First Analysis of Nokia-Microsoft Alliance - Wow this is good for Microsoft

Ok. I am in shock. I was pretty sure (not completely sure, but pretty sure) that this could not happen. For the first time ever, a technology brand that was leading in the market, abandoned its platform and selected one of the smallest rivals. Even with Mr Stephen Elop's background from Microsoft, I could not see this coming. But it did. I need to get over it. And provide some value to you, my readers. Lets do the quick analysis of this partnership.

CONGRATS MICROSOFT

Lets start with the obvious. Microsoft wins massively. One of the biggest wins in history. The whole PC industry is singing in chorus that the future of the PC is mobile. Microsoft which built its massive and profitable empire on the PC, was never able to do so in mobile (their peak market share was about 12%, and they currently have 3% but that includes the about-to-be extinct Windows Mobile. Microsoft's new OS, the one Nokia will adopt, called Phone7 has only 1.5% in Q4. Nokia had 33% for the whole year; Who is the winner here?).

But the PC industry went from stand-alone apps to the internet, ie the web. And Microsoft lost in that battle too, having only a modest slice of the internet business. Now all internet giants say the internet is heading to mobile. And Microsoft is right back in that game as well, though this alliance with Nokia, leapfrogging many internet rivals to fight as one of the biggest, in the mobile internet race as well. This is nothing but massive good news at Redmond and Stephen Elop's Swiss bank account no doubt has a huge bonus coming to it, haha.. (I am kidding - Micrsoft is one of those companies who likes to sue everybody, I am kidding I am kidding!)

NO NO NO-KIA

Nokia? Like I wrote in my stunned state, this is the beginning of the end. Nokia which for a decade said: the future of mobile phone handsets would go like the PC industry, to software and services. Because of that, Nokia had built a huge competent force in its software and services side, and bought full ownership of Symbian, the world's most used smartphone OS platform - and had already a near-completed replacement OS for Symbian, called MeeGo (developed with Intel). Now they abandon all that, and take onboard a brand new OS developed by Microsoft that has a miniscule market share, miniscule development community etc. This is not - mind you - that Microsoft Windows Mobile which in the past at one point was the second most widely used OS for smartphones (in the age before the iPhone haha). No, that has been killed.

Anyway. Nokia now announces their partnership with Microsoft. They also say they will continue to support Symbian for a couple of years, and make 150 million more Symbian devices. And they will still support MeeGo as an open source OS and will release at least one MeeGo device this year.

So? Nokia will support THREE operating systems? All the costs and confusion that this creates? If it wasn't confusing enough to support two? And who in their right mind now bothers to learn to develop for Symbian's updates and newer versions? When Nokia itself is going from Symbian to Microsoft? Obviously any smart developer who wants to develop for Nokia will do so on the Microsoft OS, not Symbian. And MeeGo? What a kick in the face of Nokia's last-year partner, Intel? This is really painful news for Intel.

Nokia's Symbian developers will feel betrayed, its internal Symbian related staff demoralized. Nokia's MeeGo team will feel gutted. This is all good for the plans to turn Nokia into a software or 'internet' style company...  After doing it for a decade, the thanks they get from top management is: "thanks guys for the hard work, but actually we'll rather go buy the unknown new Microsoft version, rather than the one you've built for us for years. thank you guys." Many of the rest of Nokia staff will feel that management has gone mad and the brightest will see the writing on the wall and cautiously start to send out their CV's to the offices of Google, Apple, Samsung, RIM. (And they will ask their families, do we want to live in Canada or California or Korea?). Gosh, I thought Anssi Vanjoki departure was devastating news for Nokia when Stephen Elop came but I couldn't see this haha..

But back to three operating systems - that means more costs and confusion. If you thought that Nokia's 'execution' was a problem before - just watch it do delays like a pro this year - like someone... who should I think of, someone who really knows how to deliver software on time? hmmm.. MICROSOFT !

This is the same Microsoft that stopped having annual release numbers (years in the software version Windows 95, Windows 98 etc) because they could not release new software BY YEAR ! If you thought Nokia delays with N8 were bad, that was only delayed by a couple of quarters. Microsoft can't even commit to releases by year. But yeah, Tomi, keep cool, try to analyze this rationally, ok?

The 'partnership' with Microsoft is very dangerous on many levels. On the one hand, this is Microsoft, the company previously known as the evil empire. How did it gain that wonderful nick-name? From all sorts of dirty tricks and lawsuits. Do you remember how Microsoft got into smartphones? You're too young to remember. When Microsoft announced it was coming to smartphones, they selected UK based Sendo, as their launch customer and handset maker - then when the first Sendo handset was almost ready for launch - Microsoft pulled them from the deal, sued them silly, and went with Taiwanese HTC. The lawsuits ran for years, Sendo argued that Microsoft had stolen their ideas, not delivered on any software promises, were delayed on all schedules, and then gave Sendo's proprietary handset and market knowledge to HTC. Nice. The lawsuit was finally settled years later. But this is 'normal' for Microsoft. (For anyone planning to remain at Nokia, in all your dealings with Microsoft - do play wisely, keep all evidence, assume there will be lawsuits and you need to be prepared. You heard it here first. Microsoft loves suing people).

How well did its partnership with HTC go? HTC is the company that manufactured more than half of all smartphones on the Windows Mobile OS with more than a dozen other handset makers doing far less than half. HTC was so disgusted by Microsoft by the end, that they announced loudly they were switching to Android the moment that became available - to the point, HTC said they would not even use the next (which turned out to be last) version of Windows Mobile. Thats Microsoft partership for you. Motorola, another early Windows Mobile client, was so fed up with Microsoft's games, they said no Phone 7 smartphones ever! Moto said they only do Android.  Danger? The iconic maker of the Sidekick youth phones was bought by Microsoft amid big promises. Where are they now? Two phone models were produced - and sold for six weeks. Thats it. That was 'Microsoft keeping its promise' They refused even to offer the Kin phones in Europe where there were operators signed up for the new edition of the Sidekicks. This is how the evil empire likes to play, they play dirty. Samsung, LG, SonyEricsson and HTC give lip-service to Microsoft, all putting most of their effort to Android where they have a friendly OS provider (as in 'do no evil' haha).

Lets be real here. Microsoft can be a tough partner to work with, and do expect that each Phone 7 OS version will come with delays and bugs. If you thought your recent Nokia smartphones were not as reliable as they were in the past - that will get far worse, when Nokia uses the chronically buggy Microsoft OS platform and tries to integrate between the two. But thats just my view, haha. Who knows maybe in this new decade, Microsoft will turn into a pussycat?

END OF THE DREAM OF NOKIA THE SOFTWARE COMPANY

Ok. The good news is that Nokia can stop pretending to be a software company. They can focus on being an efficient box-mover, like say... Dell. Thats the ticket. Microsoft made all the big profits on personal computer operating systems and office suite software used by Dell computers, Dell made the thin profits moving boxes, where Moore's Law made each newer edition of the box ever slimmer in profits. Sure, this was a bold move by Nokia, but I'd say a boneheaded one.

Does Nokia gain a superior OS out of Microsoft? No. Phone 7 won't even be able to run all the features that current Nokia premium phones have. So right from the start, this means moving Nokia abilities down a notch.

But competitive advantage? Differentiation. Well, who else is committed to Phone 7? Lets see - Samsung, LG and SonyEricsson. So whatever Microsoft is developing, Nokia cannot even have any significant advantage - on its premium phones - that Samsung, LG and SonyEricsson don't know about. They gain all the delays of Microsoft while gaining also the eyes and ears of most of their biggest competitors to see all the development. When before, on both Symbian and MeeGo Nokia would have had their development to themselves. Yeah, moronic move.

Now the really silly part is to bleed all that profit in those three OS platforms. I will not be the first to say this, nor the last, but Nokia needs to kill off its OS platforms more quickly than that. Its now a journey into futility. Nobody believes in Nokia OS platforms anymore, they are the walking dead. Why develop them? Why maintain them? They now are only a drain. And those colleagues at Symbian and MeeGo units - shift away as soon as you can, you will soon be as modern as those who know how to program in Pascal, Fortran and Cobol haha. (like me, I'm that old, seriously, my last programming language was the original C, not even C+ haha).

Which brings me to Microsoft again. Can you see the parallels? This is like Microsoft who owned DOS (that was overwhelmingly bigger than the Mac OS), and was about to switch to Windows (which would be equally much bigger than Mac OS years later) - and six months before Windows was to launch - and 90% of its development was complete - suddenly abandon it, and go with Macitosh OS instead.. I said on this blog a few days ago, that a change away from MeeGo and Symbian would be a decision by a psycopath, and I said it in jest because I could not see it happening. I am certain this move by Nokia will be seen as one of the classic biggest blunders in technology history (for Nokia) and definitely one of the all-time greatest heists and triumphs by Microsoft.

So, all Nokia R&D and product development guys need to be retrained for Microsoft abilities, tools and methods. This is not learning new, this is unlearning the past, and re-learning the same but by the vocabulary, methodology etc of another company. That is a huge internal training effort, huge, for what? Will definitely be costly, and there will be very many times a Nokia contact, internal or external, will now see as the automated reply 'I am not available now, I am in training' haha.. Yeah, Nokia is moving to internet speed exactly how? This means the whole organization is mummified for at least what, 18 months? All processes will now be made slower and in the end, will they be any faster when they have to often consult with their Microsoft partners on issues (rather than internal Nokia colleagues). Yeah.. Look up Sony and Ericsson, how long it took for those two partners to understand each other. Or check Alcatel and Lucent. And this can very well end  belly-up, see Daimler and Chrysler. It will not make Nokia a more responsive and modern company. At least not for the next 18 months, maybe longer. And the end result won't be something faster it was today. Not with this partnership. If slow-moving Nokia had partnered with fast-moving Google, at least its conceivable Nokia could learn to be faster, more nimble. But for notoriously slow-moving Nokia to join with notoriously slow-moving Microsoft, means that the tortoise is learning how to speed up, from the snail!

Their internal contacts will now need external Microsoft contacts (most of whom are in the USA, time zone hassles etc). All good stuff that will help in profitability exactly how?

BUT IT OPENS US MARKET

Will this help sell in the USA? No. The mobile phone handset business is not like the PC business. Having Microsoft as the operating system will not sell any more handsets in America than Symbian, because the bottleneck was not the operating system, it was Nokia's poisoned carrier relationships in America. What Nokia needs to do, is restore good relationships with the carriers. Then it doesn't matter which OS the phone has. To prove my point - Google's Nexus One, on the amazing Android OS which at the start of last year was the hottest thing going - and defeated both Apple and RIM - and at the time the Nexus One was a highly rated 'iPhone killer' but suddenly, US carriers decided not to subsidise the Nexus One, and Google killed the phone in 2 months. It was not the desirable OS, it was carrier relationship.

Exhibit 2 - Microsoft's own phones, its first ever, the Kin phones. They were to release on US carriers, suddenly the carriers didn't give the subsidies that the Kin phones needed, it died so fast that Kin was killed in 6 weeks - the fastest death in mobile phone history. It was not the desirable OS - not even Microsoft branded OS that could win in US market - the Kin phones died using MS software, because of the carrier relationship. Look at this! If Microsoft cannot get its OWN branded phones to sell using MS operating system - don't delude yourself that Microsoft can somehow make the unpopular Nokia phones wanted by the US carriers!

Need more? Exhibit 3 - Palm. The last Palm-branded phone, using WebOS, was greeted as the best phone on the market by many analysts, as good as, some said better, than the iPhone. It didn't get carrier deals on the four networks - Palm died. Again, not the OS that decided, it was carrier relationship.

Having a great OS - whether Android, or Microsoft, or Palm - was no guarantee of US success. It is completely up to the carrier relationship - and nothing else (in the USA). The handset business is not like the PC business. Premium smartphone handsets in the USA are sold with subsidy, and unless Nokia gets subsidies from the carriers, the OS is irrelevant. And the OS itself, is irrelevant to getting the subsidy, else Nexus One and Kin would have been runaway sales hits by now, in the USA.

But who am I to advise Nokia haha.. Like I wrote before, they don't listen to me haha.

So, Stephen Elop becomes Steve Ballmer's whipping boy? Pretty interesting. And I was thinking we were seeing the opportunity for a new Steve Jobs to step on the stage today. How wrong I was haha..

What does this mean to Nokia's internal problems? What problems does this fix? Nokia's problems were in execution - so say most analysts, not just me - and now they introduce a THIRD - THIRD operating system. Will this help or hurt Nokia. Hmmm.... Samsung recently found that supporting many operating systems was costly, they cut down. SonyEricsson found recently that supporting many operating systems was costly, they cut down. Motorola found recently that supporting many operating systems was costly, they cut down. Nokia bravely goes the other way. Last year they supported one OS, this year they will support three. This will not help Nokia profitability.

So Nokia abandons its own OS platforms. This is 'smart', I am sure. Not that in the PC world it was the OS provider who made most profits and the box-movers made the slim profits. Hmmm.. So Apple? They jealously guard their right to make the OS? So RIM feels their competitive edge comes from making their own hardware, their own OS and having their own software, solving the end-to-end. Hmmm Google? They not only like making the OS in Android, they also want to make handsets, so badly, they have launched Nexus phones - TWICE. And the world's biggest computer maker, HP, which is twice as big as Nokia in global sales revenue - and have been a tiny smartphone maker for a decade - recently decided they want to own their own OS, and bought Palm and now have just announced their first new Palm WebOS based smartphones. You'd think HP had seen enough of the pain of being a slave of Microsoft, to want to do this. So much that they outbid HTC who wanted Palm too.

Oh yeah, of the five biggest smartphone makers, Nokia is now the only one who doesn't make its own OS anymore (yes yes, I know they still will support Symbian and MeeGo but they have effectively announced their termination today).

INDUSTRY CHANGED TODAY

Winners? Microsoft is by far the biggest winner out of this. This is massive for them. They were a side-show. Now Steve Ballmer has his weapon to stay on center stage. Microsoft is instantly a major story in smartphones, in app store ecosystems, and in the mobile internet.

Samsung. They now become the biggest handset maker who controls its own destiny with their OS bada. I am upgrading bada's trajectory and expect them to remain bigger than Microsoft - because Nokia obviously will split their handsets to 3 operating systems, so while Microsoft grows strongly, it won't match bada's trajectory (as Nokia's low-cost phones, where most of Nokia's smartphone volume is, are on Symbian).

When bada becomes the second biggest OS (Android will now rocket to number 1 within weeks haha), it will be when it passes Symbian. I'd say that happens in 2012. Microsoft-Nokia will be playing catch-up to bada. This is very big news at Samsung.

Then Google. They know that Google can run rings around Microsoft in development speed and they have the army of giant handset makers to overpower the Macrobureaucracy now known as Microkia. The Android market share will be bigger than all Nokia OS's and all Microsoft OS's combined before the end of the year.

The Android community will cheer and celebrate. They will so overpower the industry, they will celebrate every statistic and lead, and watch how Microsoft lingers in single digits and eventually climbs to low double-digits.

Apple wins too. Nokia always had the potential to strike back. The N97 coulda been an iPhone killer and the N8 and E7 all exhibited potential they might have been big. With MeeGo and advanced handsets, could have made an iPhone killer, look at the N900 and Maemo. It showed so much promise. I think Apple are so cocky and confident, they really weren't losing any sleep ever about Nokia, but their strategy guy would always keep an eye on them and some of their smart guys knew, if Nokia ever really put their mind to it, they coulda crushed the iPhone. Now they can sleep more easily. They know that for the premium price segment, Apple is unassailable and they know Microsoft delays and hassles well - just look at Microsoft's music player (I forget what its called, Zune?) vs the iPod. Apple see this as great, as this partnership weakens Nokia as a credible Apple rival - Apple can concentrate even more on beating Google. And with the iPhone Nano, Apple can now start to target becoming the biggest smartphone manufacturer in the world (they already are building a lead ahead of RIM..). Last year it was pretty hopeless to suggest super-high-cost Apple iPhone could pass Nokia which sells 100 million smartphones per year. Now, if Nokia is crippled and vulnerable on all fronts in smartphones - suddenly Apple can plausibly catch and pass Nokia. Wow. This changes the whole picture.

Motorola - are happy they are on Android if Nokia is stuck with Microsoft. The new year is starting very well for Motorola.

LG will consider making their own OS like bada, might actually try to woo Intel into 'MeeGo part 2'

SonyEricsson is happy they are on both, they can keep an eye on Microsoft while doing most of their good phones like the PSP phone on Android

HTC is laughing but also considering seriously if they can afford to start their own OS. And since they know Microsoft the best, they are blessing the day they switched to Android.

HP could not have picked a better time to return to mobile with WebOS - there will be plenty of Symbian and MeeGo developers who are looking for opportunities. That HP announcement could not have been timed better. HP should call Intel and say they shoulda stayed with US companies and woo them.


Intel is gutted. Sorry you guys! Now go and forget about Nokia, talk to Foxconn and HTC and Sharp and other manufacturers and release your own smartphone - using MeeGo and show it can be done, haha! You have been royally scr*wed, don't worry, now you have no obligations to Nokia and you can create your own smartphones. Look at the bright side!

NTT DoCoMo had been signalling a greater interest in Android and iPhone, they will probably start to migrate to Android based phones soon, this will cut Symbian sales even more. I would be surprised if there are any Symbian handsets sold in Japan next year.

Sharp has already been going Android, this accelerates that transition (from Symbian)

And Fujitsu will do the same, I am guessing to Android rather than Phone 7, but we'll see.

RIM is also cheering. They know the Blackberry beat the pants off Microsoft in the past in business-oriented enterprise phones. But Nokia E-Series was far more tough as a rival than MS, and just last year, Nokia's QWERTY handsets outsold Blackberries for the first time. RIM loves this partnerhip. This severely weakens Nokia, now is the time for RIM to really pounce on the youth/consumer market as the only really credible youth QWERTY phones, get the gaming and social networking etc stuff to your app store as fast as you can!

In sum. A brilliant long-term superb move by Microsoft. After a decade of disaster in mobile, they are right in it, and now can finally capitalize on the mobile future.

For Nokia, massive disaster, wrong on so many levels. Most of all, they have failed the confidence of their supporters, especially the developers who were promised there was a future to Symbian and a migration path to MeeGo via Qt. No. That was no migration path, that was like the Talking Heads song, a Road to Nowhere. This also immediately sets the fear in the minds of all Nokia employees who see that all promises of Nokia have no credibility. The smart ones are looking for exit strategies. This helps Nokia exactly how? Nokia was always known as a poorly paying employer who treated its staff exceptionally well. So they relied on employee loyalty. This stabs them in the back so hard, Nokia cannot be trusted to stay loyal even to its own products and promises. To go and buy in Microsoft. As Nokia staff exodus starts with the best minds, it means costly replacements - now? In this environment for smartphones? When the growth is 71% per year? When competent staff is nowhere to be found? And Nokia has to recruit to replace staff? This helps profitability? This helps competence? All new recruits in basic induction training? The contacts that you had no longer work.. All this means - more delays! Nokia will become ever more like Microsoft in bureaucracy, and more like Dell in profitability. Good move!

I do think this makes the year more interesting. We can watch Nokia struggle and its more interesting than watching a giant recover its strength and dominate. But as a former Nokia employee, and more than that, as a Finn - this makes me weep inside. Oh, PS, expect Nokia to switch their HQ to California soon, right next to Microsoft's campus, so that Stephen Elop can be at Steve Ballmer's beck and call as needed..

UPDATE - OMG, how could I have missed this? Vi Mimir who is on Twitter as @sleipne - almost immediately responded to my tweet saying that as a European, is in shock, as Nokia has just gone from an open source OS to a closed OS. This is really really bad for the industry.

UPDATE Feb 14 - I have now written my final chapter in the MeeGo saga, the autopsy to what happened to kill Nokia's next generation smartphone operating system. It was not killed in February 11 by Stephen Elop. No, the end of MeeGo was approved by the Nokia Board when they decided to hire Stephen Elop in September 2010. Read the full story here: Nokia Autopsy on MeeGo

UPDATE Feb 15 - I have now completed my follow-up blog, the look forward for Nokia and Microsoft. My first analysis is I believe the first published story to project market shares, Average Sales Prices, Nokia revenues etc for the year 2011. Read the full blog here When Things Get Even Worse Than You Thought.

UPDATE Feb 16 - I have now added the competitor analysis, who gains the most out of the 50 million smartphone and 14.6 Billion dollar windfall, that Nokia kindly bequaths to its rivals this year. See Noki-Soft Windfall.

PS for those who need stats and facts on the phone industry, remember I released the TomiAhonen Phone book, 171 pages, 98 charts and tables on all the market shares, regional prices, dumbphones, smartphones, operating systems etc. Cost only 9.99 Euros, available only here TomiAhonen Phone Book.

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