Nokia and Microsoft unite in smartphone wars

An internal memo to Nokia employees that was ‘leaked’ in February 2011 compared the Finnish mobile device maker to a man standing on a burning oil platform. The note, written by recently-appointed CEO Stephen Elop, lamented Nokia’s failure to match the innovation of Apple’s iPhone.

“While competitors poured flames on our market share, what happened at Nokia?” Elop wrote. “We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.”

Nokia, it turned out, was willing to let its platform burn to the ground, and instead build a new one from scratch. Just days later, former Microsoft executive Elop announced that Nokia would be ditching the Symbian operating system in favour of Microsoft’s Windows Phone 7 software for its forthcoming smartphones.

The agreement will in effect kill off Symbian, the open source software platform that Nokia acquired in 2008.
It seems that Nokia and Microsoft see in each other the solution to their respective shortcomings in the all-important smartphone market.

Nokia, the world’s largest handset manufacturer, has seen its previously domineering market share eaten up by Apple and Google’s Android.

Microsoft, meanwhile, is struggling to get a foothold in this area at all. One of its more recent smartphone efforts, Kin,
did not even reach retailers before it was canned. According to the most recent data from industry researcher Gartner, Microsoft holds a meagre 3% of the smartphone market.

Tony Cripps, an analyst at Ovum, was initially surprised that Finland-based Nokia was willing to enter such a
strategic relationship with Microsoft. “Nokia tends to be quite conservative in the sorts of strategic changes that it makes,” he observes.

However, Cripps believes that Nokia’s hand was forced by its rapidly declining market share. According to research by Gartner, its share was 47% in 2009 but fell to 29% the following year. “[Nokia] had seen that Android devices are outshipping Symbian phones on a month-by-month basis, so I think they’d reached the point where a more dramatic solution was necessary,” says Cripps.

Cripps argues that the Symbian platform had reached the end of its natural lifespan and had become “less interesting to application developers and users”. “[Symbian] was a victim of some architectural decisions that were made relatively early in its creation, that meant it was no longer flexible enough to create the sorts of user and developer experiences that are expected,” he adds. “It was necessary to look externally.”

Shortly after the deal was made public, Nokia revealed that it had discussed with Google the possibility of licensing its Android operating system. “A decision to swing to Android would have tilted the mobile ecosystem in the direction
of a duopoly [of Apple and Google], but we wanted to create a challenger,” claimed Nokia CEO Elop, who remains a shareholder in Microsoft, although he says he plans to sell his shares in future.

There are some notable obstacles facing the partnership in the short-term. For one, there is no timetable for any product releases. Ovum’s Cripps says that a long delay would play into the hands of Google and Apple. “[Nokia and Microsoft] can’t really afford to hang about for very long with this,” he says.

But there are technological issues to be resolved, he adds. “Windows Phone 7 has not been set up to run on anything other than Qualcomm chipsets,” he explains, “whereas Nokia has been working with Texas Instruments for a long time now.” Both Qualcomm and Texas Instruments use chipsets based on designs from UK-based ARM, but Cripps says there are still significant architectural differences.

It is a risky partnership, then, but the risk is not shared equally. Although it needs to stake its claim in the smartphone market sooner rather than later, Microsoft at least has a giant software business to fall back on. For Nokia, whose entire business is based on leading the handset industry, failure could be disastrous.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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