Nokia and Microsoft's Windows Phone 7: It could work, but why stop there?

Nokia is reportedly mulling whether to offer Windows Phone 7 phones according to the rumor mill.

The idea isn't half bad.

First, these rumors may be completely half baked, but they do add up and have appeared before. Nokia CEO Stephen Elop is a former Microsoft man. He's evaluating the Nokia's prospects and aiming to reposition the company. By now he has figured out that Nokia's core competency is hardware and scale.

Of course, Nokia may have some software mojo, but it has been consolidating its Symbian efforts. Meanwhile other analysts have said Nokia should ponder Android devices. Why stop there? Nokia should evaluate Windows Phone 7 and Android devices. Why shouldn't Nokia be a player more like HTC or Motorola, two companies that primarily focus on hardware?

Nokia should hedge its bets on software across the board. Nokia should offer Android, Symbian and Windows Phone 7 devices.

Here's the Google Translation of Eldar Murtazin's newsletter on Nokia-Microsoft:

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.

One quick thing to note: Desperation can sometimes work. Windows Phone 7 is a good mobile operating system in search of distribution. Nokia has scale, global reach and products for every price point. Nokia has everything but an OS. On paper, the Nokia-Microsoft thing could work. Matthew Miller notes:

I am personally a fan of the new Windows Phone 7 operating system, I have always been a Windows Mobile fan, and also enjoy using Nokia devices. WP7 is obviously a much more modern and exciting operating system than the current Symbian OS found on devices like the Nokia N8, but Nokia is working hard on future versions of Symbian and their MeeGo OS with Intel so I highly doubt they are going to throw in the towel and adopt a Microsoft OS that is in its infancy and has a long way to go. If they were going to adopt another OS, it would make more sense to go with Android that is far more advanced and selling at a much faster pace than anything else at the moment.

Wharton professor Kartik Hosanagar said in a recent Knowlege@Wharton article:

Not owning the software platform used in its phones means that Nokia would be "giving up significant revenue and profit potential. So it wouldn't be my first strategy. But if Nokia can't get its act together in a year, I think it may well be the only thing to do. I think Android on Nokia could be very appealing to consumers. But Nokia is not going to embrace the Android bandwagon so soon. There's the issue of giving up on a lucrative software platform. And then there's the question of whether a former Microsoft exec will so easily embrace Google's Android."

Other Wharton profs say that Nokia's choice of operating system is the biggest decision Elop will make.

Miller calls the Windows Phone 7-Nokia rumors wild, but I don't see Nokia's software strategy as a zero sum affair. Nokia should hedge its mobile OS bets in a few places. And Microsoft would give Nokia some sweet terms just to get distribution. Nokia's future business model may look a lot more like HTC's.

Nokia's choice is to fight the last war or move forward. When it comes to mobile Microsoft is basically in the same boat. Those facts may make Nokia and Microsoft good allies.

Also see the latest on Nokia and Windows Phone 7.