Microsoft-Nokia Alliance a Win-Win Solution?

Marisa Lau is a first year JD candidate at Osgoode Hall Law School and currently enrolled in the course Law & Social Change: Law & Music, in Winter 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

In the past few years, Nokia’s global smartphone market share has been usurped by competitors while Microsoft has faced troubles in the mobile Operating System (OS) market. The two companies recently announced a mobile phone partnership where the outcome of both companies emerging as winners is not that clear.

Nokia has been the smartphone leader with its Symbian OS for many years. However, in the last 2 years, Nokia’s market share has been undermined by phones running Android as well as the BlackBerry and iPhone. In the 4th quarter of 2010, Google’s Android smartphone system even surpassed Nokia’s Symbian in shipment volume according to Canalys. As a result, Nokia barely retained its leading 28% global market share. Nokia now struggles to maintain its position as the world leader in the smartphone industry.

Microsoft dominates the PC OS market but has been unable to translate that success to the mobile OS market. An ex-Microsoft exec cited recently, that its anti-innovation corporate culture has been leading to its failure. Microsoft launched its new Windows Phone 7 platform for the mobile market recently but it has proven to be less popular than its old Windows Mobile platform.

Last week, these two lagging companies announced that they would form a strategic alliance.  This would mean that most Nokia phones will no longer use its Symbian OS and instead adopt the Windows Phone 7 platform.  Nokia will also be able to make contributions to improve the platform so that the platform can be disbursed to a larger variety of countries.

On closer inspection, it seems that rather than creating two winners, there may be a winner and a loser. Nokia’s move came because the company had to sell phones or else it would go out of business. Nokia employees expressed discontent by staging a walkout at the Finnish headquarters after the announcement. They did not like the idea of using the Windows Phone 7 platform because that would mean a potential high number of layoffs.  As a result, Nokia’s share price tumbled.

Nokia does say they will benefit because they will be able to take down a prominent rival, the BlackBerry, have its Nokia Maps used as the primary software on the platform as well as sell its apps in the Microsoft marketplace. However, by outsourcing its OS, it will become similar to other mobile phone companies such as Samsung that also use platforms of other companies.  Since, the Windows Phone 7 platform has not proved to be very popular, it is hard to see how Nokia can benefit from having this platform.  It is true that Nokia will be allowed to use its strengths to improve the platform. However, this would also benefit other phone companies who are licensees of the Windows Phone 7 platform. Windows Phone 7 licensee rules are very strict so Nokia will have trouble differentiating its platform from that of the other licensees.

On the other hand, Microsoft’s image as a company that thwarts creativity will benefit from the expertise of Nokia as stipulated by the partnership.  Also, the Windows Phone 7 system will be distributed throughout millions of Nokia phones. There will be virtually no need for layoffs and in fact, more people may need to be hired in order to facilitate the partnership.

It is true that Microsoft investors are not convinced that the alliance is a good move. Microsoft’s share price also decreased after the announcement. They fear that the time it will take for the two companies to create the improved OS will allow more market share to move to Apple and Android. Furthermore, some fear that the move will alienate mobile phone companies currently using Microsoft’s Windows Phone 7 platform for some of its phones including Samsung Electronics Ltd. and LG Electronics Ltd. because they will not get the same benefits as Nokia while undergoing the same limitations. As a result, they may choose to completely switch to Android which is known to be one of the most customizable platforms. However, since Nokia is the world’s largest cell phone manufacturer, even if the other mobile phones decide to drop Windows Phone 7 due to Microsoft’s threatening alliance with Nokia, the Microsoft OS should be able to surpass the market share of the other OSs as it leverages Nokia’s carrier relationships for distribution in more countries.

Overall, it is unclear whether the alliance will truly benefit both parties.

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