The real significance of the Nokia/Microsoft deal

When you think back over the history of the “Wintel” PC industry what you really think about is all the partnerships that made it thrive.  Of course you have the cooperation of Microsoft for software and Intel for silicon at the industry’s core.   But you also have all the large system vendors, then existing as well as those that emerged, committing to the platform.  It was IBM (#1 in the IT industry) who first established Wintel as the leading PC platform.  Digital Equipment Corporation (#2) jumped on board as well.  HP (#3).  Unisys.  Fujitsu.  NEC.  Etc.  On top of that new industry giants such as Compaq and Dell were born.  Consumer-focused giants like Sony jumped on board as well.  All of these players committed to Microsoft DOS and later Windows as their primary, if not exclusive, operating system in the PC market.  Other platforms did pop up from time to time, such as OS/2 and more recently Linux, but essentially these companies had truly committed to the Microsoft platform.  Many people tried to replace Intel in this equation, but only AMD (with a clone x86 strategy) had significant impact.  DEC tried Alpha.  A number of players offered Windows NT running on MIPS processors (based on a MIPS PC reference design done by Microsoft).  A port of Windows NT to the PowerPC architecture for IBM was apparently started by never released into the market.  So we ended up with Wintel.  But the system vendors played an equal, if not greater, part in the success of the PC ecosystem.  Other than hobbyists and some power users, who buys an Intel processor and a copy of Windows and builds their own computer system?  The real successes came from IBM creating the first system with mass-market appeal, Compaq creating the portable PC market, Dell creating a new business model that brought inexpensive, customized, good quality computers directly to your doorstep, Sony bringing some of the design magic that had eluded companies whose origins were in computers, etc.  More recently you can see examples like HP investing in and introducing all-in-1 PCs with touchscreens based on Windows Vista while Microsoft itself didn’t get serious about touch until Windows 7.

The mobile market has evolved very differently, particularly for Microsoft.  While Microsoft was an early player in smartphones, with both its first operating system (then called Pocket PC Phone Edition, later Windows Mobile) and industry leader Symbian coming out in 2001.  Both, by the way, were evolutions of PDA operating systems (Microsoft’s Pocket PC and Psion’s EPOC).  But while Nokia and other mobile phone industry leaders lined up behind Symbian as their primary platform, Microsoft failed to attract any major mobile phone makers to fully commit to its mobile OS.  While no doubt there were technical reasons for this, there were huge industry political issues as well.  This was the era of the DOJ antitrust suit, EU investigations, and a strong “Anybody But Microsoft” movement.  No doubt the mobile phone “system” vendors feared Microsoft gaining control of the mobile phone ecosystem the way it dominated the PC system vendors in the PC ecosystem.  Symbian was their solution.  Though Motorola, then #1 in the U.S. and a strong #2 worldwide, went their own route.

For Microsoft the savior in the mobile space was Taiwanese startup HTC.  HTC initially gained notoriety for designing and manufacturing the iPaq for Compaq Corporation.  The iPaq, for those unfamiliar with PDA history, was the device that finally clicked with consumers and allowed Microsoft’s Pocket PC to challenge and eventually (just as the market for PDAs evaporated) beat Palm at its own game.  The device was in short supply for many months due to demand.  They were so highly prized that Microsoft used them as contest giveaways, the way that an XBox 360 with Kinnect would be used today.  Of course HTC’s name wasn’t on the device, but it had established itself as the leader in design and manufacture of PDAs for others.  When Microsoft entered the smartphone market so did HTC, with many devices under many brands actually being designed and manufactured by HTC.  Later HTC would start to create and sell smartphones under its own name, and become the lead maker of Android-based smartphones.  Essentially HTC is the “Compaq” of the smartphone system vendors.  The new kid on the block who made good.  Without HTC, Microsoft would either have had to makes its own smartphones or abandon the business.  HTC continues as a key Microsoft smartphone partner, but now devotes more attention to Android.  On top of that, HTC wants to heavily differentiate its offerings from those of other manufacturers.  This is something in conflict with Microsoft’s desire to have a fairly uniform experience across Windows Phone devices.  HTC can and does customize Android, and has even made noise about creating their own smartphone OS (although that seems like a level of arrogance that will eventually be their downfall). 

Because of Pocket PC/Windows Mobile’s popularity with corporations (particularly prized for its ability to access corporate Exchange email servers) many phone manufacturers adopted it in niche portions of its business.  Motorola, after considering and abandoning several Windows Mobile concepts, introduced the Q series to compete with RIMM’s Blackberry.  And Samsung, who toppled Motorola to become the #2 industry player, has long had a presence in the Windows Mobile market.  They’ve also made some of the best devices, such as the Blackjack and most recently what is probably the best Windows Phone 7 device, the Focus.  But at the same time they were more focused on Symbian last decade, and are now quite focused on Android (and the proprietary Bada).   LG (#3 in the industry) also is a multi-OS player.  Motorola (currently #4) eventually decided to focus all its smartphone energy on Android.  The bottom line here is that, at least until today, Microsoft had no phone vendor partner who is either dependent on Microsoft for their own success nor dedicated to making sure their own best ideas are brought to Windows Phone devices.

Which brings us to Nokia.  It appears this isn’t just a “Nokia will offer a few Windows Phones” deal, but rather a “Nokia is betting its future on Windows Phones” deal.  That makes it the first time ever in smartphones that a major player has committed to the Microsoft platform.  It brings the dynamics that Dell, Compaq, HP, and others had over the years with PCs into the mobile device market.  It means that Nokia’s best hardware ideas will show up on Windows Phones.  And as the first, and so far only, phone manufacturer with this level of commitment, it means that they will have considerable leverage in shaping Windows Phone.  Not as much as they would have had 2-3 years ago, but considerable leverage nonetheless.  Let me give an example.

In late 2008 I suggested to the lead on the Windows Phone 7 Chassis 1 spec that they ought to include a front-facing camera (or more precisely, raise its status to one where Microsoft would directly support them).  Since I lived remote from Redmond I was involved in video conferencing from my PC nearly every day.  I’d also observed the growing adoption of video calling by consumers using Live Messenger, Skype, etc.  So I thought that there would be great demand for this capability on smartphones as I often found myself needing to participate in a video conference or call when I was away from my PC.  The chassis team asked for market data, etc. that would justify prioritizing my request (meaning, they didn’t reject it but felt there were many more important things to do first; and they were right).  I had no data because this was just an observation, I was hoping their hardware partners would provide the justification.  Imagine if this request had not come from me but rather from Nokia?  By the time I made my suggestion the Nokia E71, with its front facing camera, had already shipped and established itself as a leading smartphone of its day.  Nokia would have been in a position to tell the chassis team not only real market data, but that it was critical to them in order to not have a Nokia Windows Phone be a step back from their existing Symbian line.  I’m sure Samsung, HTC, and others gave them some feedback in support of a front facing camera.  But none could have the leverage of “we’re betting on you, and we will fail if you don’t prioritize this appropriately for us”.

One of the major features Apple introduced on the iPhone 4 was a front-facing camera.  One of the criticisms of Windows Phone 7, coming a half-year after the iPhone 4, was its lack of front-facing camera support.  Imagine how differently this would have turned out if the deal announced today between Nokia and Microsoft had been in place two years ago.  For Microsoft it would have meant being a leader rather than a laggard.  For Nokia it would have meant having a really cool (and WP7 is, even if still a little immature) OS that supported building the kinds of devices they are leaders in.

So how does this deal impact Microsoft’s other mobile device partners?  I’ve previously mentioned that in a deal of this nature Microsoft would have to be careful not to alienate their other partners.  For those partners I think there are three options.  One is to maintain the status quo of having Windows Phone 7 devices as one of their offerings, but continue to focus on Android.  A second is to abandon Windows Phone 7.  There may be players who decide that since they can differentiate from Nokia more strongly using Android, and they already have a bigger investment in Android, they should simplify their offerings.  The third option would be to join Nokia in more fully committing to Windows Phone.  Nokia is going to do a lot to legitimize and popularize Windows Phone, making it easier for others to grow their Windows Phone business.  With the first option they just ride Nokia’s coattails, and that might be ok.  But those who want the same kind of influence over Microsoft as Nokia has now achieved would have to step up to the plate and show Microsoft the same kind of commitment.

We shouldn’t fool ourselves however, Windows Phone 7 remains an underdog and Nokia a badly wounded giant.  But whatever the final outcome for both Microsoft and Nokia, this deal certainly changes the dynamics of the mobile phone industry.

About these ads
This entry was posted in Computer and Internet, Microsoft, Mobile and tagged , , . Bookmark the permalink.