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For Microsoft, it’s all about the ecosystem, which is why Nokia Android is here to stay

I’ll admit it: I was convinced there would be no Nokia ‘Normandy’ announcement at Mobile World Congress, simply because it just didn’t make sense. Nokia to sell Android phones, just weeks ahead of the completion of its purchase by Microsoft? After all the pain and grief caused by ex-CEO Stephen Elop’s “burning platforms” memo? You must be joking.

Except they weren’t joking. Nokia did indeed reveal its Android-powered X range of smartphones in Barcelona last week, which support the Android Open Source Project (AOSP). Yet despite the derision and scorn it received from the media over the move, I now believe I can (just about) divine the sense behind it.

I know, I know; at this point many of you will be screaming that I’ve lost my mind with this logic, that Nokia’s Android venture is doomed before it starts, that there is no strategic reason to it, that it is at best folly and at worst sabotage. Elop-era Nokia has been, to say the least, controversial.

But hear me out. The following is an attempt to try and understand the decision, based on speculation and many years of insight, given that we are unlikely to hear the truth behind the move any time soon.

To understand the reason behind the Android release, I believe you have to go back to 2011. In February that year, Stephen Elop made a decisive (and divisive) decision to abandon Nokia’s home-grown Symbian Series 60 and Meego operating systems in favour of Microsoft’s new Windows Phone OS. Ditching Nokia’s own software was controversial enough, but then choosing Windows over the far more popular Android was seen as just plain bonkers.

Yet Elop believed Windows Phone had potential, and he stood by his decision. In the resulting three years, the value of Nokia has collapsed, it has lost many good staff, and much of the goodwill its devices generated has disappeared. But it has persevered. It produces well-made devices, and it has excelled at integrated camera technology. But unfortunately, the optimistic growth curves for the adoption of Windows Phone just never happened.

According to Gartner, Windows Phone had 11.8 per cent market share of the global smartphone market in 2008. This dropped to 8.7 per cent in 2009, then to 4.2 per cent in 2010, about 3 per cent in 2011, and a low of 2.5 per cent in 2012. Last year it rallied to 3.2 per cent. But seriously, is anyone (except research firm IDC) expecting it will return to double-digit market share?

Elop said in his infamous burning platforms memo of February 2011 that: “we're going to have to decide how we either build, catalyse or join an ecosystem.” He decided to join the ecosystem that was being created around Windows Phone.

Four months later, Elop was interviewed at the All Things D event, and further explained his thinking. He said: “It’s no longer a battle of devices, it is a war of ecosystems. Therefore we’ve partnered with Microsoft to build that ecosystem.”

But more interestingly, he alluded that he hadn’t given up on Android (this is obviously far easier to deduce, given what we know today). He said: “Is there sustainable long term differentiation possible with Android? I want to see Samsung successful? The ecosystem collectively grows. You need to attract the developers. They need scale.”

Well, Samsung certainly proved that you could create sustainable and profitable differentiation with Android, although many other OEMs couldn’t achieve that feat. I wonder if Elop now realises he made a mistake – although he’s never going to regret it; he had to make a decision and go with it. Shame it took so long for him to adapt his plans.

The other part of Elop’s 2011 quote is also enlightening: an ecosystem needs developers, and developers need to have a sufficiently large audience for their efforts to prove rewarding. Windows Phone hasn’t attracted enough developers, and it never will (sorry Microsoft, as much as I really love your OS, you are simply not exposed to the app innovation that Android and iOS users have come to expect).

So if people aren’t buying Lumia devices in sufficient numbers because they can’t get the apps they want, then what do you do? You create a flavour of Android that can support Microsoft’s services – a mash-up of Nokia hardware, Microsoft services, and Android apps. And so we have the Nokia X range.

True, the first three new devices are described as “affordable handsets” to bridge the gap between Asha and Lumia, targeting developing markets. They are also only going to be available in select markets – with the US excluded.

“We have a particular focus on growth markets – for example, India and China, Thailand and Indonesia then over to Egypt, Kenya and Nigeria, and South America, especially countries like Brazil, and Mexico,” said Jussi Nevanlinna, VP of Mobile Phone marketing at Nokia. “They are all places where we’re seeing this big shift from feature phones to affordable smartphones.”

This does lead to further speculation that Nokia’s Asha range isn’t performing as well as it should, with sales declining in the past quarter. Perhaps the Series 40 feature phones (which Nokia insists on calling smartphones, even though they aren’t) are too ‘app-light’ for today’s discerning emerging market customer? Difficult to say at the moment, as handset revenue from the last quarter were grouped into a “discontinued operations” category in Nokia’s financial reports.

So to make up for the relative lack of apps on both the Lumia and Asha, Nokia has turned to the Android community, claiming that developers who have written Android apps will be able to port them over to the Nokia X with minimal effort. Well, not quite. Many of Google’s own apps and APIs are outside the AOSP, so those third-party Android apps that rely on, say, push notifications or calendar or search, will need extra development work in order to run on forked Android (as used by Nokia).

A lot depends on how many of Google’s services Nokia intends to strip out and replace with Microsoft ones. However, Google is at pains to point out that AOSP is a “complete operating system”.

It’s not as simple as saying all Android apps will now work on Nokia’s new phones.

And before you cry “but Microsoft will axe this development as soon as it finally gets the keys to Nokia’s house”, I ask you to think again. Why would they? Why not use the range to test out the concept? Microsoft isn’t succeeding with its current mobile strategy, so why not try something different? Does it put Microsoft services onto a mobile? Yes it does. So where’s the problem?

Microsoft hasn’t given a public endorsement of Nokia’s strategy, which has led many to assume it is quietly fuming at the move. But there’s a new guard in place at Microsoft now, so we shouldn’t assume too much. Microsoft has always been about selling licences to its software and service – Nokia’s adoption of ASOP could prove to be a good fit with this strategy.

Especially as Windows Phone is in danger of collapsing.

I’ll say it again, I like the Windows Phone UI, and I suspect most Apple fans quite like it too (although might not admit this in public) as it is truly innovative. But developer growth (and hence apps) hasn’t happened, wider device support hasn’t happened, and consequently sales haven’t happened. Nokia’s Lumia phones account for 90 per cent of all Windows smartphone sales. Samsung, HTC and Huawei still have Windows Phone devices, but they are way down on their sales lists.

Elop has spoken time and again about the mobile ecosystem. He’s not talking about the operating system, or the software platform. These are all different things, although there’s quite a lot of overlap to cause confusion.

There are two basic equations that help highlight the differences (feel free to disagree, as the terms are rather loose and subjective):

Operating system + business model = platform

Platform + developers = ecosystem

Look at how the business of mobile is getting tougher: there’s decreasing profit in devices as they become commoditised, and there’s no money in developing new operating systems and you can’t extract value from the existing ones (unless you are lucky enough to be able to licence the essential patents). The money, or rather value, comes from controlling the ecosystems – just ask Apple. Next question: how long before we see the range expand into higher-end smartphone territory?

There are many that will disagree with this assessment, and believe that Microsoft will plug the plug on the Nokia X range as soon as it gets the chance (there’ll only be one device from the range on the market by the time to gains complete control of Nokia).

But here’s my long-term prediction (a foolish thing to do, but what the heck): Windows Phone OS will eventually disappear from the mainstream, and Microsoft, like many others, will pursue a mobile strategy based on forked Android (which I think we’ll see more of in the next couple of years from other OEMs). It will focus on its software products and services, getting more licences to Office and its enterprise software.

And in five years time or so, when the mobile industry has reinvented itself yet again, it will try once more to exert a greater influence on mobile OS.

It’s far from a perfect scenario. But it’s about making the best of a bad job. Oh, and as for Elop… well, he’s going to become Head of the Devices and Studios Group at Microsoft, ousting the incumbent Julie Larson-Green.

Happy to take questions and comments…..

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