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Nokia’s Microsoft Blunder is Apple’s Win

22 February, 2011

Nokia agreed to develop smartphones with Microsoft software

But Microsoft’s product is without users, developers or apps

Apple and Google Android dominate developers, app base and users

Apple and Google Android have extensive distribution, and customer acceptance

Microsoft brings Nokia very little

Nokia hopes it can succeed simply by ramming Microsoft product through distribution. This will be no more successful than its efforts with Symbian

Apple is the winner, because Nokia didn’t select Google Android

“For First Time Ever, Smartphones Outsell PCs in Q4 of 2010” headlined BGR.com. This is a big deal, as it creates something of an inflection point – possibly what some would call a “tipping point” – in the digital technology market. For over 2 years some of us, using IDC data such as reported in ReadWriteWeb, have been predicting that PCs are on the way to extinction – much like mainframes and mini-computers went. Smartphone sales last quarter jumped 87.2% year-over-year to about 101M units. Meanwhile PC sales, a market manufacturers hoped would recover as “enterprises” resumed buying post-recession, grew only 5.5% in the like period, to 92.1M units. No doubt the installed base of the latter product is multiples of the former, but we can see that increasingly people are ready to use the newer, alternative technology.

This week Mediapost.com reported “Tablet Sales to Hit 242M by 2015.” Both NPD Group and iSuppli are projecting a 10-fold increase wtihin 5 years in the volume of these new devices, which is sure to devastate PC sales. Between smartphones and tablets, as well as the rapid development of cloud-based apps and data storage solutions, it’s becoming quite clear that the life-span of PC technology has its limits. Soon we’ll be able to do more, cheaper, better and faster with these new products than we ever could on a PC.

This is really bad news for Microsoft. Apple and Google dominate both these mobile markets. As Microsoft has fought to defend its PC business by re-investing in Vista, then Windows 7 and Office 2010, the market has been shifting away from the PC platform entirely. It’s common now to hear about corporations considering iPads and other tablets for field workers. And it’s impossible to walk through an airport, or sit in a meeting these days without seeing people use their smartphones and tablets, purchased individually at retail, while leaving their PCs at the office. Most corporate Blackberry users now have either an Apple or Android smartphone or tablet as they eschew their RIM product for anything other than required corporate uses.

Nokia has largely missed the smartphone market, choosing, like Microsoft, to continue investing in defending its traditional business. Long the largest cell phone supplier, Nokia did not develop the application base or developer network for Symbian (it’s proprietary smartphone technology) as it kept pumping out older devices. Nokia is reminiscent of the Ed Zander led Motorola disaster, where the company kept pumping out Razr phones until demand collapsed, nearly killing the company.

So the Board replaced the Nokia CEO. As discussed in Forbes on 5 October, 2010 in “HP and Nokia’s Bad CEO Selections” Nokia put in place a Microsoft executive. Given that Microsoft had missed the smartphone market entirely, as well as the tablet market, moving the Microsoft Defend & Extend way of thinking into Nokia didn’t look like it would bring much help for the equally locked-in Nokia. Exchanging one defensive management approach for another doesn’t create an offense – or new products.

It wasn’t much of a surprise last week when the 5-month tenured CEO, Stephen Elop, announced he thought Nokia’s business was in horrible shape via an internal email as reported in the Wall Street Journal, “Nokia, Microsoft Talk Cellphones.” Rather quickly, a deal was struck in which Nokia would not only pick up the Microsoft mobile operating system, but would use their products to promote other extremely poorly performing Microsoft products. “Nokia to Adopt Microsoft Bing, Adcenter” was another headline at MediaPost.com. Bing and adCenter were very late to market, and even with adoption by early market leader Yahoo! have been unable to make much inroad into the search and on-line ad placement markets dominated by Google.

Mr Elop went with what he knew, selecting Microsoft. I guess he’s the new “chief decider” at Nokia. His decision caused a break out of optimism amongst long-suffering Microsoft investors and customers who’ve gotten very little from the giant PC near-monopolist the last decade. Mediapost told us “Study: Surge of Support for Windows Phone 7” as developers who long ignored the product entirely were starting to consider writing apps for the device. After all this time, new hope beats within the breast of those still stuck on Microsoft.

But if ever there was a case of too little, and way, way too late, this has to be it. Two companies long known for weak product innovation, and success driven by market domination and distribution control strategies, are partnering to take on the two most innovative companies in digital technology as they create entirely new markets with new technologies.

RIM, the smartphone market originator, has seen its fortunes disintegrate as Blackberry sales fell below iPhones – even with over 10,000 apps. Today Microsoft has virtually NO apps, and NO developer base as it just now enters this market, “Google Searches for Mobile App Experts” (Wall Street Journal) as its effort continues to expand its 100,000+ apps base as it chases the 350,000+ apps already existing for the iPhone. Where Microsoft and Nokia hope to build an app base, and a user base, Apple and Google already have both, which theyt are aggressively growing.

Exactly what is going to happen to slow Apple and Google’s growth in order to allow Microsoft + Nokia to catch up? In what fairy tale will the early hare take a nap so the awakened tortoise will be allowed to somehow, miraculously get back into the race?

Being late to market is never good. Look at how Sony, and everyone else, were late to digitally downloaded music. iPad and iTunes not only took off but continue to hold well over 50% of the market almost a decade later. Over the same decade Apple has held onto 2/3 of the download video market, while Microsoft’s Zune has struggled to capture less than 1/4 of Apple’s share (about 18% according to WinRumors.com).

Apple (and Google) aren’t going to slow down the pace of innovation to give Microsoft and Nokia a chance to catch up. Today (15 Feb., 2010) ITProPortal.com breaks news “Apple iPhone 5 to have 4 Inch Screen,” an upgrade designed to bring yet more users to its mobile device platform – away from PCs and competitive smarphones. The same article discusses how Google Android manufacturers are bringing out 4.3 inch screens in their effort to keep growing.

So, amidst the “big announcement” of Microsoft and Nokia agreeing to work together on a new platform, where’s the product announcement? Where’s the app base? And exactly what is the strategy to be competitive in 2012 and 2015? Does anyone really think throwing money at this will create the products (hardware and software) fast enough to let either catch up with existing leaders? Does anyone think Microsoft products dependent upon Nokia’s distribution can save either’s mobile business – while Apple has just expanded to Verizon for distribution? And Google is already on almost all networks? And where is Microsoft or Nokia in the tablet business, which is closely associated with smartphone market for obvious issues of mobility and use of cloud-based computing architectures?

The good news here is for Apple fans. Nokia clearly should have chosen Android. This would give the laggard a chance of leveraging the base of technology at Google – including advances being made to the Chrome operating system and its advantages for the cloud. No matter what the price, it’s the only chance Nokia has. With this decision the most likely outcome is big investments by both Microsoft and Nokia to play catch-up, but limited success. Results will not likely cover investment rates, leading Nokia to a Motorola-like outcome. And Microsoft will remain a bit player in the fastest growing digital markets. Both have billions of dollars to throw away in this desperate effort. But the outcome is almost certain. It’s doubtful between the two of them they can buy enough developers, network agreements and users to succeed against the 2 growth leaders and the desperately defensive RIM.

Like I said last month in this blog “Buy Apple, Sell Microsoft.” It’s still the easiest money-making trade of 2011. Now thankfully reinforced by the former Microsoft exec running Nokia.


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Nokia’s Microsoft Blunder is Apple’s Win

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