Nokia swaps one 'burning platform' for another in Microsoft's silent takeover of the Finnish phone maker
Well, folks, we now know why Stephen Elop so suddenly left Microsoft last year and without even giving two week's notice. He was Microsoft CEO Steve Ballmer's emissary to Nokia. Today, the world's largest handset maker announced a sweeping deal with the world's largest software developer. Nokia is essentially going to swap out Symbian for Windows Phone as its primary mobile operating system.
The deal is a merger without the red tape, without billions paid out or without the whiles and wherefores of nasty, debilitating integration. Microsoft won't own Nokia, technically, but it's a takeover in principle. A former top Microsoft executive now runs Nokia and he just cut a sweet deal that's all white meat and gravy for Microsoft and gristle and bone for Nokia. If I were a Nokia employee or investor, I'd stage a revolt. Microsoft will be the worst thing to happen to Nokia in years. It's Happy Friday for Microsoft and Nokia rivals.
In an internal memo leaked earlier in the week, Elop wrote to Nokia employees about the company's burning platform: "We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally. Nokia, our platform is burning." Elop's solution is to swap out one burning platform for another? Someone should hold him accountable before it's too late.
Ballmer and Elop laid out the broad terms of the deal in an "open letter." According to the document, "Nokia will adopt Windows Phone as its primary smartphone strategy"; "Nokia will help drive and define the future of Windows Phone"; Nokia and Microsoft will closely collaborate on development, joint marketing initiatives"; "Bing will power Nokia's search services across Nokia devices and services"; "Nokia Maps will be a core part of Microsoft's mapping services"; "Microsoft development tools will be used to create applications to run on Nokia Windows Phones"; "Nokia's content and application store will be integrated with Microsoft Marketplace."
By just about every measure, the major benefits go to Microsoft in this silent takeover of Nokia. Meanwhile, the Finnish phone maker assumes most of the risk. On February 4 I asked: "Does a Microsoft-Nokia mashup make sense, or are its supporters just nuts?" Elop is the crazy one here; Ballmer just cut one hell of a shrewd deal.
The low points for Nokia:
1. Nokia will lose customers and market share. It's the inevitable consequence of such a massive operating system switch. Timing is terrible. Android OS sales increased 888.8 percent year over year in 2010, according to Gartner, propelling the Symbian rival to second place in global smartphone operating system share. Meanwhile, Apple is building iOS into a formidable mobile platform across three devices, including hot-selling iPad. A mobile OS transition of this magnitude will take years. Nokia doesn't have the time.
There's no question Nokia is declining, but that's from a position of still remarkable strength. As measured by device sales, Nokia's market share dropped from 36.4 percent to 28.9 percent year over year in 2010, according to Gartner. Similarly, Nokia's Symbian lost smartphone OS share, falling to 37.6 percent from 46.9 percent. Nokia sold 461 million handsets. Nokia and its licensees sold 111.6 million Symbian smartphones. Symbian is ailing but by no means even close to death, so why euthanize it? Windows Mobile/Phone is all weakness. Microsoft's mobile operating(s) clung to fifth place, with its market share falling to 4.2 percent smartphone OS share from 8.7 percent. It's simply not sensible to swap a market leading platform for an also-ran.
2. Nokia has too much invested in Symbian, particularly from its developer channel, that would be lost in an operating system transition. Today's loyal developers, particularly those thinking of switching major resources to Android or iOS, would have even fewer reasons not to jump platforms. Make no mistake, a large part of Symbian's appeal is open-source availability. Windows Phone isn't open source and likely will never be. How will Nokia developers react to being compelled to use Microsoft development tools? Now there's a question for you to answer in comments.
3. Nokia is giving up control of its destiny to Microsoft. Right now, Nokia controls the hardware, software and services stack, like Apple and Research in Motion. It's an enviable position of strength. Nokia should invest in remodeling the house it owns rather than giving control to a landlord -- some Microsoft critics might say slumlord -- and renting back the space. Elop is wrong to call Nokia's platform burning without trying to save it.
The high points for Microsoft:
1. The world's largest handset maker, which sold 461 million of the 1.6 billion cell phones in 2010, will distribute Microsoft's ailing mobile operating system. No matter how much Nokia declines during the transition, Windows Phone will pick up desperately needed market share.
2. Microsoft essentially becomes a handset manufacturer without the risk or expense, despite how many hundreds of millions might be paid to Nokia as part of the arrangement. Microsoft's biggest problem developing a mobile operating system is licensing it and in doing so losing control over hardware integration. The Nokia deal gives Microsoft the closest thing to Apple's vertical integrated hardware, software and services approach without making a phone. By letting Nokia take some responsibility for Windows Phone development, Microsoft can assure that at least one handset manufacturer's devices will tightly integrate with its software and services.
3. The future of search is mobile, and Bing will rapidly gain share Microsoft couldn't get organically without the Nokia deal. Given Google's global reach, Nokia should have cut a different deal. The upside belongs to Bing.
4. Ovi services aren't that good, but Nokia still has millions of customers using them. Surely Nokia's giving up its applications store to Windows Phone Market place is but a first step. In any services integration, Microsoft will pick up these customers during the transition -- those that don't flee somewhere else. Given the cloud's importance in the post-PC era, Nokia is ceding control of strategically valuable services to Microsoft. Again, it's just one more way in which the deal is like a silent takeover of Nokia.
5. Microsoft's mapping service is good, but Google's and Nokia's are better. Nokia already had broad reach and appeal of its mapping service, such that it will gain little from Microsoft.
The upsides for Microsoft are obvious. Nokia's benefits are harder to measure, which is why I assert the deal is a silent takeover without the expense or responsibility by Microsoft. In their letter, Ballmer and Elop boasted: "There are other mobile ecosystems. We will disrupt them. There will be challenges. We will overcome them. Success requires speed. We will be swift. Together, we see the opportunity, and we have the will, the resources and the drive to succeed."
Microsoft's and Nokia's responses to the changing mobile market, where Android and iOS became important operating systems in less than three years, is appalling. It's simply outrageous to assert they will cause disruption and act with speed now, given the enormous challenges a major platform switch will entail. Two burning platforms don't make one that's right.