NOKIA AND MICROSOFT JOIN FORCES IN SMARTPHONE WAR

On the 11th of February 2011, Nokia Corporation announced the alliance with Microsoft Corporation, unveiling their aggressive strategy to challenge Google and Apple for domination of the hot smartphone market. In this strategic alliance, Nokia will use Microsofts mobile operating system (OP) Windows Phone on its smartphones. As per the deal, Windows Phone would replace Symbian as the primary OS on Nokias phones and Nokia would pay royalties to Microsoft for using its OS. Microsoft would in turn provide support to Nokia in selling its new Windows Phone powered smartphones. Nokias Canadian CEO, Stephen Elop, and Steve Ballmer, his Microsoft counterpart, announced that Nokia would make Windows Phone its main phone platform, a move that effectively confirms that Nokias own platforms, Symbian and MeeGo, were uncompetitive and they would be tossed onto the technology scrap heap. There were mixed reactions from analysts to the alliance between Nokia and Microsoft. The challenge before the senior management at Nokia and Microsoft was how to make the alliance work. Nokia once dominated the market for standard feature phones and smartphones, the Internetenabled, multi-media devices that are becoming must-have tools for the business and high-end consumer markets. But Nokias Symbian OS has not proved popular with consumers, who have been migrating en masse to Android and Apple phones. As a result, Nokia began to face severe competition from companies like Google, Inc. and Apple, Inc. who entered the market for high-end smartphones after 2007. Analysts said Nokias poor focus on software and the lack of the latest OS on its smartphones were the main reasons for its declining market share in the last years. In the autumn of 2010, Nokia faced three choice: the first was to keep developing its own OS, Symbian and MeeGo; the second was to adopt Googles Android system; and the third was to go with Microsoft. The first option was dropped because of the long lead times that would be required to update Symbian and get MeeGo launched. Android dropped off the list because of the difficulties they were facing in differentiating [ourselves] in that ecosystem [Going with Google] would have felt a bit like giving up. In the smartphone industry, an ecosystem is the association of hardware developers (in this case Nokia), software developers and the builders of applications, ecommerce, advertising, social applications, multimedia services and the like. The last option the partnership with Microsoft was considered the best option. As a result, in September 2010 Nokias board appointed a new CEO, Stephen Elop, who was a former executive at Microsoft, to bring more of a focus on software and put the basis of NokiaMicrosoft partnership. Referring to this partnership and the attempt to prevent Googles Android 1

OS and the Apples iPhone from owning the entire smartphone market, Mr. Elop said that this is now a three-horse race. Seated next to Mr. Elop in a London hotel auditorium, Mr. Ballmer said this partnership with Nokia will accelerate dramatically accelerate our Windows phone ecosystem. However, the partnership did not impress investors, who drove down Nokias shares in Europe at the beginning of February 2011. Analysts said the plunge was in good part due to Nokias warning of significant uncertainties over how the changes would affect the Finish companys performance. Soon after taking over as CEO of Nokia, Elop sent out a memo to the employees emphasizing the need to bring about drastic changes at the company. On the other hand, Mr. Elop said the partnership with Microsoft was only part of Nokias strategy to recapture market share and improve profitability in a viciously competitive market, meanwhile extensive firings at both the senior management and factory level were expected in various parts of the world, including Finland. In a Reuters report, Finlands Economy Minister Mauri Pekkarinen said that Nokias restructuring after the partnership with Microsoft is the biggest structural reform which has ever impacted new technology in Finland. As a result of the partnership agreement, Nokias hefty research and development budget would also come down. The partnership with Microsoft will see the fledgling Windows Phone 7 platform become the dominant platform on Nokia phones. This means that Nokia will eventually cease shipping phones equipped with its workhorse Symbian system, though the company still expected to sell another 150-million products in 2011. Microsoft Phone 7 was launched in 2010 and the first phones with the OS arrived on the market in October 2010; still, the systems market share is tiny no more than 3 per cent. Some technology analysts quipped that the Nokia-Microsoft marriage was like the marriage of two dinosaurs. One Google executive Tweeted that two turkeys does not make an eagle. Analyst Charles Golvin, of Forrester Research in California, described Nokias partnership with Microsoft as a big risk because it could alienate the application developers who had been working on products for Nokias Symbian and yet-to-be-released MeeGo platforms. They have to convince all those developers to stay put and it may not work, he said in an interview in London. Nokias challenge is to make Windows Phone their next priority. In a recent internal memo that was leaked to the media, Mr. Elop said Nokia was years behind its new rivals. In February 2011, Mr. Elop and Mr. Ballmer were vague about the timing of the launch of the first Windows-equipped Nokia products, though analysts did not expect them to appear on the market before 2012. Nokia still sells almost two-thirds more phones than its nearest rival, Samsung, but its share of the market has shrunk from 36.4 per cent in 2009 to 28.9 per cent in 2010, according to Gartner, a research firm. In 2010, Nokia had 132,000 employees in 120 countries, sales in more than 150 countries, global annual revenue of over 42 billion, and operating profit of 2 billion. In 2011, Nokia was the worlds largest manufacturer of mobile phones, with global device market share of 23% in the second quarter of the year. The company is especially weak in the United States. 2

Discussion points: 1. Discuss and debate whether Nokias alliance with Microsoft will enable it to recapture market share that it had lost. 2. Analyze the new strategies planned and implemented by Stephen Elop in reviving the fortunes of Nokia. 3. Propose a set of measures that Nokia and Microsoft should take in order to make the alliance a success.

Sources:
http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/BSTR399.htm http://www.soyacincau.com/2011/02/13/nokia-employees-dont-seem-to-agree-with-elop-on-the-microsoft-move/ http://www.theglobeandmail.com/globe-investor/nokia-microsoft-join-forces-in-smart-phone-war/article1903253/