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Nokia rumored to shift toward Silicon Valley, Windows Phone 7 [u]


The world's top mobile vendor is reportedly considering plans to move its executive decision making from headquarters in Espoo, Finland to Silicon Valley in California, and is potentially eyeing an alliance with Microsoft in a bid to compete against Apple and Google in smartphones.

Once the only significant smartphone platform worldwide outside of North America's bubble of Windows Mobile, BlackBerry and Palm OS, Nokia's Symbian has been pummeled by the launch of Apple' high end iPhone, then by mass market Android models, and thirdly by low end sales of Chinese phones, according to a report by TechCrunch detailing the company's fears as expressed in an internal memo.

Standing on a burning platform

The note, titled "standing on a burning platform" and written by Stephen Elop, the former head of Microsoft's Office division who was recruited by Nokia to turn the company around as its new chief executive last fall, reportedly depicts Symbian and MeeGo as competitive failures.

Update:Engadget reports the 1300 word internal memo compares Nokia's position to the story of a man on a burning oil platform and faced with the decision to die in a fire or plunge into the icy sea.

"After he was rescued, he noted that a 'burning platform' caused a radical change in his behavior," the memo reportedly says. "We too, are standing on a 'burning platform,' and we must decide how we are going to change our behavior."

It adds, "we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us. For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem."

"In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

"And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core."

The memo also notes, "the first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable."

The memo concludes saying, "we are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future."

Symbian is Nokia's mainstream smartphone OS, recently converted into an open source platform. It has been unable to recapture the attention of users and developers distracted by Apple's iOS in recent years.

MeeGo is Nokia's parallel, Linux-based project aimed at delivering netbooks, tablets, smart TVs and smartphones, similar to Android. It is the merger of Nokia's own Maemo project (which powered its iPod touch-like Internet Tablet and N900 handheld computer) with Intel's Moblin effort (intended to to create a netbook OS capable of running on Atom chips independent of Microsoft's Windows 7), a partnership that was revealed just a year ago.

Last week in Nokia's last earnings conference call, Elop told analysts "we must build, catalyze and or join a competitive ecosystem" in order to adapt in the fast moving mobile space.

That prompted speculation that Nokia may either license Microsoft's Windows Phone 7 or Google's Android. Berenberg Bank analyst Adnaan Ahmad subsequently wrote that "Nokia is no longer in denial," while recommending that the company scrap MeeGo, saying "it’s the biggest joke in the tech industry right now, and will put you even further behind Apple and Google."

Out of the frying pan

In recent years, Nokia has become a staunch proponent of open source development, launching Maemo Linux on its Internet Tablet in 2005, and then buying out its Symbian partners in late 2008 to convert the platform into a open source project known as the Symbian Foundation, in a model similar to Netscape's conversion into the open source Mozilla Foundation. Last year, Nokia announced Maemo's merger with Moblin.

At the same time, in late 2009 Nokia began selling a new netbook powered by Microsoft Windows, named the Nokia Booklet 3G. The replacement of its chief executive last fall with a former division head of Microsoft has only added fuel to the flames of rumors surrounding a series of partnerships between Nokia and Microsoft.

In late 2008, bloggers began anticipating that Nokia would install Zune Marketplace software on its phones, boosting the prospects for Microsoft's Zune music player. A year later, Microsoft actually announced plans to bring mobile editions of its Office mobile apps to Symbian. That project does not appear to have materialized, although Microsoft has brought its Office OneNote app to Apple's iOS.

Despite its open source efforts, Nokia's Scandinavian home has historically been heavily tilted toward Microsoft, even as Apple's iOS devices began to invade, followed by rapid uptake of Android smartphones. Were Nokia to shift into an alliance with Microsoft, and in particular one that moved its center of gravity to California, its base audience of open source advocates and European and especially Scandinavian loyalists might lose some of their enthusiasm for the brand.

Apple faced similar issues when Steve Jobs attempted to quickly transition the company's Macintosh platform to his own Unix-based NeXTSTEP after becoming the company's new chief executive in 1997. Resistance from Mac users and development partners derailed those high speed plans and replaced them with a milk run strategy that slowly evolved in a glacial transition to Mac OS X that didn't fully materialize for another half decade.

A fresh injection of boring, Android on the side

Microsoft has admitted that its Windows Phone 7 strategy similarly expects to take years to achieve the sales of iOS or Android. Initial demand for WP7 phones has proven disappointing to Microsoft's partners, including flagship partner LG, which referred to the new platform as being "a bit boring" but potentially attractive to low end smartphone buyers with simple needs.

While LG continues to support WP7, it is also promoting new Android phones, holding out the prospect that Nokia could have its WP7 and eat Android, too. Samsung is similarly pursuing dual strategies with its own Bada and Android, and HTC already sells both WP7 and Android devices, with plans to deliver its own BREW-based low end smartphones as well.

By aligning WP7 with Nokia, which still makes most of the world's mobiles and, according to IDC, sold 28 percent of global smartphones in Q4 2010, Microsoft could finally find traction for WP7, if Nokia buyers and the market in general responded positively to new Nokia WP7 phones.

A partnership with Microsoft could also help Nokia to enter the North American market that Symbian has never been able to penetrate. So far however, retailers in both the US and Europe report that customers have largely opted for Android over WP7, as both typically ship on identical hardware from the same vendor.

Nokia is expected to reveal more about its future plans for Symbian and MeeGo, and potentially WP7 and Android, this Friday at the company's annual Capital Markets Day event.