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One year later, Nokia and Microsoft deliver

One year later, Nokia and Microsoft deliver

By Kevin J. O'Brien, New York Times | Updated: 5 June 2012 18:25 IST

Highlights

The Nokia and Microsoft software tie-up, that commenced last year, has paid off.

One year ago, Jo Harlow, the head of smart devices at Nokia, stood before a packed convention hall at the Mobile World Congress, the cellphone industry's most important trade show, to explain the Finnish company's new software alliance with Microsoft.

It was only a few days after the agreement had been announced in London. But the need for the deal had been so urgent that Nokia and Microsoft, grasping for a foothold in a mobile computing industry that was quickly slipping away from them, had gone public without a definitive legal agreement, just a handshake and a promise to work together, somehow.

"I remember standing on that stage and saying that I would deliver one device by the end of the year," Ms. Harlow said during an interview last week. And she said she thought to herself: "Now I really have to do it."

One year later, Nokia and Microsoft have exceeded their own predictions, and by most estimations, the expectations of many in an industry now dominated by Apple, the smartphone market leader, and Samsung, the No. 2, whose lineup relies on smartphones running Google's Android operating system, the most ubiquitous phone software.

On Monday, Nokia introduced an enhanced, third-generation cellphone network version of the Lumia 900 that will sell globally outside the United States and an LTE version for Canada. It introduced the Lumia 610, which will cost about 30 percent less than the Lumia 710. At the same time, Microsoft said it planned to open new Windows online marketplaces in 28 countries by March, including China.

Nokia delivered two Windows devices in 2011: the Lumia 800, a premium phone, and the Lumia 710, a lower-price version. In January, the company said it would sell a version of the Lumia 900 in the United States that would run on AT&T's new network using superfast Long Term Evolution, or LTE, technology, something even Apple does not yet offer for the iPhone.

Ms. Harlow, 49, the captain of Duke University's women's basketball team her senior year, had faced pressure before. She explained to the crowd of analysts and journalists gathered at the annual industry convention here last year that Nokia and Microsoft would produce their first phone using the Windows operating system by the end of the year - a pace two to three times quicker than Nokia's previous rhythm.

But deep down, even Ms. Harlow was a bit awed by the task before her, which would require an accelerated, effective collaboration with a completely different corporate culture in a creative endeavor so intimate that both would have to discard mutual mistrust to make it work.

Stephen A. Elop, Nokia's chief executive, said during an interview at this year's Barcelona trade show that the relationship with Microsoft had gone well. Mr. Elop said that neither he nor Steven A. Ballmer, Microsoft's chief executive and Mr. Elop's former boss, had had to intervene to arbitrate disputes in the mixed teams of Nokia and Microsoft employees working on Lumia.

"We have regular reviews where we sit down and go through all the details and have debates about the best way forward, but the teams are quickly able to move through these issues and get to a common point," Mr. Elop said. "A year later, it is all focused just on going forward and not examining, 'What did we say in the contract?' We're getting stuff done."

But the United States is still the most vexing market for Nokia.

"The big question will be how they tackle the U.S. market, where they have virtually no presence anymore," said Mark Newman, an analyst with Informa Media and Telecoms in London.

By the end of 2011, Nokia said, it had sold more than a million Lumia phones, which Mr. Newman characterized as good but "underwhelming."

The wider price range introduced on Monday with the new phones and the expanded geographic footprint provided by the new online marketplaces will increase the potential market for Windows phones by 60 percent globally, said Terry Myerson, a vice president of Microsoft's Windows phone unit. That market has so far been limited primarily to the United States, Japan and Western Europe.

Officials from both Microsoft and Nokia declined to disclose details on the companies' strategy, the promotional budget or the method chosen for trying to persuade the other three big operators in the United States, Verizon Wireless, Sprint and T-Mobile USA, to sell their phones.

Mr. Myerson said Microsoft was aware that Windows was not a dominant force in mobile devices. "We recognize that Windows phone is the challenger in the market against established alternatives," he said. "We have tried to get a very clear point of view about why users should choose Windows phone."

One of the major reasons, he said, is that Lumia Windows phones are "faster at the everyday tasks that busy people have to do every day."

Ms. Harlow said Nokia and Microsoft were far along on their plans for the United States and the rest of the world. The companies' work on Lumia devices is split among five locations: San Diego, Beijing and Taiwan and Salo and Tampere in Finland.

"We are focused on generating demand with consumers and doing the appropriate things across all media," said Ms. Harlow, who has spent time in all Lumia locations over the last year, working with people from Microsoft and Qualcomm, which is making the chips for the phones. "We have what we believe is a comprehensive plan put together with AT&T to ensure that sales associates are knowledgeable and excited and ready to sell the story."

Nokia is a distant No. 3 in smartphone operating systems. Its aging Symbian, the proprietary smartphone operating system that Nokia is phasing out for Windows, had only 12 percent global market share in December and it was declining fast. (Research in Motion, maker of the BlackBerry, is the other sick man of the industry, with a declining 9 percent share, according to Strategy Analytics, a research firm.)

The combined share held by Windows, which includes phones made by Nokia, HTC and Samsung, is just 1.7 percent.

A wild card will be Google's plans for Motorola Mobility, which Google is set to acquire for $12.5 billion. Microsoft hopes that if Google converts Motorola into a high-volume global maker of Android phones, Samsung, the biggest user of Android, would be driven to another operating system - perhaps Windows.

Lee Younghee, senior vice president for global marketing of Samsung Electronics mobile products, described Samsung's work with Google at the Mobile World Congress as a "strong partnership" but noted that Samsung had consciously followed a mixed strategy of Android, Windows and Bada, Samsung's proprietary operating system.

"We believe that Android is a growing market," Ms. Lee said. "We believe there are other sectors where will need a strong partnership with Google, not just in research and development, but marketing. But we can say that as long as we can maintain this business model with Google, our relationship can be well managed. I think so far we are O.K."

Referring to Google's purchase of Motorola, Ms. Lee confirmed that the companies' relations were still good. "Even after their announcement," she said.

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