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Commentary: Questions abound for Microsoft-Nokia deal

February 12th, 2011 | by Alfred Siew

In the few hours after technology behemoths Microsoft and Nokia unveiled one of the most dramatic partnerships in years to take on rivals Google and Apple, terms like MicroKia, Noksoft and NoWin have quickly become popular sarcastic phrases for tech pundits predicting a doomed marriage.

As if the two new allies needed reminding, the jokes are a measure of how uncertain the future is for two companies playing catchup in the smartphone game, despite a deal that seems, on paper, to be joining their still considerable powers to crawl back their rivals’ leads.

The challenge is steep. Android is riding high in both market and mind share for fast-growing smartphone sales, while Apple’s strong brand keeps it high on many users’ wishlists despite being overtaken by the Google smartphone operating system last year.

In comparison, Microsoft’s Windows Phone 7 software, which Nokia will be adopting in its phones this year as it gradually casts away its self-made Symbian OS, is way down the charts in number five, with only a small hold on the market.

The best news for Nokia fans will be that the company is finally ditching the dated Symbian OS, which has been the biggest problem holding the company back from launching a successful competitor to Apple’s iPhone and Google Android phones like the Samsung Galaxy S.

Notably, the changes were unveiled yesterday by new CEO Stephen Elop, a former Microsoft man, who is also the first non-Finnish to run the one-time paper mill firm which transformed into the world’s biggest phone maker in the 1990s.

So far, his deeds have matched his words. Following an internal memo to staff describing how the company is facing a jump into icy waters as their floating platform burnt unabated, he has done what many a Finnish leader at Nokia has failed – cast aside pride and face some hard truths.

Just five months ago, outgoing executive and long-time Nokia stalwart Anssi Vanjoki had said that using Android on Nokia phones would be like Finnish boys peeing in their trousers to keep warm in winter – a temporary solution that made things worse in the long term.

Vanjoki is gone now, as are the Finnish analogies. And Elop has even hinted that the centre of gravity for Nokia could be in Silicon Valley in future, instead of Scandinavia – something unthinkable just months ago. Among other changes: the move from Nokia’s own Ovi online services to hook up with Microsoft’s ecosystem that includes Xbox Live, for example.

Will the changes matter now? Or are they too late to help Nokia catch up with the leaders?

Lessons from the past are not encouraging. One example is Sony, which was bypassed by Apple in the MP3 player wars in the noughties because it was mired in proprietary technologies and corporate infighting. The Walkman maker is still struggling now to gain the same mojo it had as the top electronics maker in the 1980s and 1990s.

Yet another example, this time closer home, is Palm. The company will forever be remembered as the one which put a PDA in many users’ hands, bringing in a new era of mobile computing in the 1990s, just like how Nokia will be seen as a driving force in the same period as cellphones gained widespread use.

But neither company changed fast enough as the market changed. Palm could not come up  with PDAs that offered colour screens, MP3 playback and wireless connectivity, when competitors rushed ahead to wow users. Similarly, Nokia was slow to compete with the iPhone’s touch-screen capabilities when it was launched in 2007, instead putting out dated Symbian phones that fell further behind.

Questions are thus inevitable for the Nokia-Microsoft deal.  For sure, the ready-made Microsoft Windows Phone software, which has been getting great reviews from users, will give Nokia a shot in the arm and help save time and money developing a new OS on its own – something that it has failed to do in more than a year with a joint venture called Meego with chipmaker Intel.

But the first question is whether users will be receptive to Nokia phones running Windows Phone. Despite launching Windows Phone 7 to generally good response late last year, Microsoft had only 4.2 per cent of the worldwide smartphone sales in 2010, down from 8.7 per cent in 2009, according to research firm Gartner.

Meanwhile, Android has grabbed number two spot by gobbling up 22.7 per cent of the market in 2010, up from just 3.9 per cent in 2009. Nokia’s Symbian, while still top in 2010, has lost share by close to 10 percentage points in the same period, down from 46.9 per cent to 37.6 per cent, and may well be overtaken in 2011 by Android as the most popular smartphone OS.

Sure, Nokia is still the leader in overall phone sales, which include so-called feature phones that do not have as sophisticated Internet features, and it could conceivably use its brand to up-sell Windows Phone 7-based devices to these users, particularly in its strong bases like India.

But the question is whether Microsoft and Windows Phone 7 have enough momentum behind them to push devices into the hands of users. In terms of apps, for example, Apple’s iOS and Google Android have far more in their respective stores to bring users onboard.

This is also where you question why Nokia has not chosen to go with Android, which would seem to give it the instant lift it seeks, through the plentiful apps as well as users who are already happy with the underlying interface. Seeing how well Samsung, LG, Motorola and Sony Ericsson have competed with their Android phones in the past year, you’d have expected Nokia to jump onboard a platform that is growing at an astounding 888.8 per cent year over year.

Another issue is how the partnership will pan out. Microsoft has set strict conditions on how its operating system can be customised, for example, telling long-time partner HTC to limit the use of its Sense software interface on its Windows Phone devices.

If Nokia doesn’t customise its Windows Phone devices enough, it will end up as another cookie cutter phone maker, competing on price and looks rather than any real innovation. That’s bad news for the long term.

On the other hand, it will be to Microsoft’s detriment if it focuses too much on Nokia and ignores the HTCs, Samsungs and LGs of the world, which despite putting Android on a higher priority, have more momentum than Nokia over the past year and are crucial to Windows Phone’s success.

If this sounds like damned if you do, and damned if you don’t, it is. Yet, neither Microsoft nor Nokia can afford failure, which will almost certainly guarantee that they’d be so far behind as to be impossible to ever catch up again with Google and Apple.

The last thing that neither company wants is a partnership of two falling giants in a death hug. But if the two heavyweights do not quickly come up with a “must-have” phone in a market that declares winners and losers every quarter, their combined gravitational pull could just drag them down faster together.

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11 Comments

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  4. andrew says:

    It takes 2 years or more to develop a platform (OS, chipset, etc), more if you include building a developer community. Nokia is too big and insular. Most of the senior execs are too old, calcified and device driven. The market is now driven by software and eco-system. Apple is behaving like a startup – very nimble and taking alot of risk.

    Elop made the right decision by dumping Symbian and going with Window 7. Otherwise it will suffer the fate of Ericsson – slowly fading away. Even though the Sony Ericsson partnership is not performing as expected but at least it kept the Ericsson name alive – for now. There is risk in every path you take! There is no guarantee in life – sorry. But staying still is not an option in high-tech business – as the train will just run you over.

    Elop should replace half the senior execs in Nokia and bring in new blood. He should move the head office out from Finland and moved it to Silicon Valley to make it’s senior execs more atuned to innovation and risk taking. Staying in Finland will make the senior mgt insulated, docile and reactive.

    If Elop needed inspiration – just watch the video of Steve Jobs returning to Apple in 1997 and the cuts that he had to make to the product line, research and organization http://www.youtube.com/watch?v=qJs6MB077Bw in order to keep the company alive and to change the course of the company.

    Let say our prayer for Nokia – in its hours of need.

  5. Alfred Tong says:

    The problem with open source of forking of projects and that make app support a problem. Accountability on security and shield against patent law sue are almost non-existence on any real open-source projects. Just look at the problem with Linux desktop and you’ll agree to some extend. Also look out for news on Google’s WebM vs MPEG-LA law sue.

    What’s behind this partnership probably has more to do with patent royalties agreement, technical support for mobile Exchange, mobile SharePoint etc., future mobile content (I’m betting on H.265) and, an app store to rival Apple.

    Think about it for a moment… the web browser may be a thing of the past in a few years time because the way most people access the web is a little different now. Think smartphones, think iPad, think Xbox. They are app based internet content access devices. Big business and you need a reliable business partner not some open source projects with not shield against any patent claim or injunction.

    Nokia is unlike to give up Symbian because of the zero loyalty fee. So you may see them on their lower range phones. WP7 on another hand offer Nokia and opportunity to catch up with the high-end users. Corporate users that may be using RIM Blackberry and increasing Apple iPhone.

    If the partnership work out right, you probably see the rest of the phone hardware makers introducing WP7 on their high-end products and keep Android on their lower-end consumer line.

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  7. Chi-Loong says:

    Good post Alf.

    Hmmm… To me this is the most interesting thing to come out of Nokia for some time, and it is worth watching.

    It must be noted that both Nokia and Microsoft are giants with deep pockets. Even though Nokia has been lagging in smartphones and their low end market is being whacked by cheap China lookalikes, they still have the biggest worldwide market share. Microsoft is still one of the biggest software vendors.

    Add Nokia Ovi maps and apps to Windows Marketplace. Throw Bing, XBox Live and Office into the mix.

    I’m sure Nokia did consider Android, and some pundits have argued why Nokia went with Microsoft and not Google.

    A gutsy vision. Now comes the really hard part — can they execute it?

  8. Tom Darais says:

    Open source Nokia supporters unite! It’s time for Project Chemo (chemotherapy).

    I am a proud Nokia N73 owner; PLEASE JOIN ME IN BOYCOTTING NOKIA until 1) Elop leaves Nokia and 2) Nokia drops their Phone 7 strategy.

    Only an idiot more loyal to Microsoft than Nokia would publically kill Nokia’s smartphone brands (Symbian and MeeGo) and pubcially take Nokia out of the game during this critical year by not having the product they’ve chosen to hype (Phone 7) nearly ready for sale and by pairing with the industry’s ugly duckling (Phone 7) that’s just a transitional product until Windows 8 arrives.

    Maybe Nokia has not been that smart (going with Elop is proof), but they have good technology and Elop has already proven himself to be a total sellout idiot to Microsoft. He of all people should know that Phone 7 did a lousy job implementing an office productivity suite. More importantly, Microsoft’s long term strategy is apparent–they will put Windows 8 on ARM tablets and for unity sake they will need to consolidate by putting Windows 8 on phones. Where does that leave Nokia? In a temporary marriage with Microsoft so Microsoft can save face until the real bride shows up.

    The market has already made it’s decision about Phone 7. It’s a total flop. Per Ars Technica, every other major smartphone platform (Android, Nokia, Apple, RIM, Others) rose at least 30% in market share year over year in 4th Quarter 2010. Microsoft was the sole major loser with it’s dumb smartphone debut, and lost 20% in market share year over year. http://arstechnica.com/gadgets/news/2011/01/android-beats-nokia-apple-rim-in-2010-but-firm-warns-about-2011.ars

    Why would Nokia go with a smartphone that’s years behind in technology and doesn’t have it’s own ecosystem that Elop desperatly ascribes to? Phone 7 doesn’t even multi-task . . . it can take an inordinant amount of time revisit applications becasue it has to restart them everytime you switch back to them. Plus it won’t do static IP addresses, it does DHCP only. The list goes on.

    Since I’m not on Facebook or Twitter, feel free to post this everywhere possible!!

    Tommer D.

  9. ginlee says:

    The problem with Nokia’s phones is not the operating system. It’s not whether it is Meego or Symbian or Series 60 or Series 40 or Android or Windows 7. Nokia’s phones over the years simply look the same. I look at N97, N80 whatever, N whatever, and they all look the same bloody ugly. Nokia’s phones are simply not cool. Nobody salivates over Nokia’s phones. In the early days, Nokia phones were great simply because they worked well, had clear voice quality and was robust. They even had interesting designs like the banana phone (can’t remember what model number) the fat smartphone (still cant remember the number) the brick-sized communicator and even the screwed up but interesting looking Ngage. These days I dont see Nokia trying anymore. That is the root of the problem. Changing the OS is a desperate move for a company that has totally lost its way. It’s not a bad move for Nokia, because there simply doesnt seem to be a better one.

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