Nokia's Partnership With Microsoft Hurts More Than It Helps

Nokia has bet the company on Microsoft and its Windows Phone mobile operating system. That would be a risky but defensible bet… if Nokia was the only company making Windows Phones. Unfortunately for Nokia, other mobile manufacturers also vie for consumer attentions with Windows Phones, notably HTC and Samsung, two companies that have been directly responsible for Nokia’s overall fall from grace in the last few years. In many ways, Nokia’s partnership with Microsoft has hurt it as much as it has helped.

(For more, see ReadWrite DeathWatch: Nokia.)

When third-quarter smartphone shipment numbers were released last week, Nokia, for the first time, had fallen out of the top three manufacturers in the world. By research firm Strategy Analytics' count, Nokia fell all the way to ninth!

There are a variety of reasons for Nokia’s third-quarter disaster. The most obvious is that the competition has kept moving forward with new devices that enables them to sell their older versions at more affordable prices. For instance, Samsung’s strategy of releasing new devices almost every quarter make its quality long-tail offerings, like the Galaxy S II, attractive options to price-conscious buyers. In the U.S. market, Nokia does not have that long tail as its only available devices are the Lumias available from the likes of T-Mobile and AT&T - all of which were released earlier in 2012. 

But the biggest reason for Nokia falling behind in the smartphone race has been the lack of consumer interest, so far, in Windows Phones. Research firm IDC placed Windows Phone a pathetic fifth in the mobile operating system wars for the third quarter of 2012, witha paltry 3.5% of the market, far behind Android (68.1%) and iOS (16.9%) and even lagging BlackBerry (4.8%) and Nokia’s own dying Symbian platform (4.4%). 

Nokia Does Not Own Windows Phone

Nokia may sell the lion’s share of Windows's Phone's 3.5%, but that adds up to only about 5.4 million units or so. And the competition within the Windows Phone world is only getting stiffer.

HTC has two Windows Phones that are will be available this holiday shopping season, the 8S and 8X. Both devices are slim and attractive with uni-body designs, offer HTC-specific features like Beats Audio and are generally just quality pieces of hardware. If you were not paying a lot of attention, the 8S and 8X could definitely be mistaken for Nokia’s own Lumia 820 and 920 devices, scheduled for release in November. 

The difference between HTC and Nokia, though, is that HTC also has the well-designed and popular Android One series devices on top of its Windows Phone offerings. HTC has struggled against the likes of Samsung and Apple this year, but it still shipped 7.3 million smartphones in the third quarter, well above Nokia's numbers. 

Exclusive Is Not Always A Good Thing

This is where Nokia gets hurt by its exclusive partnership with Microsoft. The mobile manufacturer is beholden to Microsoft’s release schedule for its Windows 8 platform, a project that has been in the works for three years and is just now being pushed out (along with a huge marketing campaign). Devices running Window Phone 7.5 “Mango” cannot be upgraded to the new Windows Phone 8 platform, thus turning all of Nokia’s Lumia devices from the past year in to lame ducks, just waiting to be phased out. While Nokia has a reputation for being slow in comparison to the primary Android manufacturers, Microsoft reputation is for being even slower. 

The combination has hurt Nokia more than it has Microsoft. The third quarter numbers are proof enough - but the real test to see how Nokia will fare will be seen during the holiday shopping period. In short, Nokia needs Microsoft a lot more than Microsoft needs Nokia. That relationship, at this point, is doing more harm than good for the future of the once-powerful Finnish brand.