Friday, June 24, 2011

Implementation of the Nokia & Microsoft partnership in the smart phone space and Nokia's strategy to counter Android and Apple. Questions!

Nokia is the world leader in mobile phone sales, both by volume and by value. Headquartered in Finland, it is one of the most prominent telecommunications company in the world. Similarly, Microsoft is one of the largest software makers in the world by value and volume. However in the mobile space, both the organizations have been losing market share in recent years as newer and better rivals have sprung up to capture niche segments or have created their own segments entirely. If we take the Smartphone market, Nokia’s share in 2008 was by far the largest at 47.4% worldwide. Today it has reached 31% and is at the number 2 spot after Android phones (Owned by Google). Considering that smart phones constitute 30% of Nokia’s revenues and are the fastest and probably the only growing segment of the market for mobile phones, this is a major challenge for Nokia. Smart phones are expected to deliver 50% of the revenues for mobile companies by 2014. Similarly Microsoft in 2004 accounted for 24% of the smart phone market. Today they are languishing at around 3%. Almost the entire market for Microsoft has been usurped by Google’s Android and to a smaller extent, Apple’s iOS.

Nokia had its own operating platform (OS), Symbian OS, which was acquired by the organization in 2008 (Nokia was a majority shareholder in Symbian Ltd till then). It was the most popular platform till 2010 when Android overtook it. It was considered a very good OS for long but during the 2008-2010 period, Google and iOS came up with better platforms and concepts like App stores (consisting of 3rd party applications) which revolutionized the industry. Nokia was slow in reacting to these changes, even though its phones are still considered highly feature rich. Another problem associated with Nokia phones is the sheer number of models which can confuse a customer as to the relevant one for their needs. In recent years, the models have also been criticised as having bland and unappealing looks relative to the competitors. In a similar way, Microsoft’s Mobile operating system was considered a strong contender, particularly in the business and enterprise consumer space but lost its way over the same period of 2008-2010. Steve Ballmer, the CEO of Microsoft, admitted recently that Microsoft had lost its way in the Smartphone segment. The Mobile operating systems version 6.0 and later 6.5 were considered outdated and had problems in adapting to newer hardware systems like ‘capacitive touch screens’ like the ones on latest generation smart phones. They were also very slow in introducing app stores for 3rd party applications so the major developers moved to Android and Apple to create applications for their systems. Furthermore, Microsoft charged $25 per phone for the use of its Smartphone OS while Google gave it away for free as OS was not the driver for Google. They were concentrating on the search and advertising market. Their latest OS, Windows Phone 7 (WP7), which had been completely redesigned as a consumer phone rather than a business phone was well received by critics but lacked a major phone partner to create a worldwide reach and penetration.

On 11th Feb 2011, Microsoft and Nokia joined hands as a strategic alliance where Windows 7 would replace Symbian completely for Nokia’s range of smart phones. The application stores of the two parties would be merged, Bing search would become the primary search engine on the phones and Nokia Maps would become the primary mapping feature. Nokia would also be able to customize the WP7 to a certain extent. As Nokia is the largest phone maker, and WP7 is considered a good platform, this alliance will a strong contender against Android and Apple. This was reflected in the Nokia CEO statement where he mentioned that it is now a “3 horse race”.

I consider this a challenging strategy for Nokia and Microsoft as it has suddenly been forced to create an alliance which has both pros and cons for the companies. If successful, it can significantly disrupt their opponents lead and propel them to the top of the Smartphone segment while creating a huge branding opportunity for the parties as dynamic entities (a tag that they had lost over the years). However, since this is an as yet untested partnership, it can create problems in delivering the products that were conceived. They will be forced to create a relatively stable Mobile Ecosystem in a short duration across the world which can be a very challenging task as the bulk of the developers are in the Android and Apple camps. The Strategy that they implement would need to be clearly defined without any ambiguity to take on their competitors. Currently the phone line-ups have not been finalised and this would be an ideal starting point for their strategy. Would they like to replicate the fragmented approach of Google or the niche offerings of Apple I phones. How would Nokia differentiate its phones once Windows licences its OS to other phone manufacturers like HTC or Samsung. How would Symbian and WP7 coexist since Symbian would be sold in middle and low end phone for a long time as mentioned by Nokia? Finally, who would be in charge of the mobile operating system research and development for the alliance since Nokia would become only a handset manufacturer if it decides to let go of mobile operating systems completely. These are some of the questions that Nokia urgently needs to find answers to...

1. Nokia - Microsoft Partnership Risks
2. Nokia - Microsoft Partnership recommendations