• by Mark Walsh  @markfwal, May 24, 2010

Seeking to bolster their mobile offerings, Yahoo and Nokia have formed a strategic partnership in which the companies will collaborate on key services such as email, instant messaging and maps and navigation.

Under the alliance announced Monday, Yahoo will exclusively power email and chat in Nokia's Ovi suite of Internet services, while Nokia in return will integrate its Ovi maps application into Yahoo properties. The companies also plan to work on efforts to allow Nokia's Ovi users to use their Ovi account IDs to access Yahoo services more widely.

Co-branded mobile and PC-based offerings are expected to roll out by the second half of 2010 before becoming available worldwide in 2011. In a press conference held at the Nasdaq headquarters in New York, Yahoo CEO Carol Bartz and Nokia President and CEO Olli-Pekka Kallasvuo emphasized that the companies would mutually benefit by combining their relative strengths in mail and messaging on one side and maps on the other.

Bartz acknowledged that the company had not been very focused on its mapping technology. "This alliance changes that," she said. "By using Nokia's maps and Navteq service we will provide a much richer experience for our users."

Nokia added digital maps to its phones through the 2007 acquisition of Navteq Corp., the largest creator of maps used in car-navigation equipment, for $8.1 billion.

Bartz also underscored the importance of pairing with Nokia, the world's largest cell phone maker, in Yahoo expanding more aggressively into emerging markets including countries such as India and Thailand. "Nokia has by far the strongest track record in this market,' she said, noting the number of cell users worldwide is expected to reach 5 billion this year.

For its part, Nokia is counting on Yahoo's popular email and messaging applications to further boost the appeal of its phones, especially in North America, where the Finnish mobile giant still has only a small footprint. "We are clearly the leader in the industry but we do not lead in the biggest market in the world, the U.S.," said Kallasvuo. "This is one step to change that."

But William Ho, vice president for consumer services at technology research firm Current Analysis, said it will take more than teaming with Yahoo for Nokia to crack the U.S. market.

"The impact on the North American market remains to be seen as Nokia needs to fully invest into this market rather than paying lip service in the past," he said. "This means getting a lot more traction with North American-centric devices rather than repurposing European models."

Because most of its devices use the GSM wireless standard that's most common worldwide, Nokia has gotten little distribution through CDMA-based networks like those of Verizon Wireless, Sprint, MetroPCS and others.

Nokia has also fallen short in the hot smartphone market as manufacturers and other competitors such as Apple, BlackBerry-maker Research In Motion, Google and HTC gain market share with popular high-end devices like the iPhone and the Droid.

But Ho noted that the pact could help both Nokia and Yahoo gain new users in emerging markets, where the mobile phone is often the primary Internet access device. "The deal allows Yahoo to get a different maps product with navigation to potentially get into the mobile realm to counter Google Maps, which has navigation built into a lot of the new Android handsets," he said.

The agreement may not do much to break Google's dominance in mobile search, however. Despite forging some 100 partnerships with handset makers and wireless operators globally, Yahoo has not been able to keep Google from claiming roughly the equivalent two-thirds share of searches on mobile devices as on the desktop Web.

In an analysis of the Yahoo-Nokia alliance, research firm IDC suggested the companies should move quickly to expand the relationship beyond a handful of core services like email, messaging and mapping. "If the alliance stops at these it will make little difference to either company over the medium to longer-run," stated the IDC report.

That's especially true if the companies want to encourage the developer community to build on their mobile services by creating new applications around them, helping in turn to expand the user base. To that end, the firm envisions Yahoo and Nokia partnering on mobile offerings encompassing advertising, search, music and video, mobile commerce and operating system development.

"For two companies that share similar global perspectives, and face the common threat of Apple and Google, this alliance can be viewed as a test run for a deeper and broader alliance whose logical conclusion is potentially a merger," according to IDC.