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

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.

"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.