Microsoft gets best of Nokia in smartphone love-in

Are two 'Steves' better than Steve Jobs?

The announcement that Nokia and Microsoft are joining forces over smartphones by forming a strategic partnership saw two Steves take to the stage in London today - hoping their combined might is enough to challenge the other Steve, Apple's Steve Jobs, and the marching might of Google's Android platform.

"This is now a three-horse race," said Stephen Elop, CEO of Nokia, describing Windows Phone 7 running on Nokia hardware as a "credible alternative" to the iPhone and countless Androids grabbing so much of the smartphone market.

Elop was joined on stage by his former colleague at Microsoft, CEO Steve Ballmer, who revealed the two companies had started discussing a tie-up back in November. "This partnership with Nokia will dramatically accelerate the development of a vibrant, strong Windows Phone 7 ecosystem," said Ballmer.

Nokia CEO Stephen Elop believes the partnership with Microsoft will let them compete with iPhone and Android smartphones
Photo: Nokia

Nokia has struggled to compete against a wave of new mobile competitors in recent years - a fact Elop apparently alluded to earlier this week in a leaked company memo to employees, which described Nokia as standing on a "burning platform". The memo said Nokia's survival depended on taking a leap into the unknown - as confirmed today by a tie-up with Microsoft and its Windows Phone 7 platform.

"Nokia will adopt Windows Phone as our primary smartphone strategy," said Elop. "Together we can deliver iconic hardware, stellar software and unique services for smartphones." Elop added that Nokia had discussed using Google's Android platform but had decided the risk of commoditisation was too great.

"We absolutely spent time with our colleagues at Google. We explored the opportunity with the Google ecosystem and indeed it's moving very quickly, it's gaining share. There are some attractive elements to it," said Elop. "However, our fundamental belief is that we would have had difficulty differentiating within that ecosystem."

"We have very clear plans that allow us to differentiate within the Windows Phone ecosystem - very much as a function of our unique relationship with Microsoft," he added.

Banking on MeeGo to create a viable smartphone ecosystem was also...

...dismissed in favour of backing WP7 because of concerns about how quickly Nokia could develop "a third ecosystem", said Elop.

For Microsoft, the tie-up with Nokia offers the chance to accelerate a nascent platform - launched with much fanfare last year but which has not yet made a serious dent in rivals' market share.

Last month, analyst house Canalys reported Android had overtaken Symbian as the world's most popular smartphone OS - grabbing almost a third of the market. Apple's iOS was third, with 16 per cent market share, while Microsoft - with WP7 and its legacy Windows Mobile platform - claimed just 3.1 per cent of the market.

The Windows Phone 7 operating system, launched last October, gives users access to Office programs including Excel
Photo: Natasha Lomas/silicon.com

Commenting on the Nokia-Microsoft tie-up, analysts said Ballmer is likely to be the happier of the two Steves - but noted that Nokia's options to get back in the smartphone game were limited.

"It's a good deal for both of them," said Nick Dillon, analyst at Ovum. "There are probably more benefits to Microsoft - in that they get a very strong hardware partner to help advance their platform. But Nokia gets the ability to get quickly back in the game and compete at the top level of the smartphone market with a quite advanced smartphone operating system so there are benefits for both of them."

"Nokia needed to do something drastic - if they'd waited for MeeGo, which was looking like it was going to be ready towards the end of the year, it would have been pretty disastrous," he added. "They need to make up as much lost ground as possible."

Forrester principal analyst Ian Fogg, added: "This is a massive win for Microsoft but this gives Nokia a credible smartphone platform in the market. Recently their smartphones have been differentiated in the market but they've been...

...negatively differentiated - their smartphone software has actually undermined the product proposition, not enhanced it, so with this they gain parity with the best of the opposition."

"It's probably the best thing that Nokia could have done," said Gartner analyst Carolina Milanesi. "Going with Android would have been even more complicated and even more of a less-balanced relationship between the companies."

Milanesi suggested the Mokia tie-up could see other Windows Phone 7 device makers jettison the platform, rather than play second fiddle to Microsoft's principal WP7 partner. "I really think this is the end of other ODMs wanting to do Windows. I really very much doubt that HTC, Samsung and LG will continue to be as committed to the platform now that Nokia will be preferential partner because nobody else will get that integration on the services side. Why would they?" she said. "With the scale that Nokia can do, they also know that Nokia can take the platform to prices that they can't go to, making the same money."

Should Apple and Google be worried about the newest marriage in mobile? "I think they've got reason to be concerned," said Ovum's Dillon. "It's obviously a more fearsome competitor now than they were in their individual parts. In the short term, especially, it's going to get Nokia back in the game.

"[Windows Phone 7] has been disappointing for the effort Microsoft put into it - it hasn't really resulted in the sales they were hoping for, it hasn't performed as well as it probably should have. So this for them will give them that real shot in the arm to give that platform a kick and raise it up to the same level so it can compete with the others."

"These are two very powerful companies that have got strong reach in developers but also market reach as well and distribution, so I certainly wouldn't write them off," he added.

"The long-term success of this partnership will rest on the companies' ability to bring a portfolio of smartphone products to the market quickly, without which Windows Phone 7 may be rendered irrelevant by its competing platforms," added Forrester's Fogg.

"Also, the companies must convince developers to raise the priority of Windows Phone as they bring innovative products to market."