Nokia’s suicidal alliance with Microsoft

Much has been written about Nokia’s alliance with Microsoft announced last month. I can understand how Nokia CEO Stephen Elop, an ex-Microsoft employee who until recently was its 7th biggest shareholder, would have made this decision that benefited his former employer, but why did Nokia’s board of directors ever agree to this move?

Under attack from the iPhone and Android, Nokia had to take action, but in my opinion this move is almost the worst possible choice. It will be an unmitigated disaster for Nokia. I am not just thinking of countless development engineers who will undoubtedly be laid off now that Nokia will be buying in Windows Phone 7 (WP7) instead of developing operating system software in-house. No, it’s also a major strategic error for the company as a whole and I’ll explain why.

Nokia used to have a great brand name with consumers. Now Symbian phones have “OBSOLETE!” stamped all over them, but that’s all Nokia will have to sell for at least another year. Who is going to buy those obsolete phones, other than at rock-bottom prices? It will be ugly for Nokia’s cash flow. How on earth does Nokia believe it can still sell 150 million Symbian phones between now and their WP7 models replacing them? They’re dead in the water.

I can’t see that Intel would be pleased about what that all means for their cooperation on MeeGo, if WP7 is the future.

In 2008 Nokia acquired Norwegian company Trolltech, developers of the well-regarded Qt cross-platform application and user interface framework. Licensing to commercial users of Qt will be now be transferred to Digia PLC of Finland. Qt will not be ported to WP7. Only a few months ago Stephen Elop still talked about Qt being the common interface for Symbian and MeeGo. Qt was supposed to be the element that ties together Symbian and MeeGo in the mobile world. With Symbian dead and MeeGo on life support and a categorical “NO!” on Qt on WP7, Qt has no future left on mobile. But what else should one expect from a proprietary software company like Microsoft? They have never been keen on applications being ported from Windows to other operating systems, so they want people to use Microsoft tools only.

Nokia’s name is dirt within their developer community because after the announcement the Symbian ecosystem is dead, whatever Nokia would have us believe. It is also hard to believe that Elop had no plans about WP7 a few months ago, when Nokia still fed developers their Symbian / MeeGo / Qt strategy. Many developers must feel deceived. It will be hard for Nokia to regain their trust.

Several hardware makers had worked closely with Microsoft on the previous generation of its phone platform (Windows Mobile), who are now firmly in the Android camp. For example, HTC built the first Microsoft Windows based smartphone in 2002, but released an Android phone in 2008 and shifted the core of its smartphone business to that platform the following year (my Google Ion phone is made by HTC). Though it also offers some WP7 models, the bulk of its smartphone business is now Android.

With Windows Mobile, Microsoft could not translate its dominance on the desktop into traction in the mobile market, so it dumped Windows Mobile, with no compatible upgrade path to WP7. Developers had to rewrite apps from scratch. These early Windows Mobile supporters learned a lesson with Microsoft that Nokia is yet to learn, the hard way: Microsoft always does what’s good for Microsoft, not for its customers or business partners.

Nokia is betting the company on an unproven challenger that is entering the market behind three bigger established competitors (Google, Apple, RIM). Late last year Microsoft boasted ‘sales’ of 1.5 million WP7 phones over a period six weeks. That sounds significant, but what they actually meant by that were phones stuffed into the sales channel, mostly still sitting on shelves at mobile phone stores and not activated phones ringing in the pockets of retail customers. At the same time Google was activating that many Android phones every five days (every 5 1/2 days in the case of the iPhone).

No matter how much market share Nokia will lose over the next few years, whatever market share is left for Nokia with WP7 will still be a gain for Microsoft. And as long as Microsoft still has a steady cash flow from Windows 7 licenses and Microsoft Office it won’t be wiped out by a lukewarm reception for WP7 in the market, which is more than can be said for Nokia.

So why did Nokia make this risky decision? They must have come to the brutal conclusion that the company could not survive long term while still developing their own mobile OSes. Nokia only saw a choice between either switching to Android or to WP7 (or going under).

With Android they would largely have had to compete on the merits of their hardware, as every other Android OEM offers essentially the same software / marketplace “ecosystem”. Nokia didn’t want to compete on price with Asian manufacturers (which, as an aside, is exactly what they’ll have to do with their dead-end Symbian phones for the next year or more, since there will be little new software developed for them now). So if Nokia couldn’t be the top dog amongst Android makers, they could turn the other way and at least take whatever sweeteners they could get from Microsoft, while cutting back their software R&D costs and cutting jobs to weather the storm.

The biggest problem with that strategy in my opinion is that a few years down the road they’ll probably realize that WP7 was a dead end too. Then they’ll still have to make that switch to Android, but having already lost a few years, their good name and a lot of good staff it will be even harder.

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