Nokia's Windows Phone 7 Rumors, Nadella Promotion Marked Microsoft Week

Microsoft's promotion of a new president to run its Server and Tools Business, and rumors of Nokia adopting Windows Phone 7, dominated the week.

Microsoft's week centered on rumors that the company would join in a smartphone partnership with Nokia, so both companies might better combat the rising threat of Google Android and Apple's iPhone.

Research firm comScore's latest numbers, for the three months ending December 2010, suggest that Microsoft faces a tough road ahead in regaining momentum in the smartphone space. Over the course of the last quarter, its share of the market dropped from 9.9 percent to 8.4 percent. Meanwhile, Apple and Google enjoyed market-share upticks of varying strength, with Android exhibiting a robust 7.3 percent quarterly gain.

Microsoft is in the process of easing its previous smartphone franchise, Windows Mobile, out to pasture. In its place, the company hopes that consumers and businesses will gravitate towards Windows Phone 7, which was released on AT&T and T-Mobile in the U.S. in November. In contrast with Google Android and the iPhone, which offer apps in a series of grid-like screens, Windows Phone 7 consolidates Web content and applications into six subject-specific Hubs, including "People" and "Games." Microsoft is reportedly pouring hundreds of millions of dollars into its renewed smartphone efforts, including marketing and development.

However, the results of those efforts are likely to remain unclear for several more quarters, if not years. Microsoft has confirmed that more than 2 million Windows Phone 7 devices have been sold by manufacturers to retailers since the launch, but continues to offer little data on how many of those might have reached consumers' hands.

That leads us to the Nokia rumors gaining traction in the blogosphere throughout the week. Like Microsoft, Nokia finds itself in pitched battle against Google and Apple. In addition, Microsoft and Nokia are already connected on several levels: not only have the two collaborated on software for the latter's smartphones, but new-ish Nokia CEO Stephen Elop was formerly president of Microsoft's Business Division.

With Nokia's market-share falling, Elop set Feb. 11 as the date for revealing a radical new business strategy that would allow the company to regain some of its former dominance. That reorganization would not only see the departure of several senior Nokia managers, according to a Feb. 7 article in The Wall Street Journal, but possibly the adoption of either Google Android or Windows Phone 7.

According to an unnamed source speaking to Bloomberg BusinessWeek Feb. 10, Elop and Microsoft CEO Steve Ballmer have been engaged in talks about porting Windows Phone 7 onto Nokia devices. Elop apparently had similar conversations with Google CEO Eric Schmidt, according to the source, but "those discussions are unlike to lead to an alliance."

Should a Nokia-Microsoft alliance develop over Windows Phone 7, it could prove beneficial to both parties. "You get access to their WP7 intellectual property Scot-free and access to the U.S. market where your share has dived to the low single-digit level, and in doing [so] cut your bloated handset business R&D budget," Berenberg Bank analyst Adnaan Ahmad wrote in a Jan. 31 letter addressed to both CEOs.

But others are convinced that an Android partnership might serve Nokia better in the long run. Adopting the Google-built smartphone OS, according to analyst Jack Gold, would let the manufacturer "get to market very quickly with a line of compelling smartphone devices that are competitive while giving current Nokia users a migration path with a familiar UI paradigm."

The Nokia situation wasn't the only one this week hinting at Microsoft's efforts in next-paradigm tech such as mobile and the cloud. Microsoft took another step in its "all in" cloud strategy Feb. 9 with the promotion of senior vice president Satya Nadella to president of the company's Server and Tools Business.

Nadella formerly oversaw technical strategy for Microsoft's Online Services Division, helping launch Bing and implement the massive search-and-advertising deal with Yahoo. Prior to that, he led Microsoft Business Solutions and worked on the engineering side of the company's server group.

"In deciding who should take the business forward, we wanted someone with the right mix of leadership, vision and hard-core engineering chops," Ballmer wrote in a Feb. 9 e-mail to employees. "We wanted someone who could define the future of business computing and further expand our ability to bring the cloud to business customers and developers in game-changing ways."

Nadella, who replaces Bob Muglia, will presumably carry out what Ballmer previously termed as the Server and Tools Business' move into "the era of cloud computing."

In his own Feb. 9 email to employees, Nadella wrote: "We are seeing our existing customers move to the cloud to address issues of cost and complexity; tomorrow, our work as leaders in innovation will result in new scenarios and workloads. . .enabled in the cloud."

Microsoft's cloud strategy takes multiple forms: In addition to productivity platforms such as Office 365 and cloud-ported entertainment via Xbox Live, Ballmer has repeatedly touted a vision in which businesses subscribe to cloud-based services in place of maintaining exclusively on-premises IT infrastructure. Microsoft itself is leveraging its experience running massive cloud services such as Bing and Hotmail to inform how it builds out those enterprise-centric cloud platforms.

Even as Microsoft figures out how to best implement its strategy for the cloud, it's obviously considering the most effective ways to put its smartphones in as many users' hands as possible. Its relationships with Nokia have the potential to help do just that.