Nokia and Microsoft partnership – impact analysis

Nokia has historically been the undisputed leader in mobile phones. They did not invent smartphones but were so good at bringing them to market that most consider them to be the father of the smartphone. The Symbian platform based Sony Ericsson and Samsung smartphones were never as popular as the Nokia made devices both in hardware and user interface. This was a time when Nokia meant cutting-edge innovation. This all began to change with the entry of Apple with the iPhone back in 2007. Suddenly touchscreens were considered cool, modern and a must-have feature, forget the fact that touchscreens had been used by a number of Windows Mobile devices as well as a couple of Symbain devices (Sony Ericsson P series). To be fair Apple did bring about a monumental shift in the touchscreen – from stylus-based resistive screens to a simpler and more intuitive finger-based capacitive approach.

Apple’s success sparked off a number of clones and copies from most leading and many unknown manufacturers however is was business as usual for Nokia. They continued to make regular candy-bar smartphones. It was only during the end of 2008 that they released a token touchscreen phone and that too with the now old stylus-based resistive approach. There was little change in the user interface (UI) and hardly any marketing push.

Fast forward to the astronomical growth of Android during 2009 and 2010 with the likes of Motorola, Sony Ericsson, Samsung, LG and HTC all pumping out the best hardware to go with an attractive and powerful operating system (OS) i.e. Google’s Android. Nokia’s answer was the N8 superphone which took 6 months for its release and by that time the competition zipped past with far better hardware. Nokia’s attempts of improving its Symbian UI left a lot to be desired.
Jump to present day and consumers have lost all faith in Nokia’s ability to product class-leading devices. Nokia has no flagship device, no phone that makes the geeks and gadget lovers go weak in the knees. The importance of a flagship device should not be underestimated. By building best-in-class hardware with the Desire and Nexus One, HTC solidified its brand in the minds of consumers. When Samsung, who earlier was considered a manufacturer of budget phones, released the brilliant Galaxy S their brand image shot up tremendously. So strong was the effect of the Galaxy S that is also boosted sales of other Samsung phones in the lower segments. Consumers suddenly began to look at Samsung as a potent device manufacturer and this was further reinforced with the release of the Samsung-built Google Nexus S (successor of the Nexus One).
One look at the products announced at the ongoing MWC and we quickly see trends like dual core 1+Ghz processors, 1Gb RAM, dual camera, 3D displays, high-resolution displays and the rapidly growing tablet variants. However Nokia, for the first time in history, had no new device announcement. A time when the smartphone world is at its competitive peak and the smartphone leader had nothing!

That’s not entirely true; they did have a major announcement – a partnership with Microsoft. In the future most, if not all, Nokia’s high-end smartphones will run on Windows Phone 7. This is possibly the most significant announcement to come out of the Finnish company in years and its impact will be felt for years to come. In a nutshell what this means is that Nokia will cut back on development of Symbian and MeeGo (of which no device has yet been announced). Drastically reduce its R&D budget (staff cuts) and instead pay Microsoft for using Windows Phone 7 on their phones. Its quite possible that licensing WP7 would be cheaper than developing new software in-house. New is the key point here. Nokia for too long has relied on its now aged Symbian platform and only made minor tweaks to their UI and OS. This at a time when competitors have reengineered their OS’s from the ground up. IOS, Android, WebOS, Windows Phone7 and BADA were all built from scratch with elegance and ease of use in mind. Only Nokia and RIM stuck to their ‘old’ OS and it is this lack of keeping up with the times that has reversed their growth.

Nokia + Android = Fail
Many argue that Nokia should have gone with Android like every other manufacturer however that’s precisely why they should not have. Android well on its way to be the phone OS of choice and is outselling its competitors. So strong is the brand image of Android that had Nokia taken it up, they would be swallowed in the sea of devices with no clear differentiator. Nokia would then be in direct competition with other Android based smartphone manufacturers who have a quicker time-to-market, have better hardware, make devices cheaper and have a big head start. Quite clearly Nokia would not be any better off that it’s current state.

Nokia + Windows Phone 7 = Pass (but just about)
Windows Phone 7 is the newest OS on the scene and in its current state does have quite a few limitations (as can be expected with any new OS). That being said it still looks quite impressive, has strong office integration capabilities, has a great gaming potential with Xbox live and Kinect integration, gives users a fresh new UI while taking a radically different approach to iOS and Android. Though HTC, Samsung and LG have adopted Windows Phone 7 they don’t seem to be pushing it as hard as their Android products. This may be due to the lack of OS maturity and issue of licensing costs.

Nokia’s move to develop high-end phones running on Windows Phone 7 means that the company will go all out to make and market these devices. They are also the only manufacturer with permission to modify/customize (so some extent) the OS for their devices. This would give Nokia an edge over the competition as they would possess the much coveted OS differentiation which many seek.
As mentioned earlier Windows Phone 7 was not a runaway hit, in spite of its impressive UI and capabilities. Likewise Nokia was losing ground fast, in spite of its strong market presence and brand image. Divided and both could end up as failures however united and they can leverage each other’s strengths to come out with winning products and services in all markets. The all markets bit is significant as Nokia is very strong in Europe and Asia but not North America. Microsoft on the other hand has got a strong presence in the North American market but not so much in Europe and Asia. This partnership would open Nokia to North America and Microsoft to Asia, Europe, Africa and the Middle East (where Nokia has operator and distributor partnerships).
Another important fact about the partnership is that Microsoft will pay for and implement Nokia’s navigation and mapping services. This would open up a new revenue stream for Nokia and bring about the possibility of enhanced location based services across a number of geographies.

The Intel angle
Another important aspect not mentioned is Intel. In my opinion this is a key point to note. Intel is looking for a chance to enter the lucrative mobile chipset market (currently dominated by Qualcomm, ARM, Samsung). Recent IDC report says that Smartphones shipments were higher than Computers (first time in history) so clearly this is a volume market. Nokia has already partnered with Intel in the joint development of MeeGo (Maemo + Moblin) so they do have a history together. Then Microsoft and Intel have long been partnering in the PC segment. With the Nokia+Micrsoft joint effort Intel will have the perfect launchpad to the mobile chipset market.

Final thoughts
At this point it does look like Microsoft is getting the better part of the deal however this is still a good deal for Nokia. The company can shed its excess weight and morph into a service provider that makes handsets rather than a handset manufacturer that provides services. I personally see the union bring out devices with good (not great) hardware along with strong, reliable services and a robust ecosystem. I see future Nokia devices with best-in-class location based services (courtesy Navteq and Bing) and best-in-class office integration (courtesy Microsoft) and best-in-class imaging (courtesy N8-like sensor design team) and great build quality (like many Nokia phones of the past). Interestingly Nokia also has one of the best display technologies i.e the Nokia clear black AMOLED displays. This is the joining of three giants – Nokia (device hardware and marketing reach); Microsoft (device software and integrated PC services) and Intel (processors and graphics)