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Second Thoughts about a Nokia-Microsoft Marriage

by Mark W. Hibben

The Would-be Matchmaker

Last week’s letter in the Financial Times by Adnaan Ahmad of Berenberg Bank urging a mobile phone alliance between Microsoft and Nokia set off a wave of prenuptial celebration in the financial markets, and I was initially glad to hear someone else take up the call I had first made on January 3, 2011.  On the surface, it all sounds logical to the point of inevitability: Nokia, under the leadership of Stephen Elop (former Microsoft executive), discards Symbian in favor of Windows Phone 7, thereby cutting their own development costs while being able to offer a truly “competitive” mobile OS.  In return, Microsoft gains a waiting multitude of Nokia users just dying to upgrade out of Symbian.  There’s just one problem with this scenario.  In roughly the same amount of time (Q4, 2010), that Microsoft reported that 1.5 million Win7 phones had been shipped by manufacturers, Nokia sold a reported 3.5-4 million Nokia N8 phones, running the latest touch-enabled Symbian^3 OS. 

In his letter, Mr. Ahmad even acknowledged that the shipments of WP7 represented failure, the first analyst I’ve come across to do so.  It’s easy to see the benefits to Microsoft of the proposed union, but what’s in it for Nokia?

. . . in the Details

Mr. Ahmad rightly points out in his letter that Android is a crowded ecosystem where Nokia would be just another manufacturer, so Android is a no-go, according to him. But at least Android has decent market share, even if this has been exaggerated by Gartner and others.  WP7 can't offer even this, for now, although I'm sure that Microsoft would claim that it will come with time.  Time is no-one's friend in the Mobile Internet Wars.  The pace of innovation is furious even by contemporary technology standards.  Ahmad also pushes an exclusive deal with Microsoft, perhaps anticipating as had I that Nokia would want this, but never addresses how contrary to Microsoft's extant business model such exclusivity would be. 

So I see two major stumbling blocks to the marriage:

1.    The perception by Nokia's board and Finnish owners that moving from Symbian to WP7 amounts to stepping from one sinking ship to another that's sinking even faster.  Even if the number of N8 shipments reported by the Finnish site Inderes were inflated, and the N8 shipments merely comparable to WP7 in Q4 2010, the perception is little changed. 
2.    An exclusive deal is so contrary to Microsoft's business model that, coupled with Microsoft's institutional arrogance, Microsoft would only offer (non-exclusively) the same OS as currently used by other WP7 phone manufacturers.  Since WP7 only runs on the 1 GHz Cortex-A8 based Snapdragon processor, this would require that Nokia adopt the Snapdragon as well as WP7 in the near term.  Offering WP7 non-exclusively would be such an admission of failure by Nokia that I wonder whether they could bring themselves to do it.

Courtship without Commitment

However willing Microsoft might be to play the role, Nokia management probably don't regard Microsoft as the knight in shining armor ready to ride to Nokia's rescue.  Perhaps the best choice under the circumstances is also the most distasteful to Nokia: to offer WP7 non-exclusively.  This could be done in the name of offering greater choice to Nokia customers, while not tying Nokia's hands.  Nokia would be free to offer Symbian variants, Meego, or even Android.  This would still be a bitter pill for the Symbian supporters within Nokia, but at least they would not have to stomach the immediate dismantling of Symbian.  On February 11, Nokia will hold its Strategy and Financial Briefing in London, and speculation is rampant that a Microsoft partnership will be announced there.  If there is such an announcement, I hope it's of the non-exclusive variety.

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    Match Maker
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    ...In the Details
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