Microsoft and Nokia, Act II

IT PRO predicted a closer relationship between Nokia and Microsoft, as far back as last May. So the announcement that Nokia will switch its smart phones to Microsoft's platform is not a complete surprise.

This being the mobile phone industry, of course, much has happened since the two companies first started their collaboration. Microsoft has launched Windows Phone 7, and Nokia has hired ex-Microsoft exec Stephen Elop whose last job at Redmond was heading Microsoft's business division, the part of the business behind Office.

More importantly, sales of both Apple and Android phones have continued to grow strongly.

This has left Nokia, and to an extent, Microsoft too in a difficult position. Elop's by now infamous burning oil rig memo explains just how difficult. Nokia, whose Communicator range represented some of the earliest, effective smart phones, is now largely a purveyor of cheap, pay-as-you-go phones sold in supermarkets or in emerging markets.

That market, as Elop concedes, is under very real threat from lower-cost brands, especially those from China. And, at the high end, phones such as the N8 have some stand-out features, but have failed to win over consumers tempted by an iPhone or Android device. Nor have Nokia's recent business devices, such as the N7, dented BlackBerry's market share in the enterprise.

IT PRO has examined the shortcomings of Nokia's Symbian operating system and some of Nokia's other challenges elsewhere, but it is fair to say that Nokia had little choice but to move away from Symbian, leaving either Android or Windows Phone as the only real options.

Microsoft has potentially much to gain from bringing a company such as Nokia, with its strengths in areas such as wireless radio technology and industrial design, into the Windows Mobile fold.

There is even a precedent for this co-operation, in the shape of Nokia's rather lovely, if expensive, Booklet 3G laptop, as this runs Windows 7. There could even be an opportunity to for Nokia to bring elements of its European design aesthetic to the Windows Phone platform; for the most part, Windows Phone models on sale so far look physically very similar to Android phones, and even come from the same stable of manufacturers.

For business users contemplating rolling out Windows Phone 7 devices, having Nokia as a hardware vendor can only help; the more companies that actively back the platform, the more software vendors and, also key for enterprises, software development tool vendors will back it.

Conversely, though, firms that have developed applications for Symbian are now faced with the prospect of porting those apps.

There are other risks, too. Both Palm and HP tried to build a business around Windows on mobiles. Sony Ericsson originally supported Symbian, flirted with Windows Mobile (as it then was), switched to Android, and may or may not go with Windows Phone 7 for future models, depending on which rumour site you believe. Nokia will need to put all its high-end phone efforts into Windows 7 if it is to avoid following a similar path.

This appears to be something Stephen Elop is prepared to do. Microsoft, for its part, has little to lose from the deal, as the Windows 7 ecosystem will receive a short-term boost even if it fails to turn Nokia's smart phone business around.

The losers will be the 5,000 or so Nokia staff who face losing their jobs, and perhaps the European technology industry too. One of its leading lights might not have been extinguished, but it has certainly been dimmed.

Stephen Pritchard is a contributing editor at IT PRO.

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