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Both Nokia, Microsoft have much to gain, and lose, in mobile deal

Still time for Windows Phone 7 to make mark in smartphone market

By , Network World
February 11, 2011 02:41 PM ET

Network World - Microsoft and Nokia both have a lot to lose -- and gain -- by their mobile alliance, with the Finnish handset maker deciding to adopt Windows Phone 7 as its smartphone operating system. 

The potential gain in this speculated alliance lies in the still-small global smartphone market. Globally, there were "only" about 0.48 billion smartphones in 2010, compared to 3.3 billion feature phones, according to market data from Informa Telecoms & Media. By 2015, smartphones will rise to 1.4 billion units, with the feature phone volume remaining static at 3.3 billion. The biggest opportunity for Microsoft and Nokia is feature phone users trading up to a range of affordable smartphones during the next several years.

The potential loss lies in simply being unable to deliver handsets that lots of consumers will want to buy, no matter how well-reviewed the products may be.

MARKET WATCHER: Windows Phone 7 gains 2% market share in 2 months

The deal was announced today by Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop, a former Microsoft executive who became the first non-Finnish chief executive at Nokia in the fall of 2010.

Investors' assessment of the news was immediate: Nokia's stock price dropped by as much 12%. According to some reports, the drop was viewed by traders as a de facto acknowledgement that Nokia's Symbian-based smartphone strategy had failed, stirring fears that Nokia now might be too far behind Apple and Google to catch up.

Two mobile losers?

One of the memes pumping through the Internet commentary now is that the Microsoft-Nokia deal is an alliance of two mobile losers. But that's only true if your focus is on the past, according to Ramon Llamas, senior research analyst, mobile devices, at IDC. "The past track record [of both companies], is what people remember," he says.

But Microsoft has re-invented a distinctive, intuitive mobile user interface for phones, one that sets it apart from Google's Android and Apple's iOS, Llamas says. And Nokia's newest N series (including the N8) and E series (including the upcoming E7) show the company's design and manufacturing prowess. "They are very cool and very popular phones overseas," Llamas says.

Nokia has struggled to repeat its feature phone success with smartphones. Though it remains the mobile phone leader globally, most of those are feature phones. In the U.S. market, it has remained almost invisible, both as a consumer and an enterprise phone brand.

After jointly developing the Symbian phone OS, Nokia spun that firmware platform off as an open-source project, but it has failed to gain the allegiance of software developers as has Google's Android and Apple's iOS platforms. Partly in response, Nokia launched development of the Linux-based Maemo OS, and then recently merged it with a comparable OS project from Intel, Moblin, to create a high-end mobile platform called MeeGo. MeeGo is likely finished as a smartphone platform, but it may continue as the software for tablets or other larger devices.

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