Lowenstein's View: Is NokiaSoft too big to fail?

Mark Lowenstein Talk of the Nokia-Microsoft alliance drowned out nearly every other conversation at last week's Mobile World Congress trade show in Barcelona, Spain. We might not see it from our North American perch, but the future of Nokia is a big deal. The company is a huge employer. It still commands more than one-third of the global cellphone market. Its supply chain is the envy of any corporation. It is one of the world's leading brands.

The pace of change is remarkable when one considers that a year ago, Nokia and RIM were easily the No. 1 and No. 2 of the smartphone world. Stephen Elop's quick assessment was that Nokia had started to look a little like Europe: sclerotic and welfare state-ish. MeeGo was the Brussels of wireless. Elop also realized two things: that no consumer electronics company has been successful without capturing meaningful share of the U.S. market; and that where executives once flew to London, Espoo, Waterloo, and Tokyo to do deals and glimpse what's next in wireless, the latest and greatest in software and gadgets is coming out of Silicon Valley, Seattle, Seoul, and Taipei.

And so Feb. 11 was Elop's "Motorola Moment," where he went all-in and bet the smartphone farm on Microsoft. There's no guarantee he is going to be successful, but I do believe he made the right bet. There are many, including a lot of employees at Nokia, who think Android would have been the better choice. But if your long-term goal is to have 20 percent to 30 percent or more of the high-end cellphone market and be a meaningful player in mobile software, it doesn't make sense to cast your lot with Google--whose main monetization play in mobile is advertising--and with the fragmented, and somewhat chaotic, Android ecosystem, where, let's face it, you'd be joining an already very crowded field.

So, now what? Even if NokiaSoft were to make all the right moves, a big question is whether there is room for another mobile OS, on top of iOS, Android, and Blackberry. After all, the new Windows Mobile phones are pretty good. They do 80 percent plus of what one could do with an iPhone or a Droid, though they are less elegant and not as fun. Yet they have so far failed to capture a following, and do not have broad distribution or support from the major operators. Developers are dipping their toes, and are neither fleeing nor flocking.

Now that Elop and Ballmer have made their move, I think they need to make a pivot. What we've heard (has it only been a little more than a week?) is that they're focused on taking share from Android. Well, they're partially right in not aiming directly at Apple, which is on its own planet. The way Wayne Gretsky and Tiger Woods were, in their prime.

But to win the wireless wars, they will have to fight the Battle of Waterloo. I've done a fair bit of work in the enterprise space of late and sense a restlessness. RIM still has leading share in the enterprise, but their product development has not kept pace. It's been six months since the last Blackberry device was launched. That's an eternity in today's hyperkinetic smartphone race. While international growth has been strong at RIM, corporate America's BlackBerries look a bit like an aging fleet. In the midst of mania around the Verizon Wireless iPhone, RIM could have worked its way back into Verizon's good graces with a knockout LTE device, but instead it has ceded Round 1 of LTE to Android (remember all those Verizon Blackberry commercials in 2009?).

The iPhone has started to make significant progress in the enterprise, having met corporate IT departments half way on security, relaxing MDM requirements, and building an enterprise sales and support structure. Android is six months to 12 months behind, but IT is starting to take a serious look--especially with so many tablet announcements.

The lack of product velocity at RIM and still early days of broad corporate acceptance for iOS and Android do leave an opening for another mobile player in the enterprise. The joint assets of NokiaSoft, if channeled in the right direction, could help companies rethink what mobile computing will look like, circa 2013-2015, with smartphones, tablets, and other to-be-defined products. Think of NokiaSoft's combined capabilities around: location; corporate messaging; and cloud-based versions of Office and Sharepoint. Then factor in the companies' unique assets: Nokia's hardware design; relationships with operators; breadth of distribution; and unmatched global supply chain. Plus, Microsoft has regained its innovation edge lately, good examples being Bing, cloud services and the Kinect - all of which should be incorporated into mobile in some way.

Relationships with marquee operators, especially those with a strong enterprise business, will also be key. The decline of RIM and the over-the-top-ness of iOS and Android has left a bit of a vacuum at operators' sales forces. If NokiaSoft can produce something worth selling into the enterprise, think of the combined sales resources at Microsoft, Nokia, and Tier 1 operators. Take that, Samsung and HTC.

One of my biggest disappointments in the NokiaSoft announcement was the relative absence of ecosystem support, at least at this early point. The silence of the operators has been deafening. Even a testimonial or two from an important mobile or Internet player would have been nice. Elop and his new guard are going to have to build some bridges, not only with operators, but with other enterprise software vendors who are anxious for a counterweight to Apple and Google. Think Adobe, Amazon, SAP.

The final question is how many "ecosystems" can be viably supported going forward. Microsoft, Nokia, and Palm (HP) have had difficulty cracking the smartphone OS world, even with capable devices. I believe there will, ultimately, be further consolidation. If Act I was HP's acquisition of Palm and Act II is NokiaSoft, Act III could well involve RIM in some shape or form.

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.

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