What Now? Microsoft Throws Nokia Under the Bus

INTRODUCTION

In the last two weeks we've heard a lot of disastrous news for Nokia. I reported on 'what we now know' after the Nokia latest profit warning (and Nokia share price fell a Nokia-record 18% in one day). As I was preparing to do an update of the forecast for Nokia's smartphone performance based on that announcement, there came news of the Microsoft tablet - and more bad news, the second bombshell relating to Nokia: none of the current smartphones running Windows Phone 7 will be able to be upgraded to Windows 8. Nokia dropped another 11%.

What does all this mean? First, that this April-June Quarter, Q3, is, as Nokia already warned us, going to be bad news in terms of Nokia smartphones, both Lumia and Symbian based. What with the N9 project with MeeGo being closed down, some countries (such as Finland and Sweden) have already stopped selling the N9 even though it is highly regarded, popular and profitable. The Symbian based award-winning 808 PureView is, for some bizarre reason, not currently being sold everywhere, even where Nokia is desperate for premium Nokia smartphone sales and profits - like in the traditionally Nokia strong smartphone market of Australia. When I made my forecast of Nokia market shares, revenues and profits for the year 2012, I expected the CEO to engage in smart, sensible behavior and try to sell as widely as possible. Now, we learn, from the profit warning two weeks ago, that Elop's 'solution' is to increase sales by shrinking sales efforts. Nokia will not continue its global sales but rather, now focus only on selected key markets. This is exactly how Siemens, Motorola, and Palm died in mobile phones. Exactly the same pattern. When your sales stumbles, you start to cut your sales effort. I am reminded of the quote by Paul Harvey: "Marketing executives who stop advertising to save money are like people who stop the clock to save time."

We knew Q1 was bad. We expected Q2 to be worse. We hear now, that Q2 is even worse than we thought from the Nokia profit warning announcement. Then we get the bombshell about Windows 8. And now, on top of all else, we find that the total Lumia line has been Osborned, not by Elop, but by Ballmer.

THE WINDOWS ASSASSIN

This time it was not Nokia CEO, Stephen Elop, who 'Osborned' the Nokia smartphone line as he did with the Elop Effect last year. This is something Steve Ballmer specializes in, the serial Osborning of Windows based smartphones. He did it with Windows Mobile by announcing no upgrade path to Windows Phone. At its peak, just before the iPhone, Microsoft had a bevy of Windows Mobile smartphone manufacturing partners - including 8 of the Top 10 biggest smartphone makers, Samsung, LG, SonyEricsson, Motorola, HTC, Palm, Dell and Fujitsu. Microsoft had 12% global market share in smartphones, but when Ballmer decided to cut the migration path, the partners started to depart and the share diminish. By the time Windows Phone launched in 2010, Windows Mobile share was down to 3%. And even after Nokia was brought in, today the combined market share of Windows Mobile and Windows Phone is down to 2% globally. Now, Ballmer says there won't be a migration path for Windows 8 either. Your existing WP7 based smartphone is an expensive paperweight: you have to buy a new smartphone to enjoy Windows 8 - the Microsoft handset partners team has shrunk to four: Nokia, HTC, Samsung and Huawei. Three of them - Samsung, HTC and Huawei do the majority of their smartphones on Android. And Samsung has not just one, but two of its own smartphone OS platforms as well - bada already in production and Tizen coming out later this year (with four handset manufacturers already confirmed).

So the pipe-dream of the 'third ecosystem' is fully busted now. Microsoft's smartphone 'play' that once was the second largest OS in the world, is now ranked 6th and sells only 2% of all new smartphones (with share still falling). That was before the current line of all Windows Phone based smartphones by all makers became instantly obsolete this past week. If I was the CEO of any of those companies, I would have learned my lesson by now, and never put most of my eggs in the Microsoft basket. In fact, like Samsung, if I was a Microsoft partner, I would be frantically building my own OS to replace Microsoft. And if I was Nokia with not one, not two, but three smartphone OS platforms - Symbian, MeeGo and nearly-completed Meltemi - I would certainly keep those well in production to be sure I would not be damaged by the whims of the Ballmer.