Nokia-Microsoft, two years on: A phoenix rising or smouldering embers?

Nokia-Microsoft, two years on: A phoenix rising or smouldering embers?

Summary: It's been two years since Nokia announced a radical change in direction that would see it use the Windows Phone operating system in its smartphones. So was it the right decision to make?

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Nokia Lumia phone
Two years on from its famous pact with Microsoft, did Nokia make the right decision? Image: Ben Woods

Two years ago Nokia stood on the edge of a burning platform, trying to decide which way to jump. Ultimately, it decided to go the Windows Phone route, but has that decision worked out for the company?

In his now-famous memo in February 2011, Nokia's newly appointed chief executive Stephen Elop explained that Nokia faced a huge decision as the flames of competition ate into its market share.

Apple had stolen the high ground, a profusion of Android handsets was seizing the mid-market and Chinese OEMs were taking over the low end. Nokia's own Symbian operating system was creating little excitement.

So Nokia took a leap of faith straight into the arms of Microsoft and replaced its primary Symbian platform with Microsoft's less popular Windows Phone OS. Two years on, was Elop right to do it?

Lumia and Windows Phone OS

When the decision was made Nokia was in the middle of delivering MeeGo/Maemo based handsets like the N8 and N9, follow-ups to already successful devices. But the company's new focus meant that all its significant development and marketing efforts would now go towards its Windows Phone devices.

At the end of 2011, Nokia began delivering its first devices to use Microsoft's mobile OS, the Lumia 800 and Lumia 710, both of which used the Windows Phone 7.5 'Mango' version of the platform. These were followed by the larger, range-topping Lumia 900, running the same software.

However, despite Nokia throwing its full support behind the platform it still lacked some of the features of a more mature OS. Indeed, one Symbian fan compiled 125 reasons not to buy a Windows Phone 'Mango' (7.5) handset.

Towards the end of 2012, Microsoft released Windows Phone 8, adding new functionality and features to the platform and giving a much-needed sense of hope to manufacturers that had already committed to giving Microsoft's OS a whirl.

The Lumia 920 and Lumia 820 were Nokia's first Windows Phone 8 handsets, making their debut alongside competitors' devices using the same OS, such as the Windows Phone 8X by HTC.

Looking at the 920 alongside the competition at launch it appeared positively chunky, and still does. It may well have the best camera I've ever used in a smartphone, but it's also unforgivably heavy and cumbersome for many people. Nokia's hero handset needs a redesign.

The first Nokia handsets to use Windows Phone OS all looked quite similar to each other. In turn, they all looked rather similar to the N8 and N9: you can certainly see where some of the design cues came from, particularly the Lumia 900/920. Nokia has always been regarded as a company that knows how to design good hardware, but now it's time to revamp the look of the Lumia line, particularly at the top end.

The Lumia gamble

Since the Lumia range was introduced Nokia has shown few signs of taking any market by storm, reporting only occasional signs of life along the way.

It's worth noting that during its 2012 financial year, Nokia still sold more Symbian-based devices than Lumias.

During its 2012 financial year, Nokia still sold more Symbian-based devices than Lumias

It sold around 21.5 million Symbian devices and only around 13.5 million Lumias globally. That said, its Lumia lines have shown an upswing, with 4.4 million Lumia handsets sold during the last three months of 2012 alone. 

Changing to one of the least popular or established mobile operating systems (in terms of ecosystem) was never going to be a popular move for the company. However, it has done so by focusing its efforts on delivering differentiated services and features that go beyond the average handset, such as incorporating wireless charging into its Windows 8 devices — and the best camera I've ever used in its Lumia 920.

However positive the company seems about its immediate future, there's no getting around the sales figures — it needs to up its smartphone game if it wants to avoid being relegated to an 'also ran' by the recently launched BlackBerry 10 handsets and OS that are vying to be the credible third big mobile OS. There are also open source, HTML5-based systems lurking on the horizon.

Nokia's strategy

The change in strategy at Nokia has gone deeper than some new handsets alone, however.

Transition is perhaps too gentle a word. Nokia virtually cut its Symbian efforts dead, despite the company taking a closer role in the development process of the platform when it brought it back in-house 10 months before.

As part of the significant reshuffle at the top of the company and an urgent need to improve the bottom line, Nokia announced a raft of cost-cutting measures such as reducing its workforce by more than 30,000 people, the sale and lease back of its Finnish headquarters, and the sale of its Vertu line of luxury bejewelled handsets.

In the six months after the Windows Phone announcement, Nokia's share price plunged by nearly 55 percent. At the time of writing Nokia's share price stands 63 percent down on where it was the day before the announcement.

The month after the platform change was announced, Nokia's Symbian smartphones still commanded significant sales and market share; in Italy and Germany it was the number-one mobile OS with 49 percent and 30 percent of the markets respectively, according to data from Kantar Worldpanel ComTech.

However, the tide was already turning and the rise of iOS and Android was already starting to take a significant toll on its sales.

In Nokia's most recent financials, declining Symbian sales have been partially offset by an increase in Lumia sales, but not entirely. While some regions are actually showing strong growth for Nokia (the UK, for example) the overall picture is not a happy one.

Real work begins now?

Carolina Milanesi, a mobile analyst at Gartner, thinks that the early signs look encouraging for 2013 but that handset sales will need to pick up further. Elop has passed his probation period so the real work can start, she said.

Stephen Elop
Stephen Elop, Nokia

"In two years Nokia has done much of what Elop has set out to do: let Symbian die and fully embrace Windows Phone as a platform, yet keeping the ultimate goal of having a Nokia ecosystem alive," Milanesi told ZDNet. "Many have said that two years on was the right time to judge Elop's work and I guess today is that day."

One thing Nokia has worked hard and reasonably successfully at since changing to the Windows Phone platform is the way in which it has built up services and features to differentiate it from the competition.

Over the last two years it developed an excellent mapping service, now called Here, which it has made available on rival platforms. It also developed its free Music/Mix Radio streaming service, adding value to Nokia handsets.

But it must still better. "There is still a lot of work to be done building a wider portfolio and strengthening its differentiated offering when it comes to services and content," Milanesi told ZDNet. "The results from Q4 were encouraging but sales need to pick up further [along with] average selling price (ASP) and margins."

Was Windows Phone the right call to make?

So, two years after Nokia stood on the burning platform, contemplating its huge leap, what has changed?

Had it not gone the Windows Phone route, Nokia would have still needed to switch to some other platform

The decision to choose Windows Phone has been criticised by many, especially in the light of the limited takeup of its first Lumia devices, and the decline in Nokia's share price.

But had it not gone the Windows Phone route, Nokia would have still needed to switch to some other platform. Symbian may have come on leaps and bounds in its more recent updates, but it's still a way behind the sophistication of other platforms.

One mistake Nokia did manage to avoid was going down the Android road.

While Android has the tangible benefits of a large open-source platform, such as a vibrant ecosystem and low licensing fees, Nokia would also have many, many more manufacturers to contend with, all using the same platform.

Moreover, a big of strength of Android lies in its integrated services (Google Maps, Navigation, Mail, etc). Nokia, recognising this as one of the few ways to differentiate in the mobile space, opted to build up its own services, as outlined above.

You could also argue that it's still early days and that Nokia is in it for the long haul, provided its cash reserves last long enough and sales continue to improve. Its Windows Phone 7.5 devices were the first attempt at the OS, and its more recent Windows Phone 8 devices deliver a better user experience giving some hope for the next generation of handsets.

What it needs to do now is take that superb camera from the Lumia 920, continue to develop the service side and put it all in a chassis slightly thinner and more aerodynamic than a brick, and its next handset might have a chance of taking on the competition.

There should also be inherent enterprise appeal in Nokia smartphones. Windows Phone is a Microsoft platform and can be easily managed by business customers who want to roll it out to their fleet of workers, or even support it as a BYOD play.

A recent survey suggested IT departments were more likely to be planning to support Windows Phone 8 than the new BlackBerry 10 platform. So far we haven't seen much traction from Nokia specifically in this area, and with the new BlackBerry devices now on the street, it's a field that just got a bit harder to play in.

Topics: Nokia, Microsoft, Mobility, Smartphones, Windows Phone

Ben Woods

About Ben Woods

With several years' experience covering everything in the world of telecoms and mobility, Ben's your man if it involves a smartphone, tablet, laptop, or any other piece of tech small enough to carry around with you.

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80 comments
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  • One thing that Nokia need

    Nokia should throw on market some 'cheap' Windows Phone handset, that's what is missing right now. They need another Lumia 610 but with Windows Phone 8, these phones --L610-- sells like hot cakes in my country.
    Mr.SV
    • Perhaps you haven't heard...

      They're rolling out the L610's successor, the L620. It looks like a sweet low cost smartphone. I'm betting it will sell even better that the L610.
      ModernMech
      • Maybe I missed the memo . . .

        but I assume you're talking about pre-paid / no contract. At least thus far, I have not heard anything about Nokia bringing any phone to pre-paid here in the U.S. Zippo from MS as well.

        For the love of baby Jesus, MS, get some nice $150-250 pre-paid phones on the market in the U.S. It is the only way you're going to move past 5-10% market share. The pre-paid market in the U.S. is 20% and growing.
        jjworleyeoe
    • the Lumia 920 is already super cheap

      2 for $99 at att

      The plans are what is expensive, in the US anyway, for any smartphone.
      everss02
      • In US is cheap

        In my country (Poland) I must pay ~$270 and I get very expensive plan. Much more profitable is to buy for cash HTC 8X, this one cost me ~$430, then I can get prepaid (in Poland they are IMHO better choice than contract) and in the long run save money.

        "cheap" or "expensive" depends off the market, for me Nokia is much more expensive than HTC. Lumia 920 I bought in England because it was cheaper there than in Poland.

        ------------
        @ModernMech
        I haven't heard, thank you for information ;)
        Mr.SV
        • it's not cheap in US either

          considering that the $99 price is only available if you are signing a 2 year contract and getting yourself on the hook for $2k, if you are getting a single line plan. compare that to a similar prepaid plan with no subsidized phone that would cost $1200 over the same period.
          vpupkin
  • I disagree

    With you about Android. There is no reason Nokia couldn't be where Samsung is now had they embraced Android 2 years ago. I agree woth you that they do have some opportunities in the enterprise that they should have been aggressively pursuing. They lost valuable time with the whole no upgrade path from Win 7 debacle. Nokia hoped that Win8 would be a game changer, giving Nokia huge visibility in the marketplace. Unfortunately for Nokia, Win phone doesn't have any cachet in the market so they have to sell buyers not just on Nokia phones but try to convince them that any Win phone is viable choice.
    krossbow
    • HTC

      There's also no reason they wouldn't be where HTC is right now had they gone Android.
      ModernMech
      • Exactly...

        HTC was the premier Android manufacturer just a few years ago. Now they're losing money. Why hasn't Android worked for them?

        Nokia took a risk with Windows Phone, but I think they made the right choice. Microsoft wants desperately to get into mobile. That's exactly what Windows 8 is all about... and I suspect/hope that the Surface Pro tablet will be the gateway drug for the rest of the ecosystem. I guess we'll see...
        newyorkcitymale
        • HTC vs Samsung

          From my point of view HTC hasn't been as successful as Samsung simply because of mass marketing. HTC did not spend the massive amounts of money that Samsung has to get it's brand and phones out there in front of people. That's what Apple does, and that's what Samsung has done better with the Galaxy S3. HTC faded into the background due to lack of marketing...
          pethers
      • HTC A Problem?

        I looked it up. HTC currently has around 14% of the Android market share (given in different counts as between 60 and 70%), that works out to a 9.5% market share of the total market for smartphones (as of last September). That's still more than three times what Nokia has in the market due to Windows Phone (at 2.9% in December, and assuming that Nokia is selling all the Windows Phones). From that, if Nokia WERE HTC, they would be selling up to 10 times the number of smart phones they are today. So how is being HTC worse than being Nokia? HTC is selling 3X more Android handsets than the entire worlds Windows phone manufacturers combined.

        If it weren't for Symbian, Nokia would already be toast.

        I'd say Nokia made a HUGE mistake not going both routs.
        YetAnotherBob
        • Let me spell it out for you...

          Here is the HTC headlines from the past month:

          Revenue and profits going down ahead of new HTC product Announcements
          HTC squeezed by Samsung as revenue and profits plummet
          HTC's Q1 projections show a steep fall
          HTC Sales, Profits Down By Double Digits

          ad infinitum...

          Meanwhile, Nokia has returned to profitability, Lumia sales are increasing, their stock price has been on a rebound since July, and things are only looking better with the release of the 620.

          As for going both routes, this was arguably impossible.

          First Microsoft has been keeping Nokia afloat with cash infusions, something Google would not do for them, and something Microsoft probably wouldn't do if Nokia had split loyalties. Second, Microsoft will protect Nokia from Apple and Google for any IP issues related to Windows Phone, something Google does not do for Android. If Samsung is any indication this is worth at last a billion dollars. Third, Microsoft partnered very closely with Nokia in the engineering of Lumia devices by lending talent and engineering expertise. Finally, going with a single solution allowed Nokia to trim their work force and focus their efforts. I feel sorry for all those Symbian developers who lost their jobs, but in the end Nokia needed to slim down in order to stay afloat. Developing for two operating systems simultaneously would not have allowed them to do that.


          Sources:
          http://androidspin.com/2013/02/04/revenue-and-profits-going-down-ahead-of-new-htc-product-announcements/
          http://www.guardian.co.uk/technology/2013/feb/04/htc-samsung-revenue-profits
          http://thedroidguy.com/2013/02/htcs-q1-projections-show-a-steep-fall/
          http://www.twice.com/articletype/financial/htc-sales-profits-down-double-digits/104918
          http://www.theverge.com/2013/1/24/3910528/nokia-q4-2012-financial-report-lumia-sales
          ModernMech
          • Good post...

            Oftentimes, too many people speak about how they wish for things to be, or about what they believe things to be, which means that, they're not well informed on the facts.
            adornoe
        • You are talking as if it's important where companies are...

          ...rather than where they were, and where they are going. When Nokia decided to change their main OS they had already lost almost everything. What they should have done to avoid that problem in the first place requires another discussion.

          But it is obvious that at that moment, choosing Windows Phone over Android was the smarter move. Why? Because they have been improving since they started with WP, and well-respected phone makers like HTC and Sony -- who have tons of experience with Android -- have been plummeting. Pretty much every major phone maker except Samsung is having a tough time making money off of Android.

          The ridiculousness of your argument becomes apparent in an example: imagine a huge company making a decision that cuts its stock price in half. Now imagine a small company making a decision that improves their stock price by 10 percent. You would argue, apparently, that the small company should have made the same call the big company made because if you compare the two companies, the bigger one is still bigger than the small one and still sells more products!
          Ehsan Irani
    • I agree with you

      Let's be fair, the reason about Nokia be able to be different with windows is silly. Windows phone OS is available for many others, Nokia is basically alone because others simply don't trust the platform. If windows phone starts giving good signs, others will join... no more advantage, Nokia will be fighting Samsung like it would do with android.
      Other annoying repeated lie - growth on q4, let's compare with q2. Q3 was very bad because windows phone 7 was discontinued.
      About Elop - the guy said for each lost symbian they would won a lumia sale - not even in absolute terms lumia is on pair with symbian, if we take market share it's a miserable picture.
      Nokia's windows adventure can still become a successful one but all the signs show the opposite - undeniable.
      AleMartin
      • Yes and no...

        @AleMartin While it might of been sill they were successful, Htc had quite a few WP7 phones before Nokia and as well as samsung... and yet they now stand well over 50% WP market share in the US, while in total wp marketshare aint much it does show nokia has shown themselves different enough to be all out leader... I admit samsung wasn't "trying" the hardest and still isnt considering they announced the Ativ here in december and its still not here (Ireland).
        but as @krossbow said up there I think they could of gone Android... they always made cheap stuff BUT, when they made premium.... the build quality was awwwwwwww amazing.... i have a Nokia LUNA from 07 and the slide on it is still so crisp and tight that its still my second phone when workin in the garage or the garden or such things.
        All that said... I'm glad they went WP... If anyone is going to raise WP out of the muck its going to be Nokia... WP barely has any mindshare... but Lumia has more as does nokia... People know what a lumia is even if they dont know what it runs...
        Skunkwurx
      • Highlander rules apply

        "Let's be fair, the reason about Nokia be able to be different with windows is silly. Windows phone OS is available for many others"

        There are many Android manufacturers as well, yet the market is pretty much dominated by Samsung. There was recently a ZDNet article about this: http://www.zdnet.com/samsung-the-only-android-smartphone-maker-that-matters-7000011036/?s_cid=e539

        I see people pointing to Android market share and saying "Look at the market share of Android! All they need to do is release an Android phone and they'll be an instant success!" Yes, you can be wildly successful selling Android devices.... as long as your name is Samsung. Everyone else seems to be having trouble with it.

        At least with Windows Phone, Nokia is growing. They're shipping more devices, turning a profit, and building a brand with a reputation for quality and superiority among Windows Phone smartphones. Windows Phone will continue to grow... maybe slowly but it's growing. Eventually it will have a nice little chunk of the market, and Nokia will be the one holding the majority of that.
        ModernMech
        • Share it's not growing - Gartner, Canalyst

          Nokia are going over a severe restructure, HTC saw their sales decrease and they must improve sales or reduce their size accordingly to their sales. Losts for Nokia were huge for some time even if they indeed were profitable in the last quarter of 2012 - I'm not sure if things like selling their headquarters helped those profit - didn't look in detail.
          Nokia used to be the synonymous off mobile and smartphone, it's pretty pathetic if they were afraid of Samsung and others. If they couldn't fight them on android, I've serious doubts they will succeed with Windows or another platform.
          Nokia got reckless, they thought they had the world at their feet - big mistake, it's going to be tough for them.
          Samsung indeed dominates android, but I believe others will achieve better share. Competition is good for consumers, and even knowing of Samsung domination android followers manufacturers are not giving signs of jumping ship, including HTC.

          I strongly believe if Nokia survive the current adventure in one piece (not sold, ...) they will go android after get rid of Elop... a wild guess would be beginning of 2014 to fire him.
          AleMartin
          • Huh?

            Getting rid of Elop doesn't break any contractual obligations they have with Microsoft, so why ditch him? He returned them to profitability and has overseen the production of what many are calling the best phone on the market (920).
            omdguy
          • Ditch him because of bad results

            Profitability?! Please let's compare Nokia numbers before and after him.
            It's true symbian was going down, but he accelerated the fall in a way never seen before.
            As a consumer I want the best phone, but Nokia must do phones that people want.
            AleMartin