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This morning (Feb 11, 2011), Nokia and Microsoft announced that they will work together to deliver Nokia phones on the Microsoft Windows Phone platform. Desperate move? Yes. A good one given the situation that  both players are in? Yes.

Nokia CEO apparently wrote this letter to Nokia employees explaining just how dire their situation was. He equated it to standing on a burning oil platform where the best option is to jump into risky waters. Elop had learned that Nokia had missed the shift to developer-friendly ecosystems and platforms for mobiles. Apple's iPhone/AppStore and Google's Android/AppStore combos were sucking all of the market oxygen out of the room. In his words:

Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

...and then the money quote:

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

The employee letter was probably leaked purposefully to get the market up to speed as quickly as employees. It was meant to shock those within and outside into the realization that Nokia management saw disaster looming and was serious about making fundamental changes in strategy. There's a story about Cortés burning his ships (actually "scuttling", but that's a nit) to prevent his men from shifting their focus from the task at hand. Elop may have been doing the same with this memo to get everyone "on board" and truly focused on the success of the new stategy.

Why is this the right move for Nokia and Microsoft and their customers? Let's consider their options.

  1. Build another ecosystem - Nokia has failed trying to do this already with Symbian and MeeGo stalled while iOS and Android swallow up market and mind share. Even with a renewed focus, it's unlikely that these platforms can become relevant quickly enough. Most mature markets can only support three dominant players. With iOS, Android and Blackberry dominant, where does that leave Nokia? Also, staying with internal programs is not NEWS. Nokia needs to be news to get others paying attention to them.
  2. Join iOS - Not really an option. Apple jealously guards their ecosystems.
  3. Join Android - What ...and join the many previously no-name phone manufacturers like HTC and fall prey to the whims of Google? That would be an unequal partnership and further subordinate Nokia's brand.
  4. Join Microsoft - Right choice.
    1. Microsoft Phone is getting some positive nods. TechCrunch wrote about the Microsoft Phone launch "Wow, With Windows Phone 7, Did Microsoft Actually Bring A Gun To A Gun Fight?":
      Brian X. Chen had a nice rundown in Wired today as to why he thinks Windows Phone could lead to better products than Android. The basic gist? Microsoft is sort of taking a middle of the road approach between Apple and Google in the mobile space. They’re working with a lot of partners (like Google), but they’re imposing a fairly strict set of manufacturing rules and rigorously testing to make sure the products are up to standards (like Apple).

      The end result, I suspect, will be products that fall in between the iPhone and Android phones in terms of build quality. And maybe even usability. That coupled with multiple carrier and OEM partners will mean a lot of units sold for Microsoft. And it could actually expose a weakness in Android if people start to associate those phones with crappier build quality.

    2. Microsoft needs to reach critical mass soon to stay relevant themselves in the space and Nokia needs a smart partner with resources to help move quickly. Also, Microsoft has motivation and NEEDS Nokia to be successful.
    3. Microsoft has a vast developer network, but developers choose what to work on based on bang for the buck - essentially, what's shipping (or will be shipping) the most and presenting the largest footprint? Microsoft can get quite a few of its developer partners to pay attention now.

The company that could be most worried about this deal is Blackberry. If the Nokia / Microsoft initiative succeeds, and both players are desperate to make it so, then RIM's Blackberry OS becomes the somewhat forgotten 4th player.

Laptop Magazine Diagrams the Bracket
OS Bowl Game 2: BlackBerry vs. Windows Phone 7

As a multi-channel user experience guy, this is exciting because the levels of innovation in user experience and platform design will create varied opportunities for retailers and app developers and deliver fascinating choices for buyers. That's good for EVERYONE.