02:42 PM
Dave Methvin
Dave Methvin

Nokia Makes Last Stand With Microsoft

Former Redmond exec Stephen Elop has firmly hitched Nokia's fortunes to Windows Phone 7 in a do-or-die move to ensure the handset maker's survival in the smartphone market.

When Nokia and Microsoft announced their alliance last week, it was a big win for Microsoft and the beginning of a serious corporate change for Nokia and its employees. There is no doubt at all that Nokia needed to do something; the debate centers on whether this is the best something that could be done.

Nokia has dominated the non-smartphone industry and is still the biggest player in much of the world, but it has been seriously eclipsed in smartphones -- first by by RIM, later by Apple's iPhone and Google's Android. In the United States, go to your carrier's local store and just try to find a Nokia phone; the company doesn't have a credible presence in the American market anymore. Even online, pickings are slim. Verizon and Sprint don't offer Nokia phones. AT&T has just one, the 6350 feature phone. T-Mobile has two smartphones (E73 and 5230) plus the extremely basic 2330.

The ironic thing about such a poor selection in the United States is that Nokia makes the largest and most confusing menagerie of phones in the world. Go to the U.K. Web site for Nokia and you'll find more than 100 models. No, that isn't the selection offered by one carrier, that's more than 100 phones from one manufacturer. Whatever Nokia does to streamline the software side of their business, it won't make much of a difference unless they also trim their massive and undistinguished phone portfolio. They need to focus on a few sexy smartphones so they can effectively advertise them, because advertising just the Nokia brand will get nowhere around these parts.

We don't know the specifics of the deal Nokia CEO Stephen Elop cut with Microsoft, although Elop hinted Microsoft is paying the company north of $1 billion. Even so, I don't see a lot of downside for Microsoft no matter how it plays out. Microsoft needs some positive buzz and support for its Windows Phone platform; landing Nokia ensures a major phone maker will be evangelizing it. The deal also provides a strong partner for understanding and penetrating the European market. Will Nokia participate with Windows Phone in some special way, or will they be on equal footing with the other phone makers? I wouldn't expect Nokia to be committing a large staff to WP7 development, since cutting those costs is one of the reasons they decided on WP7 in the first place. That is also probably good for Microsoft, though.

Just because this deal is delicious for Microsoft doesn't make it unsavory for Nokia -- the status quo was just unacceptable, and Nokia knew it. As a result of the Microsoft deal, Nokia has the opportunity to considerably shrink their software team and costs. But this move definitely changes the Nokia corporate image, and companies often have problems dealing with being knocked down a notch. It's hard to understate what a fundamental change of direction this downsizing represents for Nokia. This is a company that thought highly of itself, taking on the challenges of supporting not just one but several different mobile software platforms across hundreds of phone models. The result was confusing and unproductive, not something worthy of being called a strategy.

Nokia is not a company known for its software design or development prowess, yet it invested deeply in software. Now they are basically relegating themselves to the level of a phone OEM, like Samsung, LG, Motorola, or HTC. Perhaps they will have a bit more leverage with Microsoft on some issues, but given Nokia's sorry smartphone history it would be folly for Microsoft to leave the direction of Windows Phone 7 in Nokia's hands.

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