Uphill battle seen for new Nokia-Microsoft partnership

After ending days of speculation and announcing an agreement that would make Windows Phone 7the primary operating system for its smartphones Nokia and new partner Microsoft now face a long uphill battle against Apple’s iPhone and Google’s Android.

Microsoft is already working with Nokia on the company’s first Windows phone, and the companies are in discussion with chip manufacturers, the companies said. However, they gave no indication of when the phone will go on sale.

In its partnership with Microsoft, Nokia will contribute its hardware design and language support, and help bring Windows Phone 7 to a larger range of price points, market segments and geographies, the companies said in an open letter from Nokia CEO StephenElop and Microsoft CEO Steve Ballmer.

The companies will also partner on mobile ads — where Nokia will use Microsoft adCenter in mobile devices — and on mapping, where Nokia Maps will become part of Microsoft’s Bing search engine. Nokia’s application and content store will be integrated into Microsoft’s Marketplace.

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Technology analysts that spoke to ITBusiness.ca say agree that deal is a win-win situation for both companies but Nokia and Microsoft have their work cut out for them in order to compete with the current market leaders.

“This was a bold move that makes sense. In the short run, it keeps Nokia from spiraling down any further and it solves Microsoft’s problems of finding an ideal distribution platform for it operating system,” according to Kye Husbands, co-founder and CIO of MyCellMyTerms at Toronto-based cellphone service broker.

“Somewhere along the line Nokia had to admit that its Symbian OS has failed to cut it in the current smartphone market. That said, Windows Phone 7 still has to prove itself against iOS and Android,” he added.

Brandon Mensinga, senior mobile analyst for IDC Canada, said Windows Phone 7 has so far done poorly since its launch. “The OS has a good user interface but it has not been selling well lately.”

“It’s tough to speculate on how this partnership will do and how phone users will react until the two companies have released a product,” Mensinga said.

Mark Tauschek, research director and lead analyst for Info-Tech Research Group in London, Ont, cautioned that “it could take a year before anything the partnership produce picks up.” He said it might be well into 2012 before a Nokia Windows Phone 7 handset comes to market.

“On thing to think about is that within that time frame, no one will be investing in Symbian. Anything that Nokia does until Windows Phone 7 will not get enough pick-up,” Tauschek said.

Build, catalyze or join

Before today’s announcement, Nokia’s Elop had stated that Nokia needed to “decide how we either build, catalyze or join an ecosystem” to change its fortunes. In the end it decided to partner with Microsoft and join the Windows Phone 7 ecosystem.

In the competition between mobile phone manufacturers and OS vendors to make their platforms more attractive to developers and customers, Research In Motion isn’t even in the running, according to Elop. “This is now a three-horse race,” he said.

Elop was president of Microsoft’s business software group until Nokia named him as CEO last September.

Nokia had approached Google about using its Android OS, but ultimately decided it didn’t want to play in a commodity market, Elop said. Adopting Android would also give Google too much of the services revenue associated with the phones, he said.

Tauschek of Info-Tech said although Android enjoys a better market position than Windows Phone 7, it would have done Nokia little good to go with Google’s OS.

“There are so many handsets already running on Android and with Nokia jumping onboard very late in the game it would have been very hard for the Finnish company to differentiate its products,” he said.

Related story – Windows Phone 7, Android gain smartphone market share

Nokia won’t abandon its own platforms, Symbian and MeeGo, yet. The company still plans to put out a “MeeGo-related” product later this year, it said. However, Alberto Torres, who headed Nokia’s MeeGo push, stepped down from the management team on Thursday to pursue other interests outside the company, Nokia said.

Nokia “expects to sell 150 million more Symbian devices in the years to come,” it said. In the fourth quarter it sold 28.3 million.

The company needs Symbian to continue as a strong platform in the interim period before Windows Phone 7 is up and running, according to Ben Wood, director of research at CCS Insight.

As recently as December, Nokia planned to roll out four or five upgrades to its Symbian OS in the next 12 to 15 months, adding a new look for the user interface and a more flexible home screen, according to a presentation given at the 2010 International Mobile Internet Conference in Beijing.

Nokia is hoping to put an end to a downward spiral that started in 2007, the year in which the first version of Apple’s iPhone arrived and Google announced Android.

At the time, Nokia’s smartphone market share was almost 50 per cent for the full year, compared to Apple’s 2.7 per cent, according to Gartner. The first Android-based phone still hadn’t arrived. But by the fourth quarter of 2010, Nokia’s market share had dropped to 30.8 per cent, Android had caught up and Apple had increased its market share to 16 percent.

With Windows Phone 7, Nokia will have access to an OS ecosystem that can compete with Apple’s iPhone and Android, said Husbands of MyCellMyTerms.

“In the short period that Windows Phone 7 has been in the market, it already enjoys good developer support and is closing in on BlackBerry with regard to the number of apps available,” he said.

Another plus for Windows Phone 7 is its interface with Xbox Live. “This is a fantastic differentiator in the consumer market. Other handsets offer games but they do not approach the level of sophistication you get from Xbox,” Husbands said.He said the partnership with Microsoft provides Nokia with scalability and a shot a going global. “Nokia has very little no presence in the North American smartphone market, so they are not part of the conversation here. That could change with Microsoft’s help.”

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Microsoft, on the other hand, according to Mensinga of IDC has been looking for a reliable handset platform for its mobile operating system. “Although they have HTC, Samsung and LG, these makers are also available to Android.””Despite its sliding sales, Nokia is still the world’s biggest mobile phone manufacturer,” he said.

The big question for Nokia

The big question is how Nokia is going to differentiate its products from other Windows Phone 7 smartphones.

One area it may do that is in the services its phones offer. The partnership with Microsoft goes much further in that area than anyone had anticipated, according to Ben Wood, director of research at CCS Insight. That will likely give Nokia more influence than other licensees over that element of the platform, he said.

Windows Phone 7 is far from a safe bet, however, as it, together with Microsoft’s older Windows Mobile OS, only managed to grab 3.4 per cent of the smartphone market during the fourth quarter, according to Gartner.

That may change as Nokia brings to bear its channel network and production capacity. Microsoft is also partnering with a company seemingly willing to put all its might behind Windows Phone 7 in the high-end smartphone segment.

There is no silver bullet for either company, given the strength of iPhone and Android, CCS Insight said in a research note.

On Friday, Nokia also announced that as of April 1 it will have a new company structure. The Smart Devices unit will produce high-end smart phones running Windows Phone 7, and will also manage the company’s Symbian and Meego activities. The Mobile Phones unit will produce mass-market mobile phones, Nokia said.

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