Last Friday and to the dismay of the market, Nokia announced that it has abandoned its own smartphone platform, Symbian, in favor of the Windows Phone 7. Nokia’s stock gave up 14% after the deal with Microsoft was announced. So is the market being excessively jittery in this case? Not really!
Make no mistake; this alliance has the potential of catapulting the Windows Phone platform into third place after Android and the iPhone. But what what’s in it for Nokia?
Nokia has in fact been getting clobbered in the smartphone market by Apple’s iPhone and Android based smartphones. It saw its global share of the smartphone market decline to 30% in 4Q 2010 from 40% a year earlier as it was overrun by Android. Nokia had to do something, but giving up its platform for Windows Phone is akin to jumping from the frying pan of competing platforms into the fire of competing handsets. Nokia will just become a me-too player in a list of players who manufacture handsets running the same platform.
Furthermore, Nokia tied its own hands by electing to go with a closed-source software: it won’t be able to differentiate itself on basis of value provided to the users. Motorola Mobility, for example, is taking advantage of Android’s open-source nature to differentiate itself from other Android-powered devices by making its devices more secure, hence more enterprise friendly. Unfortunately, Nokia won’t have that chance.
There is also the larger problem of perceptions. Stephen Elop, the newly appointed Nokia CEO, came from Microsoft. This certainly doesn’t look very good considering that his justifications choosing Windows Phone over Android have been, at best, weak. He was quoted saying that one motivation for his choice was to prevent a “duopoly” of iPhone and Android in the smartphone market. This kind of talk certainly doesn’t reassure the markets. Since when do businesses worry about creating duopolies?
Nokia had a tough decision to make. I think and, more importantly, the market thinks that it was the wrong move. Even if they held out, Symbian would have been in the 3rd place. Now, it will have to pay licensing fees for that honor.