Handicapping Nokisoft's Chances

This past week has been a bad one for Nokia: the company announced earlier that it will miss Q2 sales targets and its shares hit new lows. At the "D9" conference in Southern California Nokia CEO Stephen Elop, who some have accused of being a "Trojan Horse" for Microsoft, said that the current "pain" the company is experiencing will go on for another year or so. Elop vigorously denies that he's a Trojan Horse; he also denies the companion rumor that Microsoft is ready to buy the company's hardware business. 

Nokia has almost no market presence in North America. Elop said it was roughly 30% to 40% as recently as 2004. And its position in Europe and even China is being eroded by competition in real time. Needless to say the situation for Nokia is extremely urgent, if not dire. It could go from being the market leader to a second or third place global competitor this year. 

Nokia has bet its future on Windows, which it says give it more opportunity for "long-term differentiation" vs. Android. The first Nokia-Windows Phone will be out at the earliest in Q4 of this year.  

Screen shot 2011-06-02 at 6.39.48 AMElop characterized the smartphone market now as a battle of "ecosystems" rather than handsets, and I think that's essentially correct. In that context the question is whether Microsoft and Windows Phone can develop a sufficiently large and interesting ecosystem to gain consumers' interest.

There's a kind of catch 22 problem: without consumer scale developers won't pay attention and build apps, and without apps and software consumers won't find the phones as interesting. However I also believe that the role of apps in the competitive landscape may now be somewhat overblown. Consumers need/want certain categories of apps but they certainly don't care about having access to 500K apps.

After many months of asking I just recently received a Windows Phone (as a loaner from Microsoft). So far I find it easy and pleasant to use. However I haven't used it long enough or broadly enough to come to any final conclusions. 

Some things about the OS and software are unfamiliar and require adjustment (vs. iPhone and Android). But overall the speed and general usability are good. The phone also has a polished UI design -- except for the homescreen, which I don't find compelling.

The device does lack apps; there are some but the selection is limited. And there are certain things about the user experience and software I simply don't like: 

  • As mentioned: the layout and aesthetics of the home screen (pictured, left) 
  • The degree to which the carrier and Microsoft have control over the tiles on the home screen. They can't be customized, which they should be capable of. 

Despite these complaints I would argue that Windows Phone is a credible alternative to the iPhone and Android. The Mango update also just added a ton of new features, arguably none of which are "breakthrough" and some of which are imitative of others or play catch up. But overall they improve the handset. 

In order to appreciate Windows Phone, consumers would probably need to use the device for a period of time. So far consumers don't seem to be that interested. They appear happy to continue buying iPhones and Android devices. And it's not clear exactly what Microsoft can do to stimulate more consumer demand. The company has run some entertaining commercials, which may have built modest awareness but haven't had a major impact. Pricing is another lever here but Microsoft isn't really in control of this. Rather it's the OEMs and the carriers who determine how much the handsets will cost. 

Both Gartner and IDC have predicted that Nokia will stabilize and regain market share globally when the Nokisoft phones come out later this year or next. The firms have also predicted that Windows will become the number two OS in the world after Android on the strength of Nokia's distribution. Certainly Nokia will help gain more exposure for Windows Phones and there will be more sales. How many sales is far from clear however. 

I must say in general I'm pleasantly surprised by the look and performance (thus far) of Windows Phone. I called it a "credible alternative." But is "credible alternative" going to be enough to "move the needle" and divert consumers to Windows from Android, RIM or iPhone? Probably not without more software changes from Microsoft, more apps and massive and coordinated promotion of the handsets from both Nokia and Microsoft. 

See related: Stephen Elop's Nokia Adventure