Nokia has announced a broad strategic partnership with Microsoft to integrated Windows Phone 7, Bing, Office, and XBox Live with their phone devices.
Nokia’s phone market share dipped from 36.7% in Q3 2009 to 28.2% in Q3 of 2010, over the span of one year. This prompted Nokia to react. They did so by changing the CEO with Stephen Elop, former head of Microsoft’s Business Division, in September 2010. Major changes were expected if Nokia were to maintain a leading position in the booming phone market, and they have come.
Reports of an internal memo from Nokia’s CEO to employees surfaced earlier this week. Elop was very open and direct. He compared Nokia with a burning platform in the North Sea, and the only option is to jump off the platform into the unknown:
We too, are standing on a "burning platform," and we must decide how we are going to change our behavior. …
There is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem. …
And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.
Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.
Then Elop mentions internal developments at Nokia, complaining about having great innovation inside the company but being brought to market too slowly:
We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.
At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms.
But the main problem seems to be the lack of an ecosystem, according to Elop:
Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyze or join an ecosystem.
This is one of the decisions we need to make.
This report which was published first by Engadget seems genuine especially in the light of the new announcements coming from Nokia. Following is an outline of decisions made by Nokia:
- Nokia will partner with Microsoft to create a new global ecosystem for mobile devices offering devices, tools and services for consumers, operators and developers
- Nokia will make Windows Phone 7 their main mobile platform, and they will influence Phone 7’s future development, the two companies building their mobile strategy and roadmaps together
- Nokia will use Bing as the search engine and Microsoft’s adCenter for advertising services. As a result of this move, Microsoft will use Nokia Maps
- Application development for Nokia Windows Phones will be done with Microsoft tools
- Nokia will integrate their app store with Microsoft Marketplace
This strategic alliance is not just a major change for Nokia with potential benefits in the future, but it is also a much needed boost for Microsoft’s lingering platform, Windows Phone 7. Microsoft’s OS will now be installed on hundreds of millions of Nokia phones.
Nokia has also announced organizational and management changes. There will be two distinct divisions inside Nokia, Smart Devices and Mobile Phones, each with “profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.” The Mobile Division will materialize the partnership with Microsoft while Smart Devices will target the high-end smartphone market, including Symbian smartphones and MeeGo computers. It is not clear if all Nokia phones will come with Windows Phone 7 in the future because an important product line, called Series 40, will continue to have “enhanced Java support and new SDKs”, according to a Nokia blog post.
Steve Ballmer, Microsoft’s CEO, added in a joint statement with Elop that this partnership will also include Office and XBox Live.
As a side note, Vic Gundrota, VP of Engineering at Google, commented on Nokia and Microsoft’s alliance: "Two turkeys do not make an Eagle".
It remains to be seen how effective this strategic alliance between world’s largest phone manufacturer and world’s (former) largest software developer will be. One thing is sure, this move is a disruptive one.
