• by Mark Walsh  @markfwal, February 11, 2011

As rumored, Nokia and Microsoft today made official their new grand alliance aimed at getting both back into the smartphone race against Google and Apple. At the heart of the deal is Nokia adopting Windows Phone 7 as its main smartphone platform after becoming synonymous with the Symbian platform.

The logic behind the partnership is that the two giants, desperate to revive their smartphone hopes, combine relative strengths--Microsoft's mostly well-received Windows Phone 7 operating system and Nokia's hardware capability and global phone distribution--to take on the share-grabbing iPhone and Android-powered phones. The old 1+1=3 equation.

Plus, the companies had already been working together after forming a less extensive alliance two years ago, and Nokia CEO Stephen Elop is a former Microsoft executive. So forging a deeper relationship in light of each company's efforts to reclaim their place in the smartphone race isn't so surprising. Elop was brought in by Nokia in September to shake things up, and with this move, he did. But is it the right move?

Put another way, if Nokia was going to look outside for a new smartphone platform to power its comeback, why not go with Android? If Nokia is admitting defeat with Symbian, and its newer MeeGo smartphone operating system, why not bet on the platform with skyrocketing growth--instead of an uncertain path with Windows Phone 7?

Back in September, Nokia's outgoing smartphone chief, Anssi Vanjoki, made a widely picked-up quote comparing Nokia adopting Android to Finnish boys "who pee in their pants" for warmth. The temporary benefit quickly gives way to an even worse problem.

"The argument that Vanjoki is making here is that handset makers are condemning themselves to permanent low profitability because the Android OS doesn't allow manufacturers to differentiate their product from the competition," noted ZDNet hardware columnist Adrian Kingsley-Hughes, at the time. "Fair point, and a criticism that can be leveled at the Microsoft mobile platform too."

So what exactly is the advantage then of working with Microsoft, whose platform had 4% of the global market compared to nearly 23% for Android last year? NPD analyst Ross Rubin says the deal with Microsoft appears to give Nokia the right to make exclusive changes to Windows Phone 7 that will set its phones apart from Android and other WP7-based phones from the likes of Samsung and HTC. Ultimately, he argues, the pact will make WP7 a third strong contender against Google and Apple.

Whether Nokia can distinguish its devices enough from competing existing WP7 models to take business from other manufacturers is still a big question. And if Nokia is going to fight it out with Samsung, HTC, Motorola and others, why not fight fire with fire by adopting Android like they did? Looking at smartphone market share for those companies so far, the Android tide seems to have lifted all boats 

By teaming with Microsoft, Nokia can benefit from more potential upside, according to Current Analysis analyst Avi Greengart. "I think it is precisely because Microsoft is just getting back into the smartphone race itself that made Microsoft an attractive partner for Nokia," he said. "Nokia can make a bigger impact on that ecosystem and stand apart from its other licensees."

It's hard to argue that either Microsoft or Nokia would be better off continuing on their own in the smartphone business. Nokia's decision to partner with Microsoft "was the least bad option" it had, as Forrester analyst Charles Golvin put it in comments about the deal today.

But if Nokia's goal is to sell more smartphones, betting on a proven platform like Android looks like the better choice. And it would get a mobile storefront with more than 200,000 apps to boot, to better compete with the App Store's 350,000 titles. That's volume the Windows Marketplace for Mobile can't yet deliver.

Reply