Nokia-Microsoft: is this the path to success or continued failure?

The broad Nokia-Microsoft partnership announced yesterday in which the Windows Phone operating system would run on Nokia smartphones sounds like good news for both companies because of their struggles in the smartphone arena.

But many analysts wonder what the companies will make of the relationship in the coming year. Can Nokia come up with smartphones, tablets and related services and applications that outdistance Google ‘s Android, Apple ‘s iPhone and others?

Two wrongs don’t make a right, several cynical bloggers quipped earlier in the week when the partnership was rumored. And even after the news was announced Friday, more charitable analysts were guarded or even skeptical of the partnership’s success.

“The Nokia/ Microsoft alliance … is far from a natural fit, and it’s going to take some serious re-engineering and a lot of time to make it work,” noted Carl Howe, an analyst at Yankee Group, in an e-mail.

For one, Windows Phone has a “very high hardware requirement,” Howe said, arguing that it will only fit in expensive Nokia smartphone hardware. That means that at least 70% of Nokia buyers won’t see any Microsoft software “for years to come.”

Ted Schadler, an analyst at Forrester Research wrote in his blog : “It’s way too early to tell if this partnership will be successful or if anybody … will care about Nokia smartphones or tablets running Windows Phone 7.” Schadler listed a number of things that need to happen for the alliance to succeed, among them creating a tablet computer on a Windows Phone OS. Nokia also has to sign up carriers willing to sell the new WP7 smartphones and tablets, he said, and the partnership must ensure porting of Microsoft Word, PowerPoint, Excel and SharePoint Workspace to those devices.

After ticking off that list of requirements, Schadler added, “If they execute brilliantly, then they could be relevant.”

Phillip Redman, an analyst at Gartner, said the entire ecosystem for selling smartphones requires retailers, carriers, application developers and others, which might or might not be in place for the Nokia smartphones running Windows Phone 7 or a future Windows Phone OS.

“I don’t see how this [partnership] changes their opportunity much,” he added. “Tight integration between the OS and hardware could improve functionality,” he added. “However, Microsoft has never been able to take advantage of its core developer group for mobile, so I don’t see why this would help much … Android would be better for Nokia smartphones.”

Will Stofega, an analyst at IDC, attended the London partnership announcement where Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop spoke, saying he was impressed by Elop, a former Microsoft executive, and his rationale for moving to Windows Phone.

Given the need for Microsoft to put WP7 and its future generations of mobile OSes in more devices and Nokia’s fall-off in smartphone market share, “they both had to do something,” Stofega said in a telephone interview. “Elop made a logical, well thought-out decision. He laid out the case for why they did this and where they’re going, and he certainly has the Microsoft experience to get things moving.”

Elop’s general argument for partnering was whether Nokia could find an OS internally that would do well in the market, “and the answer was no,” Stofega said.

Why not use the Android OS instead of Windows Phone as many argued? “The argument against Nokia going with Android was that Nokia already had great assets to leverage against Google,” Stofega said. One example is Nokia’s NavTeq navigation software, which would go up against Google’s own Maps Navigation software, Stofega said, meaning Nokia’s investment in NavTeq would probably lose.

“For both companies, it’s pretty important that the partnership succeeds,” Stofega added. Long term, the partnership “has a very good chance of succeeding given the capabilities of the two companies,” he added.

“What has held Nokia back was a good OS and an investment in an OS. Windows Phone could be a pretty good investment and give them wind in their sails. Short term, there’s a question of what happens.”

But Stofega sounded like a optimist compared with other analysts who follow the smartphone market. Said Carolina Milanesi at Gartner: “I think [Nokia and Microsoft] have a better chance together than alone, but their main issue will remain brand perception in the eyes of the consumer in the high end of the market. Nokia didn’t really have a choice [other than to pick Windows Phone] as Android would have been a much harder play for them.”

She explained that with Microsoft, Nokia can become the “preferred partner” for Windows Phone OS, or possibly the only partner. “With Android, that would not have been the case,” she said, noting that manufacturers such as Samsung, HTC and LG “can walk away from Microsoft, but they cannot walk away from Android.”

In the near term, Microsoft stands to gain more from the partnership than Nokia, since the software maker finished with 3.4% of smartphone sales to customers in the fourth quarter of 2010, ranking fifth, Gartner said. By contrast, Gartner said Nokia’s Symbian OS had 32.6% of the smartphone market in the fourth quarter, a number down from 50% four years earlier when the iPhone and Android phones were emerging.

In the fourth quarter, Android had 30.8% of the smartphone market globally, Gartner said, while Apple’s iOS was 16% and Research in Motion’s BlackBerry was 13.7%. Slight more than 100 million smartphones were sold in the quarter.

Some analysts were unwilling to wager how well the partnership will do. “Perhaps combining the two companies can create one strong competitor, or perhaps they will both continue to limp along,” said Jeff Kagan, an independent analyst. “I wish them much success, but remain concerned until I see some kind of positive activity …This is difficult for them both.”

Ballmer and Elop seemed undeterred by skeptics in an open letter posted on both the Nokia and Microsoft Web sites: “There are other mobile ecosystems. We will disrupt them. There will be challenges. We will overcome them. Success requires speed. We will be swift.”

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