Nokia's hardware expertise will be wasted if Windows Phone flops

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Phil Goldstein
Nokia (NYSE:NOK) is in an unenviable position. The company has to continue to profess, display and exhibit its support for Symbian while at the same try and convince the wireless world that its bet on Microsoft's (NASDAQ:MSFT) Windows Phone 7 is going to pay off.

I remain deeply skeptical that the partnership will produce a juggernaut that can grab market share the way research firm IDC predicts it will--capturing 21 percent of the global smartphone market in 2015. Almost none of that skepticism has to do with Nokia's abilities as a company. Instead, it is incumbent upon Microsoft to develop a self-sustaining dynamic that pushes the platform forward in the way that Apple (NASDAQ:AAPL) has done with iOS and Google (NASDAQ:GOOG) has with Android.

I spoke last month with Kai Öistämö, Nokia's executive vice president in charge of corporate development. Öistämö, who has been with Nokia since 1991 and was the head of devices from 2007 through 2010, is a Nokia man through and through. Öistämö said Nokia will bring its expertise in carrier and market customization and localization to Windows Phone, as well as Nokia's Ovi services, while at the same time making sure not to not fragment the small (but growing) Windows Phone 7 developer ecosystem.

Most of all though, Öistämö harped on what makes Nokia truly proud: solid hardware. "In my opinion, I don't think any of the existing Windows Phone products are particularly appealing hardware," he said. "I think we can do a great deal in terms of a user experience and user appeal purely by actually applying our knowledge and capability in the hardware side." 

"They are going to be the higher echelon of what these phones are supposed to be," ABI Research analyst Kevin Burden told me, referring to Nokia's Windows Phone gadgets. "Does that necessarily translate into success? The question comes down to: Is Windows Phone 7 going to be a platform that people are going to buy?"

Apple's model is based on a self-reinforcing dynamic in which its hardware sales feed into content sales from iTunes, the App Store and the iBooks store. Google essentially uses Android as an advertising monetization platform, and wants to expand that by moving into mobile payments and other areas. But what is the compelling model that ties together all of Microsoft's disparate entertainment, content and information elements? What pushes the platform forward once the novelty of Nokia's new phones wears off? I don't see it yet.

Of course, even though Windows Phone has largely been a dud in the U.S. so far, it's still early days yet. Microsoft is prepping a major update, dubbed Mango, for later this year, which will bring enhanced multitasking capabilities, expanded Office document support and a hardware-accelerated version of Internet Explorer 9. But the stakes have been set.

"There is no better partner than Microsoft has in Nokia," Burden said. "It can get out more phones than anybody. If it doesn't succeed with Nokia, then it's got some real problems. It doesn't have any more excuses."

"The potential is all there. The ingredients are all there," Gartner analyst Michael Gartenberg told me. "This  is an execution play." In order to be the third horse, you have to be in the race. I'm waiting to see how Microsoft does. --Phil