Nokia knows this balancing act well, from its days of trying to make Symbian a broad-based platform by attracting its own rivals. And it is caught up in the same dilemma again, because of its close relationship with Microsoft. Talk that the Windows giant would acquire Nokia outright were far-fetched, because it does not need to, given the OEM's wholesale adoption of WP7 and the partners' close collaboration on web services and IPR.
But Microsoft still has to weigh the benefits of tying Nokia in tightly to its agenda against the dangers of alienating other close allies, notably HTC and Samsung. And as though that were not conundrum enough, Microsoft CEO Steve Ballmer has even dropped comments that revived the old rumors that the software firm aimed to create its own-branded gadgets, Google Nexus-style.
Microsoft’s dilemmas about Nokia
Nokia unveiled its first two Lumia WP7 offerings last week and will ship them initially in “friendly‟ markets such as western Europe and India, before the all-important push into north America early next year. To get a foothold in the hostile US soil, it will need active support from Microsoft, whose brand and channels are so much more powerful on its native soil than Nokia's.
Indeed, one reason why Nokia's CEO Stephen Elop, a former Microsoft man, went with WP7 was precisely for the advantages it could bring in a market where the Finnish vendor had never got its head above the parapet. But Microsoft does not want to antagonize HTC – the largest smartphone vendor in the US in Q3 – or Samsung, the country's biggest handset supplier, just when doubts about Google's Android plans and patent position are making them better disposed towards a multi-OS strategy.
Microsoft's recent deal with Samsung for the licensing of patents contained in Android went much further than royalties, and included joint development and marketing efforts which would have caused ripples over in Finland.
When it comes to its software and web strategies, Microsoft is also being far more even-handed than Google, showing few favors towards WP7 in general or Nokia in particular. Nokia has brought its own mobile apps and web developments to Microsoft and submerged them into the US firm's WP7 and Bing activities, but so far it seems to be receiving few thanks in return.
Microsoft announced an important element of its HTML5 strategy, Bing for Mobile Hybrid Apps, this week, but it will come first to iOS and Android, and only later to WP7 - and BlackBerry, whose adoption of Bing as its default search engine was seen as a big victory against Google.
But that BlackBerry deal epitomizes the conflicts in Microsoft‟s overall strategy – it wants to control its own mobile OS, and evolve Windows for the post-PC era, but its real opportunities lie in its cloud and web services, and that involves making them as broadly supported as possible, over any type of device.
We have argued before that Microsoft ought to let go of its history, and its attempts, once again, to be a universal device platform. In-stead it should become device neutral and cash in on the cloud and the web. That would effectively kill Nokia in the mobile web world, and so it will be a relief to the Finnish giant that Microsoft will almost certainly not take our advice.
But in the short term, the conflicts in its strategies still have a negative effect on its most significant mobile partner. Nokia is left with an OS which is kept away from new, high value form factors like tablets and will have to work with yet another untried new platform, Windows 8, to reach beyond the handset. And Microsoft's emphasis on cross-OS strategies centered on HTML5 do not suggest it will be wholehearted in banging the drum for Nokia WP7 beyond the very specific smartphone channels.
Nokia goes for US midmarket
Yet it is essential to Microsoft‟s WP7 ambitions that Nokia does make a big impact with Lumia, and that will partly depend on breaking into the US at last. Although this attempt will not kick off until the new year, the Finnish company is already discussing some of its tactics. Rather than try to position Lumia at the very high end, as yet another “iPhone killer,” it will play to its strengths and attack Samsung, LG and others – including iPhone 4S - in the midrange smartphone sector.
Chris Weber, Nokia's North America chief, said US carriers will be happier to work with a vendor which promises to convert new customers to higher end data plans, than with one which would just cannibalize sales of other popular devices at the top end. He told The Wall Street Journal: “We have to be additive to their business”, which means bringing new users, not stealing customers from the iPhone.
While this may sound defeatist, it shows a new pragmatism at Nokia. It knows it cannot supplant the iPhone overnight, and that trying and failing to do so would lose vast sums of money and a great deal of face. But it is well aware of the suspicion of carriers everywhere about letting Apple and Google have too much power, and is putting substance behind Microsoft‟s promises to make WP7 a more cellco friendly “third way,” tuned to their needs. Gone is the Nokia whose arrogance put off the US operators in the past, as the OEM refused to tailor its designs for their requirements. Instead, it will seek to work closely with them, turning WP7 into a platform which can be flexibly adapted for different carriers, in the same way that Symbian was (an advantage Nokia entirely failed to exploit Stateside).
The downside of this approach is that Nokia will, once again, not get the glossy headlines commanded by an HTC EVO or a Sam-sung Galaxy SII. However, it saves the firm an almost inevitable defeat in an expensive battle to outmarket Apple and Samsung, which in any case will have to wait until it has a 4G offering. Instead, it can go after users who are only now migrating to a smart-phone and so have little brand attachment, and will be swayed by price and potentially by a new and distinctive user experience.
Microsoft makes much of the simplicity of the WP7 user interface, which requires far less drilling down into menus than Android, and Weber said first time smartphone buyers would appreciate Windows Phone's simpler approach, which integrates many services and focuses less on individual applications.
Nokia's killer weapons here, apart from keen pricing, will be the first of its planned array of highly integrated web services, Maps and Music, both appealing to the mass market and both promising tangible advantages over Google and Apple. However, no carrier support has yet been announced in the US, even though Nokia has reportedly been working closely with Verizon, AT&T and T-Mobile.
Elop reiterated the strategy to start with the mass market, before pushing upwards with LTE and other advances, in an interview with Bloomberg: “Our intention is to come back in the United States and grow significant share in this market,” he said. “Our plans are to be very competitive and to go head-on with the appropriate devices at the appropriate price points. We know we need to get volume moving and we need from that to develop economies of scale. And then as we do more and more differentiation, we expand gross margin.”
Worldwide, he promised that marketing spend on the Lumia series, including that by carriers and retailers, would triple compared with previous product launches.