WP7-loving Nokia faces muddy future, says analyst

Microsoft-Nokia deal a clear win for Ballmer as Mighty Finn faces uphill battle to differentiate...

Microsoft-Nokia deal a clear win for Ballmer as Mighty Finn faces uphill battle to differentiate...

Nokia's Stephen Elop and Microsoft's Steve Ballmer

Nokia CEO Stephen Elop and Microsoft CEO Steve Ballmer share a stage to announce their strategic alliance earlier this month
Photo: David Meyer/ZDNET UK

The Microsoft-Nokia strategic partnership for Windows Phone 7 (WP7), announced earlier this month, is a "clear win" for Redmond, according to analyst In-Stat. But the long-term outlook for Nokia is much muddier, it said.

Microsoft and Nokia announced their alliance over WP7 on the eve of last week's Mobile World Congress (MWC) trade show. The Mokia love-in was the number one topic on the lips of MWC delegates, according to In-Stat's chief technology strategist, Jim McGregor, writing in an MWC follow-up yesterday.

While not a guaranteed success for Redmond, McGregor described Mokia as good for Microsoft: "The deal provides Microsoft with a tier-one handset manufacturer, providing validity to its solution and an installed base to a world of potential developers," he said in a statement.

The size of the development community in a smartphone ecosystem and the apps they produce are key differentiators in the mobile OS wars that now fiercely wage, noted McGregor. This situation means that recruiting the world's largest mobile maker to its ecosystem gives Microsoft's WP7 a lot more heft than it had before.

"App developers are profit maximisers," noted McGregor. "They want to develop for the largest installed base possible."

However, Nokia's benefits from Mokia are less clear-cut, according to the analyst. In the short term, the Mighty Finn has succeeded in fashioning a strategy to bite back at Apple and Android. And by plumping for WP7 - instead of Android - Nokia can be sure of a cheaper and faster way back into the smartphone game, said McGregor, because it avoids the UI investments and integration work that would have been required had it selected Android.

"Microsoft offered a credible 'fully baked' solution with guaranteed engineering support that provides the shortest time to market," he noted. "Had Nokia chosen Android, Nokia would still have had some significant user interface and integration work to complete. Royalty-free after all does not mean investment-free."

"I believe the quote was, 'Microsoft will save us billions'," he added.

Yet this short-term win is offset by "troubling" signs for Nokia because it has to rely on Microsoft to differentiate its devices over the long term. Doing something different with the OS is going to be tricky, as other mobile makers are also able to license WP7, noted McGregor.

Other areas Nokia might try to differentiate WP7 handsets - internal tech specs and hardware design - are already near level playing fields across the smartphone market, according to McGregor, giving Elop and co few options for standing out in an increasingly crowded marketplace.

"There are only so many ways a company can build a 3.5-inch to five-inch, black, touchscreen smartphone," he said. "The only basis for differentiation left is cost, which is a battle I would not want to wage against the fierce and innovative Asian OEMs and ODMs."

Differentiation aside, the Mokia alliance also has risks because the WP7 OS has a less nimble update model than that of competitors such as Google's Android OS, said McGregor. It also faces stiff competition to win developers.

"Today's software is built starting with a kernel and building up. This allows software vendors to be more nimble and churn out new versions at a faster cadence - every six months in the case of Android - and to scale the OS according to a wide variety of devices," noted McGregor. "Microsoft seems to be content with an annual cadence, making it less responsive to market movement, and in putting everything into the OS, making it difficult to differentiate and to scale down."

"This is clearly a case where Nokia had to bet the farm on its future success," he added. "Ultimately, this may work out; however, rosy prospects for Nokia are certainly not guaranteed."

Nokia's CEO Stephen Elop cut a tireless figure at MWC last week, hosting a press briefing on the eve of the trade show to field questions about the Microsoft marriage, before joining Microsoft CEO Steve Ballmer on stage during Ballmer's MWC keynote to reiterate why adopting WP7 is good for Nokia. The former Microsoft exec told delegates, "Microsoft and Nokia together represent a natural partnership".

Elop returned to the stage to give his own MWC keynote, talking up Nokia's ambitions to "connect the unconnected" by building devices for people in developing countries who are yet to get online. "Eighty per cent of the world's population is within cell phone signal range yet only 20 per cent are somehow connected to the internet - collectively we can all change that," he told delegates.

With Nokia's ultimate aim of replacing its remaining low-end OS, Symbian, with WP7 over the next few years, the handsets Elop is intending to fire at "the next billion" are likely to have Microsoft's Windows Phone OS inside them - a prospect that will surely bring a big smile to the other Steve - Ballmer's - face.