Microsoft and Nokia are arch-enemies in many respects, both fighting to control the key software platforms that will underpin the mobile internet. However, their battle lines are shifting, from a simple handset OS shoot-out and a bid to dominate the next generation enterprise client, to a more complex fight to take a driving role in the whole mobile web model. This new world brings both up against new competitors ‘ Nokia may now think Google is just as threatening as Microsoft to its bid to run the mobile internet; Microsoft is seeing challengers like Apple and Opera being far more effective against its own software in the mobile world than they were on the desktop. So there will be more areas than before where Microsoft and Nokia can make common cause, however grudgingly, and other areas where, to move with the aggression the mobile internet will require, they will not be able to do without one another.
These factors are behind the announcement that Microsoft has created a suite of its Live applications specifically for Nokia’s Series 60 smartphone architecture, with a version for the lower end Series 40 to come. Series 60 is the centrepiece of Nokia’s strategy to become to the mobile world what Microsoft is to the PC ‘ offering a software platform encompassing user interfaces, middleware and a developer ecosystem, not only for its own phones but those of third party licensees, which include Samsung, LG and Lenovo. Despite the massive challenge that this represents to Microsoft’s attempts to get its Windows and .Net technologies on to mobile devices, the US giant clearly cannot resist the prospect of pushing its Live applications out to a readymade base of millions of users (100 million Series 60 smartphones had shipped as of April) in the 11 countries covered by the agreement so far. This is one of the long overdue, and still too rare, occasions when Microsoft has let go of the outdated notion that it must control the operating system ‘ a lesson Nokia has learned more quickly, with its shift from supporting Symbian only on smartphones to a multi-OS strategy. Microsoft will never make Windows Mobile dominant on the handset, but can be very successful in the wireless world when it pushes some of its more unavoidable technologies, like Outlook/Exchange, on to multiple platforms.
From Microsoft’s point of view this represents a real, and much needed breakthrough onto non-Microsoft mobile platforms, and likely indicates a change in strategy more in line with Nokia’s, that of offering its own services that rival those of mobile operators, instead of targeting the mobile operator as its primary mobile customer.
This new deal throws a spotlight on last month’s deal with Nokia to port its PlayReady DRM component to Series 60 and Series 40 devices, which first raised the question, is Nokia perhaps changing its enemies, and therefore its partners.
So far Nokia has done a good job of defending the OS fortress against Windows Mobile, but once at applications/tools level, even the Finnish giant cannot ignore the installed base of Microsoft, and the fact that, if Nokia wants to see the smartphone converging with the PC and media device ‘ with itself in the commanding position of course ‘ it must accommodate many of the platforms that are inherent in that PC. It has already made various compromises with the software company over the past couple of years, notably in 2005 when both Nokia and Symbian (the OS company it virtually controls) licensed Microsoft’s ActiveSync technology, to allow their products to integrate with Exchange. It is worth noting that one of the problems European operators have found with the iPhone is that it does not support Outlook/Exchange, and this will prove a significant disadvantage against other phonemakers in the corporate/power user space.
However, this new deal between the mobile rivals has far wider implications than the email integration agreements, because it goes to the heart of Nokia’s bid to reinvent itself as a mobile internet services company, in order to take a lead role in what should be the most important trend in enterprise and consumer behaviour in the coming decade, as well as reducing its dependence on the commoditizing hardware device market. In its dreams, the giant would create a full suite of essential internet services in its own right, leveraging its cellphone installed base and brand to establish these as major players, and relying on a network of third parties to fill in the gaps. This fledgling strategy has already been seen in the creation of its first pure internet business, Widsets, the launch of the Mosh social networking offering, and in the acquisition of Twango. CEO Olli-Pekka Kallasvuo has been restructuring the company around a transformation into a mobile internet player, and a host of announcements can be expected in 2008.
But Nokia cannot do this all by itself, and Kallasvuo and his team are too canny to try. The company may have all but won the handset war, but it is a newcomer to internet services and software, and its minor attempts in the past have not always been highly regarded. It has proved its capability in software at the UI/platforms level with Series 60 but remains untested in applications and services. In making the attempt, it is not only entering unfamiliar territory but taking on new competitors, notably Google, Yahoo and Microsoft itself, which have limited credentials in mobility but strong presence in internet. Nokia argues that it understands how to mobilize the internet in a way that these PC-oriented companies do not, but the fact remains that it has taken on a huge task, and will need to draw support where it can find it.
For Nokia, the most immediate advantage is to fill glaring gaps in its internet portfolio in a short space of time. For instance, it has not done its own search, blogging or serious messaging services as yet, and will do better to concentrate on web services where it can take a real head start and leverage new Web 2.0 techniques ‘ as with the Widsets widgets ‘ rather than playing catch-up with Microsoft and the Exchange-based empire.
That means making common cause with Microsoft, which itself would clearly like to see a credible alternative to Google. The software leader has created versions of the suite that lies at the heart of its own unified/online communications strategy, which will need to succeed on mobile platforms if it is to have serious influence in the next generation ‘ whether that mobile platform is Windows-based or not. The suite consists of Windows Live Hotmail, Live Messenger, Live Contacts and Live Spaces. Nokia has already incorporated Windows Live Search into its Nokia Mobile Search application on Series 60/SymbianOS and plans to extend it to support Series 40 phones, which run a proprietary OS. Users of Nokia N73, N76, N80 Internet Edition, N93i, and the N95 multimedia devices are the initial targets and can download the Live services as a free download, though they will later be asked for an unspecified monthly fee to continue usage. The suite is available in Denmark, Finland, France, Germany, Netherlands, Norway, Spain, the UK, Sweden, Saudi Arabia and the United Arab Emirates.
The next, and potentially highly interesting, step, will be to see whether Nokia extends the deal to its Linux products, notably the Internet Tablet, which represents its strongest claim to take a lead in the generation of devices that will replace the PC.
This would make sense in the enterprise market and in the battle to sideline RIM and Palm as quickly as possible. On all platforms, the agreement shows Nokia prepared to put its own technologies on the back burner ‘ notably its Intellisync product – and be flexible about some of its strategies, in order to establish itself as a mobile internet services company, and start experimenting with the business models this will support. In this case, it is looking at monthly subscriptions to services that users will find sufficiently indispensable to justify this ‘ in other areas it is aiming to rely on advertising-based revenues. In either case, as in many other Nokia strategies, a parallel aim is to reduce the influence of the carriers, with which the handset maker has a love-hate relationship, especially in the US (though north America is currently excluded from the agreement, for reasons unspecified). The more that Nokia can offer services directly to subscribers, the more the cellco becomes a bit pipe, with its brand and influence secondary to that of the Finnish company. In the short to medium term, this will also serve to push the handset brand and sales, though Nokia is insistent that it wants to be a pure web services player, and will offer its products across many devices, not just its own. One of the most fascinating aspects of its strategy, and one of the biggest headaches for Kallasvuo, will be striking that balance so that the internet business grows rapidly, and untrammelled by the handsets ‘ again, with echoes of Microsoft’s own dilemmas over Windows ‘ but does not serve to promote rivals in the battle for smartphone market share.
Many questions remain around this deal, and by sleeping with the enemy Nokia and Microsoft are both adding to the areas of confusion in their mobile internet plans, which will remain fundamentally competitive. Both have realized that internet services, rather than a particular platform are the key to dominating the future mobile enterprise and power user segments, and while Exchange is unavoidable in that scenario, in many other areas the two companies will clash head-on. Both will have to rely on making their core products ‘ Nokia’s smartphones and Microsoft’s Windows Mobile ‘ sufficiently powerful in terms of user experience to sell on their own merits in an open world, rather than on the back of closed industry relationships (another blow to the influence of the carriers). We can be sure that Nokia will not have accepted a version of Live that is inferior on its products to that on Windows Mobile (sometimes a Microsoft tactic, but unlikely to carry weight when Nokia is trading a 100 million user base, and more to come with Series 40).
As well as product positioning, there are many questions to be answered about the business model ‘ which will set precedents for future cooperation between these companies and others, as all players wrestle with the issue of how to make a profit from the mobile web. Presumably both partners will share the subscription revenue, but it would be hard to imagine, given Nokia’s serious moves into mobile advertising of late, that there will not be an ad component too, and the management and revenue share of that will need to be addressed. These are challenges that all mobile internet players will face and all eyes will be on the way that Nokia and Microsoft approach them, and how far these giants will go in reducing hostilities and making common cause against rivals like Google.
The Microsoft deal reduces the market potential for Nokia’s previously audacious plans for its Intellisync suite, which it purchased in 2005 and which includes mobile email and was to add consumer messaging and content handling. This represented the belief of previous CEO Jorma Olilla that Nokia’s future lay in becoming the ‘mobile Microsoft’ and creating all the major software platforms and applications itself ‘ a strategy that is becoming more flexible under Kallasvuo’s leadership.
The acquisition of the mobile email specialist for $430 million was most immediately a strike against RIM as part of Nokia’s bid for the mobile enterprise market. But last year the Intellisync technology was put at the heart of plans to create a full internet services suite to rival Google’s and Microsoft’s in the prosumer as well as the corporate sectors.
Promising ‘mobile email for the masses’, Nokia announced that Intellisync would run on third party handsets and provide a server platform that could communicate with a wide variety of client devices including BlackBerry and interoperate with other key email servers, notably Exchange. This approach, of controlling the server and optimizing the mobile experience from there, rather than on the device, is fundamental to Nokia’s challenge to Google, as the Widsets architecture demonstrates. Then the company was set to add consumer messaging and other applications to the suite to extend its market reach further, but this effort may now be defocused with the licensing of Live.