Microsoft comes out on top of smartphone deal with Nokia

Published: 17 Feb 2011

By: Marc Einstein, Industry Manager, Mobile & Wireless Communications

Synopsis

Last year’s appointment of Stephen Elop as the new CEO of Nokia left much of the telecommunications industry perplexed. While the decision to name an American as the new leader of the staunchly-Finnish Nokia was widely regarded as a much-needed fresh perspective in the increasingly smartphone-dominated device space, the fact that the new executive to helm the world’s largest mobile device maker came from Microsoft – a company which has clearly struggled in the smartphone space – left many to wonder what new direction the company would take. The answer became clear on February 11th, 2011 when Nokia announced a sweeping partnership with Microsoft to become its default smartphone OS provider and collaborate on a variety of services including mobile search, mapping technology and mobile advertising. While the announcement does clarify Nokia’s smartphone vision, which has been muddled for years, we believe that Microsoft is the clear winner in this partnership as it now has a chance to bring its OS back from the brink of irrelevance although both will continue to face an uphill battle in the increasingly-competitive smartphone space.

Market Impact

Microsoft attempts to come back from the brink

We believe that the Nokia-Microsoft deal is a coup for Microsoft as the vendor has historically struggled with its mobile software. As shown in the graph below, Microsoft’s mobile operating market share fell more than 50% between the fourth quarter of 2009 and the fourth quarter of 2010, and this is despite the heralded launch of Windows Mobile 7 carried by vendors such as Samsung, LG and HTC. By the end of 2010 Microsoft only had 3% of the global smartphone shipment market and was the only major vendor to experience negative shipment growth in absolute terms. Nokia, on the other hand, may be out of the limelight in terms of the smartphone space but is certainly still a force to be reckoned with in the market. While its market share has dwindled from 43% of shipments in Q42009 to 31% in Q42010, the vendor is still the largest player in the world and is still experiencing solid growth in its smartphone shipments. Therefore for Microsoft to be able to expose itself to the over 50 million-strong Nokia smartphone use base is certainly a major victory for the Microsoft.

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