile platform breaks this trend. Rather than merely aping Apple’s iPhone or Google’s Android platforms, Microsoft has developed its own paradigm, which competes on an equal footing with the two dominant players in the market.

The open question was how well Nokia would be able to integrate a foreign software platform into its device development pipeline. The company has traditionally kept all software development in-house, which goes some way to explaining its current predicament.

It clung to Symbian, its legacy platform, for far too long and allowed companies from completely unrelated markets (a computer company and a search engine) to remake the market in their own images.

But Nokia has risen to the challenge. The Lumia is a beautiful, integrated package of software and hardware. After bumbling around with bad touch screens for years, Nokia has finally caught up with the market. The Lumia is every bit as smooth and responsive as competitors such as Apple’s iPhone and Samsung’s Galaxy S2.

Nokia has also worked hard to offer more value out the box than either of its big rivals. The mapping and navigation applications are world class, as is the (free) streaming music offering that is integrated into the Lumia. You can buy songs straight from the phone — in rands — something neither Apple nor Google is currently able to offer.

So far, so impressive, but what Nokia still lacks is the elusive cool factor that brands like Apple and Samsung have tapped into. It’s certainly trying: unpacking the Lumia you can’t help but be struck by how much Apple’s aesthetic has influenced its packaging design.

The same goes for the handset itself. After years of dominance, Nokia had slid into a utilitarian rut. Its devices were lumpen and uninspiring, with more buttons and switches than most people knew what to do with. The Lumia, by contrast, is sleek and minimalist — again taking its cues from Apple.

For all its strengths, though, the Lumia will still struggle to answer the critical question: “Why should I buy this rather than an iPhone or Galaxy S?” The phone is excellent, but it’s not revolutionary. Nokia has finally caught up to Apple, circa 2008. The problem is that it’s now 2012, and Samsung and HTC are also much bigger and better than they were in 2008. “Just as good” might not be enough of a draw card for fickle and style-conscious consumers.

This should worry Microsoft as much as it does Nokia. The software behemoth appears to have less skin in this game — its profits are stronger than ever — but another high profile failure in the mobile sector will decimate its long-term prospects. It is furiously developing Windows 8 — a touch-based version of its operating system intended to compete with Apple’s iPad — but it will start on the back foot in that market, too.

If you think I’m overstating the risks here, consider these statistics: Microsoft’s Internet Explorer, once the undisputed king of Web browsers with a more than 90% share of the market, now accounts for barely a third of browsing.

As the tablet market expands exponentially and Apple and Google grab ever more market share, the same trend is becoming evident in operating systems. A recent study shows the Windows platform losing 10% of its Web browsing market share in the last six months.

So what? It’s just the Web browser market, right? Wrong. A seismic shift is under way in technology, away from the desktop and into the “cloud”. Why spend money on expensive computing machinery and desktop software when you can rent it as a service via the Internet? In that paradigm, the browser is a critical benchmark of both reach and influence.

This shift to the cloud has only just begun, but it is rapidly gathering momentum. Without a credible and popular mobile platform, both Nokia and Microsoft are doomed to the same creeping obsolescence that eventually claimed Kodak.

With the Lumia, these two ageing giants have proved they have the technical and aesthetic know-how to compete in the market. The real challenge is whether enough consumers still care.