Nokia and Microsoft form partnership

Nokia, which has been unsettled by the success of the Apple iPhone and Google’s Android smartphone operating systems, is hoping its partnership with Microsoft will help it catch up.

This week, it was revealed that the Finnish company’s chief executive Stephen Elop had sent a memo to staff warning them that they were “standing on a burning platform”, as Apple and Google increased their share of the smartphone market.

“Standing on a burning platform” Nokia chief executive Stephen Elop in leaked e-mail

The seriousness of the situation for the world’s biggest manufacturer of mobile phones was confimed today when the Finnish economy minister, Mauri Pekkanen, said Nokia was planning major job losses.

“This is the biggest structural reform which has ever impacted new technology in Finland,” he told the Finnish business newspaper Kauppalehti.

The company that once defined mobile phones and the company that once defined computing are coming together in a move that makes perfect sense, writes Benjamin Cohen.

Ten years ago, Nokia was the dominant force in mobile phones. Since then it has been eclipsed in the smartphone market by Apple and then by Google's Android operating system. The latter competes with Nokia's own open source operating system Symbian.

While Nokia still has huge market share in the more basic 'feature-phone' market, the real money in mobile phones is to be made with 'smartphones'. This is a part of the market that Microsoft has been hitting aggressively since the launch of Windows Phone 7 late last year.

Read Benjamin Cohen's blog - Nokia and Microsoft smart phone marriage makes sense

‘Three-horse race’

Mr Elop said its plans to link up with Microsoft meant it was now in “a three-horse race”. But the market reaction was negative, with shares falling by more than 11 per cent this morning.

Nokia will use Windows software and the Microsoft Bing search engine. Microsoft’s Windows phone is highly regarded by industry experts, but has just 2 per cent of the market.

‘No silver bullet’

Analyst Geoff Blaber, from CCS Insight, said: “This is a partnership born out of both parties’ fear of marginalisation at the hands of Apple and Google, but there is no silver bullet.”

“This is a very frank admission that Nokia’s platform strategy has failed and underlines the seriousness of Nokia’s position. Such a move would have been unthinkable just 12 months ago.”

After days of rumours, Nokia is also carrying out a management shake-up, with the heads of the company in America and China leaving.

Microsoft, which has been struggling in the wireless market, is hoping that Nokia’s use of its Bing search engine will help it compete with Google.

What punters can expect

After the success of the i-Phone and Android, do not expect anything that will challenge their dominance in the smartphone market any time soon. That is the view of What Mobile editor Jonathan Morris on the new partnership between Nokia and Microsoft.

In the short term, anything the two companies would be able to produce would look very similar to what is available at the moment, said Mr Morris. As such, it would be safe to assume a rival to the i-Phone and Android operating systems was not "imminent".

Mr Morris said: "The problem Nokia has is that the Windows Phone has not proven itself to be a successful platform. Android has come from nowhere. Now it is huge. Symbian (Nokia's current operating system) has got a lot of users and they will feel let down because there's no chance Symbian will survive this."

The problem for Nokia was that it would be very expensive to support two operating systems, Symbian and Windows, at the same time. Symbian was "a fantastic operating system" when it was launched in 2001, but it was superseded by the i-Phone six years later. "Nokia should have been working as fast as possible to do what Apple had done."

Mr Morris added that other mobile phone manufacturers, like Sony Ericsson, had quickly taken advantage of Android's technology, while Nokia had been left behind.