Nokia Tailspin Threatens Hopes For Windows As Third Mobile Platform

In February 2011, Nokia and Microsoft announced their grand plans for a new global mobile ecosystem. Nokia’s smartphones were going to “drive the new Windows Phone,” and help Microsoft mount a challenge to Google’s Android and Apple’s iOS.

A year and a half later, that vision hasn’t come into clear focus, in part because of troubles at Nokia, which accounts for half of Windows Phone sales. (See chart below right.)

The manufacturer’s third quarter results were soured by the performance of its Lumia smartphone line. Lumia sales shrank from 4 million units in the second quarter, to 2.9 million in the third quarter. 

To be fair, Microsoft was partly to blame. It threw a wrench into Nokia’s sales effort when it decided to reboot its smartphone operating system entirely. Microsoft’s new platform, Windows Phone 8, will not allow older Windows Phone-powered devices to upgrade to it. That chilled sales of Windows Phone 7 devices, the majority of them Lumias. (Windows Phone 8 will launch Oct. 29.

In keeping with Nokia’s poor recent record in smartphones, sales of the Windows Phone 8 Lumias (including the Windows Phone 8 “flagship” smartphone, the Lumia 920) aren’t expected to be spectacular either. Cannacord Genuity predicts “slow, steady” growth for Windows Phone 8 Lumias, with 2013 sales at 23 million units.

That may not be enough to save Nokia. In the third quarter, even with a $250 million “platform partner” payment from Microsoft, Nokia still hemorrhaged about $825 million in cash. Many observers see Nokia as a likely takeover target. 

Microsoft does have other partners. HTC and Samsung have unveiled Windows Phone 8 smartphones.

The problem, as ex-Microsoft employee Charles Kindel argues, is this: Why would a consumer buy a Windows Phone, even if it’s a great device, when they’ll likely walk into a store filled with Androids and iPhones, staffed by salespeople unfamiliar with Windows?

This cloudy picture could brighten somewhat if Verizon, the largest U.S. carrier, backs its recent advocacy for a third platform by pushing Windows Phone 8.

Still, Windows Phone has one-sixth the apps of Android. And we don’t buy the idea that smooth integration with Microsoft Office will help lure consumers. It might work with tablets, which are gaining ground as productivity tools, but not with phones. Who wants to work with Excel on a small screen? 

Microsoft needed a handset partner with the heft and global reach to grab shelf space and put Windows Phone front-and-centre. Nokia hasn’t delivered.

Windows Phone has been held to a tiny slice of the market. To build a viable third smartphone ecosystem, all the ingredients — robust hardware offerings, strong marketing, highly trained sales forces — need to come together. Right now, Microsoft doesn’t have all the parts in place.

 

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