Friday, Nokia, the Finnish mobile phone manufacturer, said it is forming a partnership with Microsoft, the developer of Windows. Their alliance aims to challenge Apple and Google. This is really OLD news, announced quite a while ago by Microsoft:

Aug. 12, 2009 – The worldwide leader in software and the world’s largest smartphone manufacturer have entered into an alliance that is set to deliver a groundbreaking, enterprise-grade solution for mobile productivity.

Today, Microsoft Business Division President Stephen Elop and Nokia’s Executive Vice President for Devices Kai Öistämö announced the agreement, outlining a shared vision for the future of mobile productivity. This is the first time that either company has embarked on an alliance of this scope and nature.

This morning in London Steve Ballmer of Microsoft joined Stephen Elop on stage to talk up their "new" alliance.

After the announcement, Nokia shares fell as much as 12 percent, the biggest drop in almost 10 months. Gil Russell, a widely read Silicon Valley analyst said:

At first blush the arrangement appears to be a marriage made by the necessity of convenience. Microsoft desperately needs to gain footing in the smart phone marketplace; Nokia needs a persuasive line-up to convince their customers to buy.

Fending off an increasingly entrenched momentum by their competitors and whether their teaming yields the desired synergy is questionable.

Financially the two companies have the staying power to make this work but major doubts remain. Can the two companies create a desirable market equation that persuades the market with useful, cost effective products? To date the product marketing teams of both companies have not been able to overcome entrenched corporate influences that make effecting such a "breakout" a matter of doubtful probability.

Ben Wood, a London-based analyst with CCS Insight had a more negative comment:

It’s a clear admission that Nokia’s own platform strategy has faltered.

Rob Pegoraro of the Washington Post said it this way, "A company that once stood atop the mobile-phone market is throwing in its lot with … another company that once stood atop the mobile-phone market."

Stephen Elop, the new CEO of the Finnish-based company, is clearly struggling to revive Nokia market share. According to Gartner Market Research, Nokia has seen their piece of the mobile handset market drop from 50.8 percent when Apple shipped the iPhone in June 2007 to 27.1 percent last quarter.

Elop has recognized that the game is now the ecosystem, not the hardware. Earlier in the month he elaborated in a conference call with analysts:

Nokia faces some very significant challenges. The game has changed from a battle of devices to a war of ecosystems, and competitive ecosystems are gaining momentum and share. The emergence of ecosystems represents the broad convergence of the mobility, computing and services industries.

Microsoft is claiming their new Windows Phone 7 software has shipped more than 2 million licenses for the new smartphone system in its first quarter on the market. BSN showed that Microsoft’s older mobile phone OS, Windows Mobile 6.5, was selling better than Windows Phone 7.

After the announcement, it was crystal clear that Nokia’s past crown jewels had been tossed into the can. Their Symbian open source operating system and software platform designed for smartphones is effectively dead and buried.

Meego has been recognized as an interesting R&D project that will not be the primary savior of Nokia. More to come on this part of their announcement and the strong reaction by the developer community.

The proof of the pudding for this marriage will be whether the public buys Nokia handsets with Windows Phone 7.

BSN will have additional articles about whether this is a success or more like a Captain Jack Sparrow boarding the RMS Titanic cruise to who knows where.