Why Microsoft Is Nokia’s Last Best Hope [OPINION]

by Christina Warren
As rumored, Nokia announced Friday that it is entering into a “broad strategic partnership” with Microsoft and adopting Windows Phone 7 as its primary smartphone strategy.
The announcement came days after a leaked memo from Nokia CEO Stephen Elop hit the press. The memo, which was unusually frank, referred to Nokia as “standing on a burning platform” in the face of competition from Google and Apple. With Symbian barely clinging to its lead in the smartphone space and MeeGo still not shipping, Nokia needed to do something drastic. This is drastic. It’s also Nokia’s only option.
Tomi Ahonen, mobile analyst and former Nokia executive, disagrees (Ahonen also doubted the authenticity of Elop’s memo), but he is one of the few commentators in the wireless industry who actually thinks Nokia’s old smartphone strategy was correct.
The problems Nokia faces are already well documented — most notably by Elop himself — and when looking at its possible options, it becomes clear that partnering with Microsoft is the company’s only hope of reversing course.

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Why Not Android?

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Before Friday’s announcement, some speculated that Nokia could be announcing that it planned to embrace Google’s Android OS rather than Windows Phone 7. After all, the momentum behind Android shows no signs of slowing down, and with Honeycomb around the corner, the spectrum of Android-based devices continues to increase.
If it were 2008 and not 2011, Android might be a good option for Nokia. Back then, Android was unproven, and handset makers were still waiting things out to see if the platform was worth a significant investment. Companies that aligned with Android early on — like HTC and Motorola — have flourished in the smartphone space.
In 2011, however, the Android ecosystem is crowded. Many of the biggest Android handset makers are former Symbian licensees. If Nokia were to adopt Android, it would be entering a competitive space and be forced to differentiate itself from the rest of the pack.
With Microsoft, Nokia is joining a platform that is just starting out. Yes, OEMs have already signed on to Windows Phone 7, but the platform is still in its beginning stages.
At the Nokia Conversations blog, the company writes:

Nokia wouldn’t be just be another Windows Phone OEM. Nokia plans to help drive and define the future of the platform. That could include contributing expertise on hardware optimization, language support, customization of the software and helping bring Windows Phone to a larger range of price points, market segments and geographies.

Nokia has a real chance to help influence and shape Windows Phone 7. Microsoft seems to be willing to give Nokia power and authority over the platform that Google hasn’t extended to any of its licensing partners.

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Developer Culture

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It might not be sexy, but the Symbian ecosystem is vast. Even before its purchase of Symbian in 2008, Nokia has always pursued strong relationships with developers and developer partners. When building out a new platform — or ecosystem as Nokia is calling it — these sorts of relationships are crucial.
Microsoft and Nokia have very similar approaches when it comes to developer communications. Both companies do a good job of getting developers the tools that they need.
Developing and deploying apps is about more than just the SDK and the toolkit — it’s also about the underlying market infrastructure and the support. For all of Android’s strengths, Google’s overall developer support is still lackluster and deploying pay apps in countries that are not supported by Google Checkout requires developers to make individual carrier agreements or seek alternative app stores.
Meanwhile, with Windows Phone 7, Nokia will be pushing developers onto an ecosystem for which Microsoft will provide the tools, documentation and support, and Nokia will still be bringing its own backend infrastructure to the party. Nokia’s press release specifically states that its operator billing agreements will be carried over into Windows Phone 7. In other words, developers that follow Nokia to Windows Phone 7 won’t be losing the existing support ecosystems already in place.
Moreover, because Nokia is coming on-board as a strategic partner and not just as another OEM, the company should have an impact on future developments of Windows Phone 7′s hardware and software.
For developers, that means that the innovations that Nokia has introduced in the past may find their way into Windows Phone 7. Nokia has reiterated that it sees this partnership as a way to bring Windows Phone to more geographies and more price points. For developers looking to target lower-priced phones while still working on a current, modern platform, Nokia’s contributions to Windows Phone 7 might just make the platform more attractive.

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Execution is Essential

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Partnering with Microsoft may have been Nokia’s only option, but it isn’t a guarantee of success. As Google’s Vic Gundotra tweeted, “two turkeys do not make an eagle.” I would take issue with classifying either Microsoft or Nokia as turkeys, but the point is, this is a partnership that absolutely relies on a solid execution strategy.
The faster that Nokia and Microsoft can sign a definitive agreement, the better. Both Nokia and Microsoft have been slow to adapt to the changing nature of the smartphone market. The longer it takes for the first Nokia-branded Windows Phone to hit stores, the lower the chances for success it will have.

Gartner: Symbian Is Still the Number One Smartphone Platform [REPORT]

by Stan Schroeder

A recent report from Canalys touted Android as the top smartphone platform in Q4 2010, but a new report from Gartner disputes that claim.
According to Gartner, Symbian barely edged out Android in the fourth quarter with the help of Symbian-based products by Fujitsu and Sharp, and legacy products from Sony Ericsson and Samsung.
The trend, however, is clear in both reports. According to Gartner, Android grew 888.8 percent in 2010 with 67 million units sold, which made it the number-two smartphone platform. Nokia’s Symbian is still in first place with 111.6 million units sold in 2010, but it’s not growing fast enough to keep up with the exploding smartphone market, which is why it dropped from 46.9% market share in 2009 to 37.6% in 2010.
Another winner besides Android in 2010 was Apple’s iOS, which nearly caught up with RIM’s BlackBerry OS, with 15.7% market share and 46.6 million units sold compared to RIM’s 16% share and 47.5 million units sold.
In the near future, Symbian’s market share will surely drop some more. Nokia CEO Stephen Elop announced radical changes with his “Burning Platform” memo several days ago, and a recent tweet by Google’s Vic Gundotra (claiming that “two turkeys do not make an eagle”) fuel speculation that Nokia is about to embrace Microsoft’s mobile platform, Windows Phone 7.
With 4.2% market share in 2010, Microsoft is still tiny compared to its competitors, but with Nokia on its side, it might become a formidable player in the smartphone market. However (and if Nokia really plans to team up with Microsoft and switch to Windows Phone 7), many questions remain unanswered. For a huge company such as Nokia switching to yet another smartphone platform will likely be a painful process, and it might take months or even years before we see the results of Nokia’s change in strategy.
One thing is certain: the table above will change dramatically by the end of 2011.
Gartner’s report is available here.

Nokia CEO Says Company Is Standing on a “Burning Platform”

by Stan Schroeder

“We too, are standing on a ‘burning platform,’ and we must decide how we are going to change our behaviour.”
This quote comes from Nokia CEO Stephen Elop. The platform that he refers to is metaphorical, but one can easily understand it as Symbian, or Maemo, or MeeGo or any of Nokia’s attempts at developing or upgrading a smartphone platform that would be competitive with the modern mobile operating systems, such as Apple’s iOS or Google’s Android.
To many users, it’s been apparent for years that Nokia has failed to keep up with competitors. It is now easy to substantiate this claim, as Nokia has been rapidly losing smartphone market share in the past couple quarters. But it’s been even easier to realize this by using a smartphone built by Nokia and an iPhone or Android device. Simply put, Nokia’s smartphones aren’t good enough.
Now, in a surprisingly honest internal memo, Elop has addressed Nokia’s employees, admitting exactly that. You can read the memo in its entirety below, but here are some of the highlights.
Starting out with a parable of a man on a burning platform, Elop says the man had a “radical change in his behaviour.” He then talks directly about Apple and Android, admitting that Apple has “changed the game, and today, Apple owns the high-end range,” while “Google has become a gravitational force, drawing much of the industry’s innovation to its core.”
Elop then admits that Nokia “fell behind,” “missed big trends” and “lost time.” Finally, he announces a big strategy change. “When we share the new strategy on February 11, it will be a huge effort to transform our company,” he said.
Could Nokia be abandoning Symbian and, possibly, MeeGo as well? Could it finally be joining the ranks of manufacturers that embraced Google’s Android as the platform of choice, content merely to produce the hardware and perhaps add a thin layer of its own user experience on top?
We don’t know, but we agree with Elop: Nokia needs to drastically redefine its smartphone strategy.
Check out the entire memo below.

Hello there,
There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.
As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.
He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.
We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.
Over the past few months, I’ve shared with you what I’ve heard from our shareholders, operators, developers, suppliers and from you. Today, I’m going to share what I’ve learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.
For example, 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.
In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.
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.
While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.
The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.
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. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.
At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.
And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.
The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. 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, catalyse or join an ecosystem.
This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.
On Tuesday, Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.
Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It’s also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.
How did we get to this point? Why did we fall behind when the world around us evolved?
This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.
The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.
Stephen.

[via Engadget, the Register]