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Thoughts on the Nokia-Microsoft deal


You may already know, by now, that the world’s largest mobile phone maker Nokia and software giant Microsoft signed last friday a long term partnership, which will see Nokia hardware running the latest version of Microsoft’s operating system for mobile devices, aka Windows Phone 7.

As Nokia’s website suggests, this partnership

” will bring a new ecosystem to the world of mobile devices, building on the strengths of both organisations 

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Nokia’s recently appointed CEO Stephen Elop (who replaced Olli-Pekka Kallasvuo last September and is the first non-Finnish CEO of the company in its long history) and Microsoft’s CEO Steve Ballmer wrote last Friday a joint open letter (link no longer available) to shed some light on what sort of strategic plans the two companies have agreed with the new partnership. The highlight of the agreement, of course, is that Windows Phone 7 will become the primary OS platform for Nokia’s next generation of smartphones, while Nokia will also contribute directly to the development of the platform. The deal, however, also extends to search, maps, advertising, and more, with a significant exchange of technologies and services between the two companies. What’s more, Microsoft will pour some serious cash into Nokia’s pocket as part of the deal, perhaps to help Nokia choose Windows Phone 7 over Google’s Android and because by doing so Nokia is about to give up a significant part of their own efforts to develop and maintain a signature mobile OS.

But the primary goal for both companies, though, is clearly to fight back their common competition, namely Google and Apple above all, although Stephen Elop has suggested that Nokia will primarily focus on fighting Android for the time being. This shouldn’t come as a surprise: while Symbian, currently Nokia’s main mobile OS, has been the most popular mobile platform in the world for a long time, that has changed too. According to a recent research by independent analyst house Canalys, Android phones outsold Symbian phones in Q4 2010 for the first time and by a significant margin, following an amazing growth (similar to Apple’s, by the way) of almost 90% over Q4 2009. Apple’s iPhone is still quite behind so perhaps it worries Nokia a bit less right now, albeit it’s worth remembering that Android is the OS of choice of several manufacturers rather than a single company – as is the case instead for Apple and Nokia – so that surely contributes to the figures that reflect market shares.

Considering how quickly the mobile industry landscape is changing these days, and the kind of role that Apple and Google are playing in this new landscape, it will be interesting to see if, and how quickly, this new joint venture between Nokia and Microsoft will eventually succeed.

What the deal means for Nokia

Friday’s announcement follows a particularly interesting and exciting memo that Elop sent to Nokia’s employees just days before. I must admit that it was the best CEO statement I’ve ever read and I was so nicely surprised by it that my first reaction was the thought: “I’d love to work for Nokia!”. However, as soon as I realised that Nokia would be partnering with Microsoft, I wasn’t so excited any more.

This “leaked” memo (I believe it’s just part of their new marketing strategy) describes with surprising honesty Nokia’s current situation, and highlights the reasons why the company has failed to innovate in recent times and provide a product that could match even the first iPhone (2007) in general user experience, as well as design. Nokia’s new strategy sounds like the company’s biggest bet yet and, together with that memo, confirms that 2011 is a make or break year for the Finnish phone giant and a much needed turnaround was to be expected.

If we look at the whole market of all mobile devices today, Nokia is -despite all- still the global leader and enjoys even today a massive advantage over the nearest competitor, that is Samsung. As for the low-end segment of the market, Nokia is still way ahead, particularly so in emerging markets such as China, India, and Russia; but even in those markets it is facing a growing competition by low-cost Chinese manufacturers. Elop’s memo is a fresh reminder about this too:

” At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us. “

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But the most interesting segment of the market, which also happens to be the one with the highest margins, is that of the smartphones. Nokia has lost a significant share of this cake to Android and iOS devices in 2010, and the trend continues to look all but positive the company, in a market that keeps growing at a so fast pace and sees both Android and iOS enjoying wild success at Nokia’s expense – despite both being relatively new players in this arena.

Generally speaking, most critics would agree that Nokia’s not so secret recipe for quick failure has been great hardware, coupled with poor software. Nokia phones have forever had great, rock solid hardware, but as for the software, they’ve been for too long behind iOS and Android devices from a user experience point of view.

I will mention the browser as an example. With the rise of email and the web in general first, and then of social networks, maps, and various other kinds of applications based on the web, high end mobile devices have seen an ever increasing usage of the Internet over the past few years, with a consistent change in the usage patterns of these devices by the people who spend their money in this segment of the market. So the browser clearly is a very important component of any modern mobile device. Nokia’s Symbian was the first mobile OS to have a browser based on the Webkit rendering engine, the same fast rendering engine used by the browsers in both iOS and Android devices. But surprisingly, despite the core technology being pretty similar, the user experience is poor on Symbian phones compared to that of the iPhone, for example. So much so that many owners of Nokia phones prefer using Opera Mobile rather than the native browser. But the problem with Symbian’s poor user-friendliness concerns more than just the browser.

For these reasons, among others, Nokia has been aware for a while already that Symbian wasn’t to be their best bet for any longer, and that’s why the company had already been looking for alternatives in the recent past, even before the Microsoft deal.

This search first led Nokia to develop a new operating system based on the Debian Linux distribution. This operating system, named Maemo, represented a potential step ahead compared to Symbian, in that embracing more flexible open source technologies around Linux would mean a wider reach among developers, with the likelihood that the platform could eventually develop into a new true ecosystem with apps, services and all that made the success of the iPhone first, and Android soon after. Then exactly a year ago Nokia announced that the Maemo project would soon merge with Intel’s Moblin, another mobile operating system (also based on Linux) that Intel developed due to Windows 7’s lack of support for Atom CPUs (Windows 7 is optimised for Qualcomm CPUs instead). The result of these two projects would be the creation of yet another mobile OS called MeeGo.

All sounded promising for Nokia at that time, at least in theory; however the reality has been quite different so far. A year on, the development of this OS has been astonishingly slow and while the first MeeGo phones are expected to be available around the first half of 2011, the OS seems to be still at a very early stage according to some first reviews following yesterday’s preview of MeeGo by Intel. This may explain why Nokia may have decided that they could no longer wait to see how MeeGo would perform, because it’s clearly already too late. This led to some speculation over the past few weeks about Nokia’s plans to switch to either Android or Windows Phone 7, until the announcement of the partnership with Microsoft.

Windows Phone 7 is a decent operating system and most reviews are very positive, although Microsoft’s failure to include a basic feature like cut & paste in the new OS has surprised many, today, especially following the lesson learned by Apple on this subject. Despite this, the OS looks good and may actually be a good competitor in the race with iOS and Android, so perhaps it’s not a bad choice for Nokia. But I still think though that Android would have been a better option. Windows Phone 7 clearly is an operating system targeted to the high end segment of the market, while Android can more easily be adopted for cheaper devices as well, as we’ve already seen with products by various manufacturers over the past couple of years. Also, there are already tons of apps available for Android, and just a few -in comparison- for Windows Phone 7.

Not only. While Windows and Windows Phone obviously aren’t the same thing, I am not sure that the best strategy for Nokia to win back iPhone and Android users is to offer them a mobile version of Windows, or anything Microsoft for that matter. Most Apple and Google fans aren’t exactly the kind of people who usually fall in love with Microsoft software and products in general, perhaps apart from gaming where Microsoft -with the Xbox- really excels.

Another problem Nokia has had for a long time is the lack of constant software updates in the same way both iOS and Android devices are very frequently updated with features, bug fixes, security updates and so on. Only recently the company announced they would switch to a “continuous development” process similar to that of Apple and Google. Then there is the “fragmentation” in the developer base because of different operating systems, but this should change now. For one, Symbian is basically dead now following the announcement – despite Nokia says the contrary; second, MeeGo’s future looks less certain today than it did a week ago: Alberto Torres, the overseer of the MeeGo project at Nokia, has been let go “to pursue other interests” following the announcement, and the company itself has clearly stated that MeeGo will become an “open source project”, nothing less or more than that. So, in a way, it can be a positive thing for Nokia if they just focus and invest on a single platform for the foreseeable future.

But software is not the only problem for Nokia though. There have always been too many Nokia models on the market, surely leading many consumers to confusion as to which model one should buy, and why, what are the differences between this Nokia phone and that one, and so on. Nokia’s ugly phone names also help little. They should learn from Apple, for example. There’s just the iPhone. Yes, you can customise the amount of memory installed, have it black or white, but that’s it. There’s only one model: sexy, well designed, with great features and usability and with a massive ecosystem of apps and services. Nokia’s always had so many models that often, in various price ranges, Nokia phones have competed with other Nokia phones as well as with phones by other manufacturers.

Designing, manufacturing and marketing each new model surely must cost a lot of resources and time, so Nokia should really start to focus on fewer models, as well as fewer platforms or even a single one. They have a lot of work to do to get back into the race, and this is the only way to go.

…and Microsoft?

Given how poorly Microsoft has performed so far in the mobile arena, one would think that the agreement must be a very important event for Microsoft as well as it clearly is for Nokia -although of course the mobile market is critical to Nokia while Microsoft’s main businesses are others. So I found it interesting anyway that only Nokia seems to be giving to this partnership the kind of emphasis that one would expect, although Microsoft too will surely have a lot to gain from this partnership in the long term, if successful. Have a look at the websites of the two companies, for example. Nokia.com‘s home page shows the sort of headline you can’t miss, with the somewhat historical date and linking to details on the deal.

Microsoft.com, on the other hand, only shows a tiny link in the middle of the page but in a rotating banner with other four links (so 25% of chances a visitor may see the link unless he or she remains on that page for several seconds), and no particular highlight; as it is, that single link seems to suggest the deal is as important for Microsoft as the new release candidate of Internet Explorer 9…

Again, every other page on Nokia’s website shows the same massive headline on the deal, together with at least some other related banner or links to press releases and articles on various aspects of the partnership. There’s even a box with recent reactions to the announcement on Twitter, embedded YouTube videos with the announcement and interviews, and a dedicated section of the site – “Nokia Strategy 2011″ – which attempts to answer all the possible questions one may have soon after hearing the announcement.

What about Microsoft? Nothing. Apart from that tiny (almost invisible) link on the home page, I couldn’t see anything else on their website that had something to do with the partnership with Nokia. Interesting enough, even in the “About” page, within the section by the title “Microsoft in the news (For Journalists)”, you can’t see any mention on this subject:

Surprisingly, the latest two news are dated respectively Feb 09 and Feb 15, and none of them are about the partnership with Nokia. Information on the agreement is nowhere to be found apart from that single page, and even that page is nothing more than a copy -more or less- of the joint open letter first published on Nokia’s site, including links to Nokia’s site for details. Given the huge value the market of mobile devices already has today, how quickly it is growing and what this partnership could potentially mean in the near and not so near future for both Microsoft and Nokia, I find it somewhat surprising that Microsoft is treating the news as of secondary importance.

It’s difficult then to guess what this deal really means for Microsoft, especially if we remember what happened already with other Microsoft projects in the mobile space, such as Kin. Microsoft has already failed multiple attempts to earn a key role in this market by partnering with other phone manufacturers: LG, Motorola, Ericsson and Palm (among others) all had agreements with Microsoft over the past years to produce devices running mobile versions of Windows. All of these partnerships basically failed, with LG, Motorola and Ericsson eventually switching to Android and Palm investing instead in their own mobile OS (webOS). Is the partnership with Nokia going to be different?


The agreement between Nokia and Microsoft hasn’t been exactly a surprise – although many were expecting Nokia to choose Android over Windows Phone 7, but nevertheless it was a big news in the mobile industry and got many people thinking about what could happen next, with mixed reactions between those who think the partnership is a great opportunity for both Nokia and Microsoft and their strategy is correct, and those who instead think that two companies who have both failed in a way or another won’t be able to compete even together in today’s market against more innovative companies like Google and Apple.

Since several friends of mine both here in the UK and in Finland are Nokia employees (hardware and software engineers, mostly), I am naturally more interested in what all this could mean for Nokia than for Microsoft. So, following the announcement, I was curious to hear what these friends think about the partnership with Microsoft, and if they think it may affect their jobs. Some of them seem to think the partnership is a good move overall considering Nokia’s current situation, but – as in several other occasions over the past year – I could also hear their concerns about their future in Nokia, and the sort of impact that Nokia’s own future may have, in particular, on Finland’s economy.

Nokia’s fast growth over the past few decades has coincided with that of Finland and has hugely contributed to shape the country as one of the most technology-intensive economies in the world. Finland has a tiny population, and a relevant part of it is employed either in Nokia or in any of the many other companies that depend on Nokia on various levels. Stephen Elop has already announced that there will be many layoffs under the new strategy, and this will likely have a significant impact on the whole Finnish industry.

Also here in the UK there will likely be many layoffs. I was told by some of my friends that Nokia’s presence in Farnborough, nearby London, is all about Symbian, so there are serious concerns about the future especially among those who work in the software department, and some of them are already planning to move back to Finland or anyway start to look for alternative jobs.

In their joint open letter, Elop and Ballmer announce:

There are other mobile ecosystems. We will disrupt them. There will be challenges. We will overcome them. Success requires speed. We will be swift.

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Well, as already said in a recent tweet, good luck with that. Both Nokia and Microsoft have a lot to gain from their partnership if they eventually succeed. But just joining forces may not be enough by itself; history teaches that however large a company (or two, in this case) you are, unless you keep innovating and delivering winning products you will become irrelevant overnight. If they keep failing to innovate and understand the market, together they will just be giving up that market more quickly.

© Vito Botta