16 February, 2011

Nokia lashes itself to Microsoft for its smartphones

Last week, Nokia, that doyen of phone manufacturing companies, lashed itself to Microsoft's Windows 7 phone operating system for its future smartphones. Nokia is in the midst of turbulent times. Stephen Elop, its new boss of 5 months, sent his staff an memo on 11th February warning them that they were standing on a burning oil platform and risked being consumed by the flames. The firm will also get a new operational structure and leadership team, more of whom will come from outside Finland, aka ‘de-finnistration’.

In 2G and 2.5G phone era, Nokia were all conquering: they perfected the 'candy bar' phone and made an elegant user experience, built on sound technology. As users ventured beyond calling and texting to surfing and dedicated applications, this design started to creak. The advent of touch technology really demonstrated that Nokia had lost its golden touch.

Further details of the partnership: Microsoft's Bing will power Nokia's search services, while Nokia Maps would be a core part of Microsoft's mapping services.

On reflection, this announcement isn't too surprising. Stephen Elop formerly head of Office Products at MS was recruited as Nokia's CEO 5 months ago. He will have the historical and cultural capabilities to make this marriage work.

The tech press have been making a big deal of this announcement. But let's not forget that Nokia still makes about one third of the world's phones and remains extremely powerful in the developing markets of the world. Any phone manufacturer would be delighted to swap places with Nokia.

This isn't a company in crisis, but it does need a kick up the pants. Phone manufacturing today is much more about providing the building blocks for an ecosystem and less about filling the end-to-end solution with single solution technology.

In this respect, I think that, of the two front runners in the smartphone battle, iPhone and Google's Android, Android is better positioned, as Apple remains draconianly closed. However, I do believe that Apple will open its iOS to a greater degree within 18 months' time. RIM's Blackberry remains in trailer in the race and will most probably remain niched in the enterprise market.

Microsoft are likely to be VERY pleased with this new relationship. Historically, it has spent colossal amounts of money on mobile development, with little real traction. Access to this mobile giant (I refuse to call it a dinosaur yet) will bolster its credibility.

However as Rory Cellan-Jones writes in the BBC news story:
The cruel verdict from some is that two turkeys don't make an eagle .... This is a huge moment which could shape the future of an industry.

However what did make me sit up and think was the Economist's analysis (Nokia falls into the arms of Microsoft) and the analysis below of market share vs profits (source is credited to Asymco)



Incumbents are receiving a battering from Apple (particularly Nokia), which is fleecing the profits in the industry. We're likely to see an increasing number of partnerships and acquisitions to counter the Android + iPhone duopoly. I believe it also augers the end of European telcos doing handset manufacture.

One nagging thought: what are the implications for Japanese highly advanced mobile technology, now that the ecosystem battle has superseded the device wars??

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