Nokia could join the Windows Phone 7 party

Nokia-watcher Eldar Murtazin reckons that Nokia is talking to Microsoft about using Windows Phone 7. His post in the Russian-language Mobile Review says, roughly (ie via Google Translate):

In the last month behind closed doors is a discussion of expanded cooperation Nokia and Microsoft (two-way discussion, initiated by the new leadership of Nokia). Not simply the exchange of technology, but creating an entire line of Windows Phone devices that may go under the name Nokia, through the sales channels for the company, and will also have the characteristic features of its products. This is a desperate measure of the two companies. The last step for the salvation of Android, which crushes everything in its path.

This sort of alliance would be entirely in keeping with Microsoft's strategy, which is for partners to produce Windows Phone 7 mobiles, but a major shift for Nokia, which has generally avoided third-party operating systems. However, Nokia has a fundamental problem in smartphones, which is that it has some great hardware running not-so-good software. The user interface in its flagship N8, which uses Symbian^3, has been widely criticised, and its MeeGo version of Linux isn't ready. Nokia remains the world's biggest phone manufacturer by some distance, and it's the largest supplier of smartphones: Symbian has a 40.1% market share according to IDC. However, it's under pressure from Apple with iOS, RIM's BlackBerry range, and mobiles running the fast-growing Google Android.

If Nokia decides to change its Apple-style NIH (Not Invented Here) strategy for a more pragmatic one, it could start selling smartphones running Google Android or Windows Phone 7, or both. However, Windows Phone 7 looks the more likely prospect, for two reasons. First, Nokia and Microsoft already co-operate in some areas, to provide integration with Microsoft email and Office products. In a recent ZDNet.co.uk interview, Microsoft and Nokia ally over Office in cloud, Nokia's Ilari Nurmi said: "One of the items we've been working on very heavily in the past 15 months is an extensive alliance with Microsoft. We obviously have a long history working in the area of email but 15 months ago we announced an alliance for the whole suite of productivity, communication and collaboration solutions that Microsoft has, so they will be brought into Nokia devices."

Second, Stephen Elop joined Nokia as president and chief executive officer in September. Elop was head of Microsoft’s business software division, which includes Microsoft Office. He led Stephen Elop lead the partnership with Nokia from Microsoft’s side, and is uniquely placed to exploit previous relationships to further it from Nokia's side.

Google would not be such a good fit, since its strategy is to replace Microsoft's business software. No doubt many consider this an advantage, on principle, but it has many practical problems. These include the facts that most businesses are very heavy users of Microsoft Exchange and Office, and that Google's online products currently have limited functionality and poor compatibility with Office documents. Windows Phone 7's Office integration offers an evolutionary rather than a revolutionary path forward.

Microsoft would obviously benefit from having the world's biggest mobile phone manufacturing and distribution network as a channel for Windows 7 Phones. It would also derive ancillary benefits from the integration of Bing search, Office and SharePoint Windows Live software, XBox Live and so on. This would be bad news for both Yahoo and Google.

However, it's important not to get carried away about a possible deal. There's no way Nokia is going to abandon Symbian, though MeeGo's future might be in doubt. The main consideration is whether Nokia would make a net gain from selling Windows 7 phones, against the cost of adapting a couple of its handsets to meet the specifications required*.

That's far from a sure thing. For one thing, Version 1 of the Windows 7 Phone platform is designed to sell against feature phones, where Nokia is already very strong, not to displace iPhones or BlackBerrys. It might be competitive in a couple of years, but today, it's still a work in progress. For another, there is no evidence of strong demand for Windows 7 Phone either among consumers or businesses**.

However, both parties might still think it's worth doing a deal, even if it doesn't make them much money. Nokia clearly is not going to join up with any of its enemies -- Apple, RIM, HP/Palm -- and that could well include Google. Two years ago, it certainly included Microsoft. Under Elop, things might be different.

* The minimum spec for a Windows Phone 7 device includes a capacitive, 4-point multi-touch screen with WVGA (800 x 480 pixel) resolution, 1GHz ARM v7 Cortex or better processor, GPU supporting DirectX 9, 256MB of RAM, 8GB of Flash memory; accelerometer with compass, ambient light sensor, proximity sensor; GPS; 5-megapixel camera with LED flash; FM radio tuner; hardware buttons for Back, Start, Search, Camera, Volume, and on/off.

** Microsoft has just announced sales of 1.5m units in 6 weeks. This is "phone manufacturer sales" not customer purchases. It includes phones sitting in shops and warehouses.