Nokia’s Future — Selling Microsoft Cloud Services

BARCELONA—Nokia is dead. Long live Microsoft’s mobile device maker. That was the key take-away from the once mighty Finnish phone giant’s swan-song performance at Mobile World Congress.

The irrepressible Stephen Elop, formerly CEO of Nokia, now heading up its devices business ahead of the union with Microsoft, formally announced at Mobile World Congress the much-leaked NokiaX “it’s Android, but not as we know it” device.  He did the best of a bad job in making it appear that the company’s future will still be about building great phones. It isn’t. For once they do wed, Nokia’s role after the union is to hook up customers to Microsoft’s cloud services.

Ahead of its impending nuptials Nokia is pumping itself full of what it hopes will be mobile phone Viagra, something, anything, to firm up sales and keep the charts pointing upwards, not drooping limply towards the ground, so it doesn’t disappoint when the two finally wed.

It was the ability to ship millions of cheap devices in emerging markets that made Nokia the giant it once was — in some countries the word Nokia is synonymous with the mobile phone.  But that market has been swamped by low-end Chinese-made white-label Android phones.

The NokiaX: Designed to hook up consumers into Microsoft’s cloud services.

Despite very valiant efforts by Elop in pushing down the Windows Phone specification to try to keep fighting for the low end, Windows Phone was a high-end OS designed to take on Apple, not a cheap OS to take on bottom-end Android. So he has looked around for something to take into that fight.

The End Of The Asha?

Nokia’s first attempt was its range of smartphone-like devices — the Asha. A device that kind of looked like a smartphone, but wasn’t really. It was hoped it would be a bridge to the flagship Lumia range. As a Nokia strategy that never made any real sense. Asha devices had no common UI with Windows Phone — the only thing that linked them was the Nokia brand. The range hasn’t sold well. As part of Microsoft the Asha makes even less sense. If it can’t be used to upsell consumers to Windows Phone, and it doesn’t hook consumers into Microsoft’s cloud services, what is the point of it?

Nokia’s new strategy to fight Android is with Android. But Microsoft is not going to hook up consumers only to see them use Google’s services, so like many others, it has opted for the Android Open Source Platform (AOSP) — Android with all the Google bits stripped out (no Gmail, no Google Play, no Google maps). In their place Nokia has bolted in Microsoft’s cloud services and its own offerings.

Elop did a good job putting a thick layer of gloss on what is a pretty invidious position for Nokia. The company is now attempting to support three different OSs: the S40 that drives the Asha range, Windows Phone that powers the Lumia range, and AOSP. How to sell that to developers? Microsoft has struggled to persuade developers to develop for Windows Phone. It is a much easier sell to get them to build for AOSP, it is the same code as Google’s version of Android, but doesn’t have access to the same services. Nokia/Microsoft will need to make it as easy as possible for developers to substitute their own services for Google’s.

The big losers in this are likely to be the Chinese white-label makers

There is also a risk that the NokiaX will be less successful as a bridge to Windows Phone than the Asha was. It is hard to see why a consumer, having got into Android through the NokiaX, will upgrade to Windows Phone, rather than go to Google Android. Yes, the NokiaX interface is a bit like Windows tile interface, but in the same way that Panda Cola is a bit like Coke; you can see they are supposed to be the same, but you know they aren’t.

Microsoft generates significant revenue from patent royalties. According to Nomura analyst Rick Sherlund maybe as much as $2 billion per annum.

Were Nokia a standalone handset maker this would matter a lot. But as part of Microsoft, as long as consumers are locked into their cloud services, then who cares? Sure, it is better to have them on WinPhone, but better on NokiaX than nowhere. And if Microsoft can take a big chunk of that market too, then so much the better.

And of course never forget that even if consumers, having got into Android via Nokia, then switch to a fully-fledged Google-powered service, Microsoft still get a slice of the pie. Microsoft generates significant revenue from patent royalties. According to Nomura analyst Rick Sherlund that may be as much as $2 billion per annum.

The big losers in this are likely to be the Chinese white-label makers who are going to have to come up with something pretty special, and perhaps even Samsung, which has dominated phone sales in emerging markets. The NokiaX is fighting for exactly the same market and one thing that Nokia knows well is how to build a good phone.




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