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 Nokia’s 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. ho entered the market for high-end smartphones after 2007. Analysts said Nokia’s 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 Google’s 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 Nokia’s 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 Google’s Android 1 OS and the Apple’s 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 Nokia’s shares in Europe at the beginning of February 2011. Analysts said the plunge was in good part due to Nokia’s warning of “significant uncertainties” over how the changes would affect the Finish company’s 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 Nokia’s 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, Finland’s Economy Minister Mauri Pekkarinen said that Nokia’s 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, Nokia’s 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 system’s market share is tiny – no more than 3 per cent.