The Story of Windows Phone 8 & Nokia

Microsoft held a press conference on June 20th where it teased the new features of Windows Phone 8. One of the more significant announcements was the switch to the NT kernel. This has several critical implications. First, it enables support for multi-core processors, more display resolutions, SD card support and other hardware improvements. Windows Phone 7 has always run fairly smooth given the “old” hardware specifications, but this upgrade ensures that devices are finally on par with those available on Android and the iPhone, and could easily even surpass them. The Lumia 800 and 900 are some of the best looking smartphones available in terms of design, but have always lacked internally. Expect the next round of Nokia phones to be a significant step up.

The second benefit relates to software. The change in architecture will allow developers to share components across desktop and mobile apps and to develop for both Windows 8 and Windows Phone. Applications are vital to a healthy ecosystem, and the lack of popular apps has been one of the deciding factors in why Windows Phone 7 has struggled. Windows 8 will make it onto the desktops and laptops of millions of consumers, and will most likely have a thriving developer community. By making the development of applications on PCs and mobile hardware much easier, Microsoft is providing developers a much more enticing reason to develop for the platform. Building an ecosystem is often a chicken and egg problem, where developers are unwilling to program if there are no users, and customers are hesitant to buy a device for which there is no apps. This transition will hopefully bring the developers, and break this vicious loop.

Coming out of the press conference, there was plenty of negativity when it was revealed that existing Windows Phone devices would not be able to upgrade to Windows Phone 8. Given the potential increases in performance and the positive effects on development work, the limits to forward compatibility are fairly acceptable and the problem blown slightly out of proportion. The complaints are justified and understandable, but given the relatively small user base, the choices Microsoft has made going forward with the platform are actually quite expected. In addition the fallout will most likely be much smaller than the technology blogs make it seem. The average consumer is most likely not fully aware of the issue, if at all, and considering that visual upgrades will come to current devices, many people will never even notice. The issue should also not be linked only to Windows Phone, as fragmentation is one of the biggest problems surrounding Android, with Google’s previous version, 4.0 Ice Cream Sandwich, just recently making it on to over 10% of Android devices, more than eight months after being released. Apple has so far been excellent in supporting older devices, and by making them cheaper as new iPhones have been released has attracted buyers who are unwilling to pay the premium prices for the latest and greatest from Apple. Microsoft had to do something, as the previous architecture would have severely limited the potential of its OS, however it also could not afford to wait until the end of this year to launch Windows Phone. It had to get into the game when it did in order to begin attracting developers and gathering mind share among consumers, before Apple and Google were able to gain an insurmountable lead.

The implications might be much greater for Nokia. Windows Phone 7.5 was fairly well praised by technology reviewers and adored by the consumers who jumped on board, however as competition has moved away from hardware to software and ecosystems, the platform never gained much traction, and has remained fairly stagnant at roughly 4% of US smartphone market share. Now with the announcement of Windows Phone 8 and the reveal  that devices currently on the market will not be upgradeable, Microsoft and Nokia have all but killed the sales of their current devices. Should Windows 8 fail, the ramifications would be much worse for Nokia then they would for Microsoft. But is the situation really so dire for the Stephen Elop led company?

Whether the transition from Symbian to Windows Phone was handled well, and whether Nokia should have continued development of its own OS in the form of MeeGo are good questions, but having put all of its eggs in one basket, the real matter at hand right now is whether adopting Windows Phone 8 was the right strategic choice for Nokia.

Microsoft has always survived on Windows and Office, and its mobile efforts are more of a loss leader then a core product. However the company’s forays into hardware with the Surface and its attempts to unify the user experiences across desktops, laptops, tablets, mobiles and the Xbox indicate that the Redmond giant is more then aware that it needs to satisfy customers on a whole range of devices. This is a good sign for Nokia, as it needs the support of Microsoft to not only develop the operating system, but also in terms of marketing. With the Symbian cash cow slowly but surely dying, Nokia will run out of cash should it not find new streams of income. The reach and power of Microsoft will be crucial in convincing carriers to sell Nokia phones and to generate consumer awareness. The weight Microsoft is putting into one of the most radical new iterations of Windows is tremendous. Built around a touch interface, they are clearly expecting tablets and smartphones to play a key role in their future and Nokia is an ideal partner to create and manufacture excellent hardware. Steve Ballmer, Microsoft CEO, recently warned Apple that it is not going to let any market go uncontested. The company is clearly reconsidering its strategy, and by accepting the need to enter new markets, it is sending a positive signal to Nokia. as Microsoft still needs strong hardware partners for now.

Differentiation was one of the major factors in Nokia choosing Windows Phone 8 over Android. While Android can be skinned to look unique, the perception among consumers is that it is still Android. People ask for an Android phone, and not necessarily for a specific brand. Nokia wanted to avoid losing its brand name and image and becoming just another Android manufacturer. By going with Windows Phone, it has a stronger chance of standing out in stores and among consumers. In addition the competition among Android handset makers is fierce and choosing the platform does not guarantee success. Samsung has grown into the world’s largest handset manufacturer thanks to Google’s open-source software, but the fortunes of other Android OEMs haven’t been as bright. Having ridden the initial wave of Android success, HTC’s profits halved in the second quarter of this year as its handsets struggle to compete with Samsung in the high-end markets and Chinese competitors on the low-end. The company has now joined Nokia, Samsung and Huawei in being among the first to provide devices for Microsoft’s new OS when it is released. It would seem they are beginning to look at other options beyond Android and sees some refuge in Windows Phone 8. While Samsung has also pledge to make devices running on the platform, its focus will most likely remain on its Galaxy line of phones running Android. However HTC coming on board and other manufacturers realizing that Android might not provide a necessary competitive edge could prove vital to Windows Phone. The more companies manufacturing devices, the more marketing the platform receives, and the more customers are reached.

While other companies also make Windows devices, Nokia is and will probably remain the prominent Windows Phone manufacturer, and it is the company with the most to gain and to lose from its success or failure. The Lumia devices provided a decent entry into the market, and despite now being almost obsolete, were a critical step in Nokia’s transition. They served as an introduction to consumers, showing them the strengths of the company’s design talents and familiarizing them with the new OS. As with Microsoft, had Nokia waited until this fall to release their first devices, they would have started from scratch. Now the company’s name is already associated with Windows Phone, which should give a boost to its adoption later this year. Nokia World will be held in September, where new hardware is expected. Consumers will have had almost a year to familiarize themselves with Windows Phone and see what Nokia is capable of.

Should sales not pick up by the end of the year, the situation looks dire. Nokia’s stock price has fallen to 17-year lows and the company’s transition to Windows Phone is raising more questions everyday. So much so that the board’s chairman, Risto Siilasmaa recently spoke about the company having a back-up plan should its partnership with Microsoft not work out. No details were given, but considering that internal efforts in developing its own operating systems have been abandoned, Android seems like a likely choice. It also wouldn’t be a surprise if Nokia is working on something else altogether. The company has stated several times that the next step in mobile isn’t necessarily about operating systems, but about the features and functions users expect from their devices. Nokia has often had the best cameras on their smartphones, and the PureView technology it revealed recently is most likely making its way to Lumia phones. Continuing to focus on imaging and location, two areas where they have always been strong, would be a smart move, and would provide a fallback option should their mobile hardware efforts fail completely. Despite the close relationship and the fairly significant monetary deal they have with Microsoft, it would still seem that the agreement is not fully binding. Nokia appears to be free to look at other options should it choose to do so, but would lose its seat at the Windows Phone table and its impact on design decisions would be cut. So as long as the company can hold out for several more months, it has a fighting chance. Nothing will come easy and the worst might still be coming, but there are positive signs of a recovery. It is doubtful the company will ever reach the dominant position it once held, at least in hardware, but it shouldn’t be counted out completely.

Microsoft is looking at the middle ground between Apple and Google’s approaches. It is trying to fit Windows Phone in among the locked-down, strictly controlled iOS and the free-for-all Android. Relatively strict hardware specifications help prevent fragmentation and encourage app development,  yet the software is available for all manufacturers to put on their devices. The future of the platform is far from certain, but if Microsoft is able to fulfill its promises in unifying the desktop and mobile experiences, and companies like Nokia provide excellent hardware, it will definitely have a shot. The launch might be difficult given the expected announcement of the iPhone 5 also this fall, but the hype and excitement surrounding Windows Phone 8 and its PC counterpart are good signs. It seems consumers are well aware that something new is coming. Whether that is enough to solidify the platform’s position as a contender in the mobile space is uncertain, but my glass is definitely half full.