Nokia, Microsoft Must Move Fast to Catch Up to Apple, Android: Analysts

Is there room in Apple and Google's two-horse race for Nokia and Microsoft? Perhaps, if the pair move quickly, say analysts.

Part of Nokia CEO Stephen Elop's big plan to save the ailing Finnish phone maker is to join with Microsoft in a strategic alliance, a key component of which involves adopting the software giant's Windows Phone 7 operating system in place of Symbian and the MeeGo OS Nokia has been developing with Intel.

Tack sharp and eloquent, Elop left Microsoft to become Nokia's CEO in September, but since then has been publicly quiet about his plans to restore the brand, which, after consecutive fiscal quarters of losing market share, last quarter finally gave up its long-held title as the world's leading phone platform to Google's Android. With the broad strokes of a plan now revealed, the remaining questions include whether it's the right decision, what the risks are and who stands to benefit.

Elop made his announcement during a much-anticipated press conference in London on Feb. 11. He shared the stage with Microsoft CEO Steve Ballmer whose company-like Elop's-has been looking to gain traction in the heated smartphone space currently dominated by Apple's iPhone lineup and smartphones running Google's Android OS.

"Mr. Elop has probably made his biggest decision of his career, and for all intents and purposes it appears to be the right one," IDC analyst Al Hilwa said in a Feb. 11 report.

Calling the partnership a natural one, given the strengths of each partner, Hilwa called Nokia's decision an "incredible vote of confidence" for Microsoft's new platform-introduced a year ago at the 2010 Mobile World Congress. From here, Hilwa said, "the two companies have quite a bit of work to catch up with Apple and Google and must therefore execute with amazing speed and without stumbles."

Hilwa added, however, that in the long run, Microsoft will need a stronger hardware partner to compete against Apple and BlackBerry maker Research In Motion and "make headway against the ubiquitously sourced Android."

Elop, during a question-and-answer portion of the presentation, said that Nokia did consider working with Android, but in the end feared the company would have difficulty differentiating itself-a point that EndPoint Technologies analyst Roger Kay agreed with.

Joining with Microsoft, Kay told eWEEK, "gives Nokia a distinction," while pairing with Google would have made it "just another Android supplier, and where's the differentiator in that? I think [the alliance with Microsoft] is a pretty smart move all around."

Gleacher & Company analyst Mark McKechnie in a Feb. 11 note to investors, said Elop's decision to "go with his old employer" makes sense, though tying "an incomplete operating system with an ailing handset design company is a very risky proposition." In response to Elop's remark in a press statement that "it's now a three-horse race," McKechnie wrote in his note, "There is no change to our overall view of the space. ... The smartphone battle is a two-horse race, with a challenging battle for third."

McKechnie added that RIM and Hewlett-Packard, with the mobile devices and WebOS operating system acquired last year from Palm, were nonetheless also still in the race, and IDC's Hilwa similarly added that HP showed Feb. 10, when it introduced a tablet and two smartphones running Palm's WebOS, that it still has "quite a bit of fight in it."

Analyst Ken Hyers, with Technology Business Research, pointed out that the carriers would certainly welcome a third major competitor.

"Mobile operators are becoming increasingly concerned about the growing dominance of Google's Android of the smartphone ecosystem, and they are concerned that an Apple/Google duopoly reduces their ability to influence and profit from growth in mobile data and services," Hyers told eWEEK. "Carriers will welcome a strong third smartphone platform with open arms. It helps that both Microsoft and Nokia are currently underdogs in smartphones (my how things have changed since 2007!) and will therefore not be able to dictate terms to the carriers.

The question now, Hyers said, is how quickly these two can get a product to market. Despite their insistence in a joint press statement that the core competencies of each offer an opportunity for a "rapid time-to-market execution," Hyers said instead that "neither Nokia nor Microsoft has a record as a fast-mover in the marketplace."

EndPoint Technologies' Kay, calling that the smartphone market "probably the fastest-moving market"-faster even than the video-game market-said the pair "really have to move quite quickly."

Neither Elop nor Ballmer would estimate a time frame, though Ballmer offered, "Our belief is that we can move faster through this partnership than what we've ever done before."

Regarding the beneficiaries of the announcement, Elop had much to say. "We believe this is good for Nokia," he explained, continuing:

It represents a next-generation platform upon which we can attach our innovation. It gives us an opportunity to jointly lead a new and leading ecosystem in the marketplace. It gives us the opportunity to focus our investments where we can best differentiate. It gives us a faster path to the United States market place. And it gives us a broader opportunity to take advantage of our location-based assets including Navteq. In short, products that are more competitive.

He said the alliance was a good one for Microsoft, which will benefit from Nokia's global reach and assets, as well as for developers and publishers, as it, in short, "makes it easier for them to make money and gives them access to Nokia's global scale."

Finally, he added, "We believe this is good for consumers. And at the end of the day, we believe it is that which is most important."

The Nokia/Microsoft relationship may be so beneficial, in fact, said IDC's Hilwa, that "if 12 months from now the combined hardware and software of these two firms has taken hold, gaining traction and share, I suspect that an all-out merger may be in the cards!"