The context of this story

Year: 2010

Does Nokia's future lie with Microsoft?

That’s the big question. Can a future in tandem with Microsoft make up for all those losses, not just financial ones? Can Nokia return to being one of the big players in smartphones?

Leaving aside a number of preconceptions, such as that no one has ever made money from a partnership with Microsoft, it must be said from the outset that it will be very difficult. Nokia’s market share has fallen from 29% of the smartphone market at the end of 2010 to 24% in Q1 2011 and 13% in Q4 2011, a share that Lumia phones with Windows Phone 7 are expected to increase.

Image: nokia-lumia-800 Caption: The Nokia Lumia 800 is Nokia’s first phone with WP7. Nokia is “very satisfied” with its sales – whether it will help revive the company remains to be seen.

However, Windows Phone 7 brings further problems for Nokia. Its own factories (nine worldwide) are not capable of producing Windows Phone 7 devices. Currently, WP7 phones can only be built around Qualcomm’s Snapdragon chipset, but Nokia has been using TI’s OMAP, and its factories will have to be reconfigured. The first phones will therefore be manufactured by other factories, while Nokia’s factories are already operating at half capacity because Symbian phones are not selling so well. Losses, investments, costs, problems. The same applies to Nokia’s development capacities, which have not yet worked with Snapdragon. Everything is being resolved on the fly.

In addition, WP7 phones are among the most expensive phones on the market. Microsoft has strict performance requirements to prevent poor user response. But that also means we’ll have to wait for cheap smartphones with WP7, which represent a huge part of the market. Will people prefer to buy Symbian smartphones with no future, or will they choose the competition? Managers who have been signing off on re-equipping their subordinates with new Nokia phones like clockwork will have to think twice. And that’s always bad for the brand’s business, as they may decide to buy elsewhere.

In addition, a number of Nokia phones are reaching the end of their physical lifespan. Many corporate sales at Nokia have traditionally been made by waiting for a new model to be released, purchasing it, and then discarding the old model. Nokia’s innovation cycle was set up in such a way that this worked. When something was delayed, customers simply waited and didn’t question anything; their phones lasted physically. This approach got Nokia out of a number of messes and could work this time too. An extra year would be fine for most customers with old phones.

But now the company is closing down, or whatever, so it will no longer be possible to order new phones to replace the old ones, as was once the case. A new supplier must also be found. It will not be possible to replace the old Symbian phones, which the company is used to, with new WP7 phones, because these will exceed the budget limit for regular staff. This will need to be “resolved” – and that will also mean that a new supplier will probably have to be found. The operator will offer something in the package, but it is unlikely to push phones equipped with Skype.

The last problem is the possibility of differentiation. Mobile phones with WP7 are like two peas in a pod, and the possibilities for modifying their behavior are very limited. The new Nokia Lumia 800 works in exactly the same way as LG and HTC phones with WP7, and its polycarbonate body does not fascinate customers that much. The truth is that Nokia Maps are available, but their quality is not comparable to the corporate navigation in Symbian phones. How will Nokia differentiate itself from other phones with WP7 and convince customers?

Table of contents