NokSoft born: Nokia moves to Windows, takes on Google and Apple

February 11, 2011: 10:09 AM ET

Nokia could've picked the fast-growing Android and been a star in the Google-verse. So why is it going with the riskier Microsoft Phone OS?

Stephen elop meets the bloggers

Image of Stephen Elop by luca.sartoni via Flickr

It's official – Nokia and Microsoft have teamed up to take on rivals Apple and Google. The two companies announced their partnership Friday morning, just hours before a strategy and finance briefing hosted by Nokia (NOK) in London. As expected, the Finnish phonemaker also unveiled other strategic changes, like a slightly altered management team and a company-wide reorganization.

But the big news here is that Nokia will now adopt Microsoft's Windows Phone as its primary smartphone platform. And the even bigger news is what Microsoft (MSFT) could get out of the deal – global uptake for its mobile operating system and services.

Under the new alliance (NokSoft for short), Nokia plans to "help bring Windows Phone to a larger range of price points, market segments and geographies." It also plans to integrate Microsoft's ad platform and search engine, Bing, across its devices. Sounds like a pretty sweet deal for Microsoft.

Of course, Nokia isn't the top dog it used to be. But despite a weak presence in the United States, declining market share worldwide and a lack of hit products, the company still sold more phones than any other manufacturer in 2010. Last year, Nokia shipped about 100 million smartphones (more than twice as many as Apple sold), according to market research firm IDC. No other partner could give Microsoft that same kind of global reach and scale.

So what does Nokia get out of the deal? Well, that remains to be seen. It's likely that teaming up with Google (GOOG) – maker of the fast-growing Android operating system – could have given Nokia more ammo against Apple (AAPL) and its iPhones. But for whatever reason, that alliance didn't pan out. Either way, ditching its current operating system, Symbian, was a smart and necessary step for Nokia, whose business has been stagnating on almost all fronts. It's now facing increasing competition in both the high-end smartphone market and lower-end devices. And it hasn't come out with a hit phone, since, well, a very long time.

Nokia's newish CEO, Stephen Elop (a former Microsoft exec), is well aware of the problems his company faces. Earlier this week, he sent out an internal memo (the "burning platform" memo) outlining Nokia's recent fumbles: "We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind."

It's clear to everyone both inside and outside Nokia that the company is badly in need of a bold, sweeping overhaul. In a way, with Google, it would've been just another Android handset maker. The details of its deal with Microsoft likely mean it will be first among equals, a premier partner in the Redmond company's mobile business. It will also likely benefit, according to some reports, from many millions of dollars in development support from Microsoft, as it makes the transition to their OS. So will Windows Phone get the job done? Not unless Nokia shows some real -- and real fast -- innovation on the hardware side as well. But the company's heft means if it can execute, it could be more than a blip in the mobile universe. It could be a center of gravity, which is clearly the reward Elop sees down the road, for taking the risk of not pairing with the easy and popular mobile OS, Google's Android. As Nokia CEO Elop wrote in his recent memo, "The first iPhone shipped in 2007, and we still don't have a product that is close to their experience."

Both Nokia and Microsoft have yet to find the right strategy for combating Apple's iPhone or Google's Android. And while it's true that two turkeys don't make an eagle (if you have no idea what I'm talking about, just click here), I wouldn't write off either of these companies' mobile prowess quite yet. With Nokia's global reach and Microsoft's Windows Phone 7, a surprisingly good operating system that has been in search of an advocate on the hardware side, NokSoft may be Apple and Google's most formidable challenge to date.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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