Nokia Reveals Microsoft Partnership—But Doesn't Kill Its Own OS

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In a shocking move, Nokia revealed all its plans and its dirty laundry this morning, well ahead of its Strategy and Financial briefing in London. Yes it's shaking up management, yes its partnering with Microsoft, and no its other OSs aren't being flushed. Is this a bad move?

In both an official press release, and a joint open letter from Microsoft's CEO Steve Ballmer and Nokia's CEO Stephen Elop, Nokia revealed it was going to change its habits, adjust how its management runs the company, and partner with Microsoft to try to re-inject life into its smartphone business. Interestingly, although one can read between the lines to see it, there're few direct references to the woeful situation Nokia has found itself in—a different stance entirely to Elop's earlier leaked internal memo. We've turned the open letter into a word cloud up above, and the key elements are exposed for all to see: Experience, customers, Microsoft, advertising, search, development, experience.

Microsoft as a core OS

The biggest news here is that Microsoft's code will now be serving as Nokia's "primary smartphone platform" helping Nokia in moving across a "critical juncture" and then "accelerating" it's change along a "new path, aimed at regaining our smartphone leadership, reinforcing our mobile device platform and realizing our investments in the future." This, once you've dug through the business babble, is the news everyone's been waiting for: Nokia admits that though it has a sturdy income, and spends billions on R&D, it's not done a good job for years—and has totally lost its grip on the leading edge of smartphone design, which is a market that's absolutely crucial to its long term future. As a result, it's embracing Microsoft's effort at trying the same trick—Windows Phone 7—and will be injecting Microsoft code into its smartphones as a first choice.

This makes sense: Nokia can leverage its production chains and high volume infrastructure setups to quickly give Windows Phone 7 a rocket-assist into the smartphone market, and the Finnish company instantly gives its smartphones a make-over with a hot, highly praised, new-generation operating system that makes its own efforts look bumbling and scattered.

Legacy Nokia OSs

Except neither Nokia's Symbian or MeeGo are going away. Symbian "becomes a franchise platform, leveraging previous investments to harvest additional value" which lets Nokia "retain and transition the installed base of 200 million Symbian owners." The firm notes it expects to sell "approximately 150 million more Symbian devices in the years to come." Meanwhile "MeeGo becomes an open-source, mobile operating system project" with "increased emphasis on longer-term market exploration of next-generation devices" and will still appear on a product "later this year."

This is confusing: When one is switching from a dumbphone or a feature phone to a smartphone, one doesn't need "transitioning"—you just buy a new phone. Symbian does have a large installed base, but it hardly has a fan club—it's easy to argue that there are so many Symbian owners simply because Nokia has a big name and could push phones that worked pretty okay at prices its competitors often couldn't match. If Nokia announced the end of Symbian, one or two fans would be upset, and millions of users would shrug their shoulders.

"Transitioning" this market seems like trying to sell motor-scooters to pedestrians who're seeing everyone else driving fast cars.

Meanwhile Meego will continue to suck down millions of Nokia's research dollars to try to metamorphose into a next-gen smartphone OS. It was supposed to be a this-gen smartphone OS, however, primed to compete with Apple's paradigm-shifting iPhone and iOS, with Android and, yes, with Microsoft. What makes Nokia sure it can push the code into some kind of new shape for the future? And doesn't this result in a weird kind of tension inside the firm as it admits its failures and buys in a crutch (Microsoft) to stop it stumbling around, but also keeps working on its own competitor?

Nokia's three-path future

In essence Nokia has chosen to follow three new paths simultaneously: One hangs onto its core cash-cow business, Symbian—although in the long term this has a limited future. Another sees it embracing Windows as a tool to compete with peer smartphone makers before Nokia falls out of the market completely. And a third has Nokia still pursuing its own plans for the future of smartphone design.

We can understand the Symbian move, since the millions of cheap cell phones Nokia peddles are a huge revenue stream, and the firm has a proud heritage of phone innovation—if it gave this up, it would turn itself into a mere phone "manufacturer" like HTC.

But we can't help thinking Nokia's missed the boat here. If it had ditched Symbian entirely, and perhaps worked with MS on bringing a simpler version of Windows Phone to its entry-level devices, Nokia would instantly transform itself into a new-gen smartphone sales business, primed to capture "the next billion" of mobile net users it mentions in its press release. Imagine a $30 pay-as-you-go phone running Windows. It would create a massive install base for Windows, that could easily draw developers and encourage the formation of a media/apps ecosystem that could compete with Apple. Concerns that some users just want cell phones that are phones would persist, but not for long.

Also if Nokia had partnered MeeGo into Microsoft, and concentrated on innovating its hardware instead, it would have given both firms the chance to develop next-gen smartphones on an equal footing with Apple—which handles both its own hardware and software design, with tight integration between the two as an absolutely critical feature for its success. Maybe this wasn't on the table, and maybe MS wasn't interested in Nokia's years of expertise and insight (which could be an error in MS's thinking), but it's slightly surprising nonetheless since both firms have emphasized their efforts at making a "third ecosystem" that covers everything from smartphone payments to GPS to music.

Update: Perhaps just reacting skittishly to such big news or perhaps sensing a mis-step by Nokia the markets have reacted, and Nokia's stock price has slumped by 12% in the aftermath of the announcements.

Word cloud by Wordle.

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3 Comments

  • Peter Sharma III

    Windows mobile progress primarily exists in USA while the wily Finns still dominate the mobile world elsewhere and great as it can be, iOS is till relatively small worldwide. Keeping MeeGo and Symbian, given the installed base, makes good sense as the market is still in play.

  • Jensen_G

    Do we have any evidence that using Windows Phone 7 on lower end devices was even an option? For current WP7 vendors there are strict specs on minimum phone hardware and I had the idea that WP7 was built from the ground up to only run on mid and high end devices. I agree it would be great as a differentiator to do low-end WP7 devices but where's the evidence that that was an option for Nokia?

  • Steve Sullivan

    That's a great question. I have a few more: Why would Nokia "partner MeeGo into Microsoft" when MeeGo is already a broadly supported project with many industry partners, including Intel? Why would the author think it makes sense to "partner MeeGo into Microsoft" when MeeGo is managed by the Linux Foundation?

    Anyway, given Nokia's bizarre past behavior with Maemo, expect the imminent Nokia announcement that WP7 is obsolete and will receive no further support because a WP8 is planned for release in a few years...