Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
Summary: The economics for Microsoft and Nokia may work out, but the biggest unknown is whether the phone maker can endure a two-year transition to Windows Phone 7 devices in a mobile world evolving so quickly.
For today, the focus of the Microsoft and Nokia partnership revolves around smartphones, Windows Phone 7 and an app ecosystem, but the economics of the pact will soon move to the front. The biggest unknown is whether Nokia can endure a two-year transition to Windows Phone 7 devices in a mobile world evolving so quickly.
In many respects, the Microsoft-Nokia partnership is similar to the search pact the software giant has with Yahoo. Microsoft pays for share and the partner can focus, cut research and development spending and lay off employees to become more efficient.
Here's a look at what's known at the moment. Also see: Nokia/Microsoft partnership - Winners and losers
Benefits to Nokia:
- According to the New York Times, Nokia was offered "hundreds of millions" in engineering assistance and marketing support. Needless to say, Microsoft paid Nokia nicely.
- Nokia gets to pare down a bloated corporate structure. Nokia CEO Stephen Elop on Friday alluded to cost cutting, job retraining and layoffs ahead. Reuters notes that there may be "thousands of layoffs ahead."
- With a pared down structure, Nokia can focus, become more streamlined and potentially get a cut of future ad revenue via Bing and location based services.
- Microsoft's marketing budget can help Nokia break into the U.S. and open a new market.
- CNet News' Stephen Shankland quotes Elop: "We have different forms of value transfer in different directions. We have new opportunities that come from advertising and new forms of monetization." It's safe to say Nokia comes out ahead on the payment side of the equation.
- It's unclear what Nokia spent on software development, but this chart highlights how costs will be dropping dramatically. Nokia will ship Windows Phone 7 devices in volume in 2012 as Symbian is phased out, support costs will decline.
Benefits to Microsoft:
- Microsoft gets distribution for its Windows Phone 7 OS. It's unclear what the licensing arrangement is between Nokia and Microsoft, which will collect undisclosed royalties.
- The software giant dents what could have been mobile domination by Google.
- Microsoft will get more developers on board due to Nokia's global distribution.
- Note many of the benefits to Microsoft are intangible. Microsoft becomes a mobile player again, but as we know from the company's Internet efforts---profits can be elusive.
Risks to both:
The biggest risk to Nokia and Microsoft is the transition period. Nokia indicated a two year transition period to Windows Phone 7 devices. The smartphone market operates in dog years. Two years is an eternity and if consumers don't play ball with Nokia and Microsoft, both companies could become irrelevant.Stifel Nicolaus analyst Doug Reid noted:
Nokia’s planned transition period to a Windows Phone smartphone OS world appears to be slow. Notably, Nokia did not announce a Windows Phone product. Interim plans for multi-OS support to add to cost burden during long path to market share recovery. Curiously, Nokia plans to proceed later in 2011 with the introduction of a smartphone based on Nokia’s MeeGo platform. Nokia also plans to continue to launch new Symbian-based devices, with plans to ship up to 150mn such devices. CEO Stephen Elop indicated that the agreement with Microsoft was non-exclusive and that 2011 and 2012 would both be transition years for Nokia. Nokia declined to provide clear guidance for 2011, citing uncertainty related to the OS transition.
In other words, this two-year transition period is going to mean some economic pain for Nokia. Barclays analyst Andrew Gardiner crunches a few numbers:
The one piece of financial guidance provided by Nokia was that they expected Devices and Services operating margins to return to greater than 10% following the transition period of 2011 and 2012. Implicitly, they are therefore guiding for margins to be below 10% in this year and next, which is below our current estimates of 11% and 13%. This assumes a steady deterioration in industry gross margins. Nokia currently posts 29% gross margins.
Bottom line: Nokia is in for a rough two years and when it emerges with Microsoft's mobile OS it's unclear what market share base it will be working from.
More: Nokia statement, Microsoft statement and open letter
- Windows Phone 7 gets asked to the mobile dance by Nokia
- What will the Nokia deal mean for Microsoft's other phone-maker partners?
- Nokia/Microsoft partnership - Winners and losers
- Nokia to rely on Microsoft's Windows Phone 7: 'This is now a three horse race'
- Microsoft and Nokia announce my dream partnership so why aren’t you all happy?
- CEOs: Nokia, Microsoft join forces to disrupt mobile ecosystems
- Nokia and Microsoft announce Windows Phone partnership
- Nokia and Microsoft team up: Suffering together, merging to survive?
- Google vs. Microsoft: The ongoing battle moves to Nokia’s “burning platform”
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Talkback
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
Its a huge risk
huh?
"Very little risk at all in this"...what are you smoking?
This is another nail in M$ coffin and another foot deeper in Nokia's grave!
Only Android can save Nokia and GPL can save M$.
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
I already have a N900 which is no longer supported by Nokia a year after its introduction. Not gonna fall in that hole again.
The smartphone market operates in dog years? Give me a break!
In the mobile market, the switching is occurring all the time, from one device to another, from one OS to another, and so, there again, the dog years analogy fails. The "dog years" become insect years, where many insects die within a few days or weeks after they're born.
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
Good point, and I caught that "dog years" comment as well, whicih is completely inaccurate. In fact, the mobile market is probably the fastest moving we have seen in our generation. Even the Internet wave in the mid to late 90's took years to evolve, but the mobile market has players introducing new hardware and platforms annually. The carriers are running as fast as they can to get to LTE/WiMAX capable towers and hardware.
Currently the game is a sprint, but like most races, will eventually turn into more of a 5K than a 100 meter dash!
I think 2 years is the total transition time. I'd bet nokia has WP running
Jumping to a burning platform
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
Let's wait to see their SEC filings where the real details lay
A lot can happen.
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
I don't think they'll ever "loose" - look at AOL and all those other "dead" companies..... still rocking it.
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
It won't be 2 yers for the simple fact that both know...
My guess is that Nokia has phones runnning WP7 as I type this and that you will see devices this year, and on multiple carriers once MS released NoDo which will have CDMA capabilities (hello Verizon).
What is also fascinating about this is the low end "dumb" phones which Nokia owns that market so being able to take an innovative platform like WP7 (which I truly consider innovative unlike iOS or Android) to a wide spectrum of devices which will have (and currently has) very broad developer support, I foresee big things from this relationship. We are going to see nice hardware from Nokia at prices that Apple simply can't match. I think 5 years from now the battle will be between Android and Microsoft on the platform side and Apple will reside where they always have, as an expensive niche offering.
It will be interesting to Watch...
I have been a Palm PDA user since their second model. Palm led the PDA market because they got PC / PDA Synchronisation right, Graffiti (handwriting) input, and PalmOS was very stable. In a nutshell, "it worked." Nobody else seemed to achieve Palm's level of simple elegant one touch synchronisation across ALL APPS.
The Palm stumbled and fell... No Palm owners liked Graffiti-2. It was a step backward, but the big mistake was outsourcing PalmOS development. Nothing happened for two years, during which the competitors caught up and overtook Palm, who could do nothing because they no longer controlled development of their OS.
SmartPhones grew alongside PDAs but until recent years, they did not really have fully fledged PIM applications and still have poor PC synchronisation.
I've moved to Android (HTC flavoured) and while I love the product functionality and ecosystem, the platform still lacks the true PC synchronisation framework that ALL applications can hook into.
Marketers have their heads in the "clouds", but I and many others don't want their personal data in someone else's cloud, or to be inaccessible when the phone is out of range of a network.
Bottom line.... Everything else being equal, the company / platform that combines a popular ecosystem with ease of use AND Paml-like PC Synchronisation will experience a jump in popularity.
I don't like what I've read about WP7, and I cannot see myself moving from Android, but then It was Palm who forced me to jump, not the attractiveness of Android.
WP7 ain't dead by a long chalk.
RE: Nokia and Microsoft: Economics, risks of a 2-year transition to Windows Phone 7
Dear Mr. Elop,
TODAY IS A SAD DAY IN MY DIGITAL LIFE: Today is the day that I officially made up my mind to leave my beloved NOKIA brand; for new and uncharted ANDROID waters.
I have been a LOYAL NOKIA owner and fan for almost 20 years. NOKIA has afforded me the opportunity to stay ahead of the technology curve; NOKIA has afforded me the opportunity to be the talk of the town in and out of my social circles with the most cutting edge phones (most people had never even seen or even dreamed of the capabilities that a cellphone could do, until I showed them a NOKIA); NOKIA has allowed me to boast to my friends about how I paid $600 for a "phone"--and could show and explain to them why I paid that much for a "phone"--cutting edge technology; NOKIA has afforded me the opportunity to be in LOVE with the SYMBIAN OS for the past twenty years; an operating system that was unmatched by ANY competitor.
Well, that love affair is now the problem. NOKIA for some odd reason, has become very complacent on the smartphone frontier. This ecosystem has been turned upside down by the likes of Apple and Google. I have a N95. When Apple debuted with the iPhone four years ago I was saddened that NOKIA hadn't debuted with like technology first. I purchased an iPhone to see what all the buzz was about. Hah! Nothing! My N95 ran circles around the iPhone; the only thing the iPhone had on my n95 was the touch screen interface. I just knew my beloved NOKIA was in the lab creating "the next big thing".
Fast forward summer 2010. I purchased a n97 mini. Good phone. However when I went to my family reunion that summer, my cousin had an HTC ANDROID powered phone. She showed me all the cool apps , gadgets, and features. Everyone gathered around the picnic table to partake in her impromptu "presentation"----she even asked me some questions about the phone that she "knew" I would know. But I didn't have a clue. Nothing to bring to the picnic table---I couldn't even bring my NOKIA n97 Mini to the table. Her ANDROID phone would have blown it away. I suddenly had a major epiphany--for the first time in my life, I was no longer the talk of the town; I was no longer the envy of the crowd; I was no longer the person with the cutting edge technology. I was utterly devastated. I sheepishly slid away from the picnic table; away to the lakeside, peering out into the waves; pondering my digital future.
Well, after months of excruciating frustration in trying to make myself "love" my glorified n95 (n97 Mini), I have come to the tough decision and conclusion that I must part ways with my NOKIA SYMBIAN OS brethren. The n97 is the worst phone experience I've had in my entire life!! That includes when I used to help people set-up their MOTOROLA RAZR's. The phone is a good phone for 4 year-old technology; it's basically an n95, with a few enhancements here and there. The phone does not sync correctly with Bluetooth devices; my laptop; my desktop; Ovi Suite; PC Suite----There's always some issue with my phone. It mysteriously turns off and then turns back on. Overall the phone is garbage, and I'm leaving my first love for another-------MOTOROLA DROID X!!!
There....I said it....It wasn?t an easy decision?.I'm sorry....but I have to go.....I MUST bid farewell....no hard feelings....Good luck, I hope you find your way.
Love Always---Your Ex,
Nice phone
http://www.nokiaphonereview.net