Microsoft and Nokia's agreement has analysts divided over its strengths and weaknesses. How will Windows Phone 7 on Nokia phones affect the U.S. market?
Microsoft and Nokia announced a wide-ranging partnership Feb. 11, which will
include running Windows Phone 7 on Nokia smartphones, in a combined bid to
blunt the competitive momentum of Google Android and the Apple iPhone.
"We have a formidable plan to ensure our collective leadership in the
smartphone market and in the ecosystem that surrounds it," Nokia CEO
Stephen Elop told a London press
conference. "Our long-term strategic alliance will build a global
ecosystem that creates opportunities beyond anything that currently exists."
Now comes the hard part: actually building that ecosystem.
Nokia apparently confirmed Feb. 13 that leaked concept images of a Windows
Phone 7 device, floating around on sites
such as Winrumors
, are in fact genuine. Sleek, thin and offered in multiple
colors, those smartphones' designs seem a direct response to high-end rivals
such as the iPhone and Motorola's Droid franchise.
Nokia's agreement with Microsoft could help the latter penetrate
international markets where the former retails a strong presence. But the net
effect in the United States
could be negligible; according to comScore's data for fourth-quarter 2010,
Nokia came in dead last among top mobile OEMs, trailing the likes of Research
In Motion and Motorola.
That may not help Microsoft in any substantial way as it seeks to build
Windows Phone 7 into a true alternative to Google and Apple. At the end of
January, Microsoft confirmed that some 2 million Windows Phone 7 units had been
sold by manufacturers to retailers, but the number reaching consumers' hands
remains unclear. In its recent research note, comScore suggested that Microsoft's
share of the U.S.
smartphone-platform market had fallen from 9.9 percent to 8.4 percent during
the fourth quarter of 2010, and it could be several more quarters before the
full impact of Windows Phone 7-released in the United
States in November-can be clearly discerned.
Nonetheless, some analysts see the agreement as predominantly a win for
Microsoft, giving the company another avenue for its devices.
"Microsoft wins big in this arrangement, having gained a partner for an
OS that is struggling in the market and losing share even among its current
device suppliers (e.g., HTC)," Jack
Gold, principal analyst of J. Gold Associates, wrote in a Feb. 14 research
note. "Nokia brings huge scale and can dramatically increase WP7 market
share beyond its traditional reliance on vendors with much lower market share.
And this precludes Microsoft from having to enter the device market directly
(as it did with its Kin disaster)."
However, some analysts see the deal as a decidedly negative one for Nokia,
particularly in the longer term.
"We think Nokia has created a new set of issues-a lack of ecosystem
control, margin decline and a raft of new royalty payouts-in return for a 'unique
relationship,'" Lee Simpson and Andrej Krneta, analysts with Jeffries
& Co., wrote in a Feb. 14 research note. "With WP7 as Nokia's new
primary smartphone OS, why would any operator take an end-of-life product
(Symbian)? This can only cap the top line for Nokia going through 2011 and much
The analysts believe that Nokia's first Windows Phone 7 devices will be "hollowed
out 'N8s' or the like," referring to one of the manufacturer's higher-end
smartphones. "Despite longer-term assertions of speedy time to market
designs, the overhauling of road maps (and cancellations near-term) will likely
dent near-term progress and leaving Nokia dangerously exposed to further
The fate of developers who invested in Nokia's platforms, particularly
Symbian, remains an open question. Nokia spokespeople have suggested the
company is "committed to our developer relationships." Microsoft, of
course, is publicly excited about allowing its developers access to what
one executive describes
as a "new ecosystem of possibilities."
Whatever the eventual outcome, it's clear that the agreement has
fundamentally changed the mobile game for all companies in the space-and
perhaps opened the door to both Microsoft and Nokia being able to compensate
for past strategic missteps.
"The two companies are on their respective back feet," Andrew
Brust, founder of Microsoft analysis and strategy provider Blue Badge Insights,
told eWEEK soon after the deal was announced. "But they can certainly help
each other: Microsoft gets global reach and market share from Nokia; Nokia
upgrades from the somewhat stunted Symbian OS to something modern,
touch-centric and contemporary in design value, through Microsoft's WP7."