Ever since the “Burning Platforms” deal between Nokia and Microsoft was announced on Feb. 11th 2011, there was a consensus: Microsoft is the big winner in this partnership.
It was obvious. By February 2011 Windows Phone 7 was already a failure. Sales of the new devices were extremely low, and the new OS wasn’t going anywhere for at least a year, maybe two. Microsoft desperately needed to do something radical to become relevant in mobile again.
Nokia, on the other hand, was still the largest mobile phone and smartphone maker in the world. They just launched the next generation of Symbian devices, significantly boosting smartphone unit margins and profitability. Yes, Nokia already started losing the market share, but in Q4 2010 they still grew smartphone unit volumes and prices. And they were still shipping almost as much smartphones as two closest competitors – Apple and RIM – combined. Samsung was a distant third. Nokia also had the next generation Meego platform to replace aging Symbian in the works for summer launch.
From the outside it looked like Nokia brought a lot more than Microsoft to this deal. One of the world’s best known brands, best in class logistics and manufacturing chain, strongest carrier relations and worldwide distribution – all working exclusively for the new Microsoft OS.
It gave an instant credibility boost for the fledgling Windows Phone.
Playing on its strengths, Nokia was able to negotiate concessions no other OEM was ever able to get from Microsoft. “Platform support” payments to the tune of 250 million US$ a quarter, access to Windows Phone code base from the earliest days of development, ability to influence and shape WP roadmap by including Nokia’s preferred features and API’s. Nokia also got the rights to include any exclusive things into Windows Phone code, to the point of fragmenting the platform, if they chose so. And, it seems, some rights to block Windows Phone features they object to, even if Microsoft decides to make the smartphone themselves.
All in exchange for a promise that Nokia will convert a significant fraction of Symbian sales to Windows Phone. That “flip a switch ship millions of units” magic of glory years. I don’t know how implicit or explicit that promise was, but I am pretty sure it was there.
Now look at the “Burning Platforms” deal from Microsoft’s perspective today.
They’ve paid about $1 billion to Nokia. They gave Finns a say in Windows Phone future development no other OEM ever had. They opened the possibility for platform fragmentation and restricted themselves from doing some competitive things Nokia objects to. There was also a rumor that Microsoft dropped dual-core capabilities from WP 7.5 Mango simply because Nokia couldn’t make its Lumias work with the latest Qualcomm chips, in time for launch. Whether that rumor is true or not, it is no wonder no other Windows Phone OEM, except HTC, even tried with WP Mango after Nokia deal was announced. Why would they?
And what did Microsoft get in return?
- a short-term boost in Windows Phone credibility, which disappeared the moment Q1 2012 Lumia numbers came in;
- somewhat increased developer interest. But it wouldn’t make much difference going forward whether they have 100K or 50K apps in WP Marketplace today, compared to 600K+ in Apple’s App Store and Google’s Play Store;
- a license (on what probably are very good terms) to Navteq maps. They are not free for Microsoft
- 10 million Lumias shipped in 11 months. Which is a pitiful number and make very little difference to Microsoft’s standing in smartphone market, or even the future of Windows Phone 8
- oh, and let’s not forget the sales channels clogged with unsold first generation Lumias. Which might seriously screw up WP8 launch sales and momentum for everyone
Fans like to point how much Nokia lost and sacrificed to go exclusively Windows Phone. Killing off Symbian earlier than expected, abandoning Meego, dropping Meltemi; crashing market share and smartphone volumes, billions in loses, tens of thousands fired employees, etc;, etc; etc; The list is endless. And all of it because of the deal, half-baked WP 7.5 Mango OS, and the time it took to get WP8 ready.
But that does not really matter from Microsoft’s point of view.
Nokia’s pain and troubles are purely self-inflicted. They knew more or less everything there was to know about Mango, they knew how long it will take to ship Windows Phone 8, they even knew that WP 7.5 and WP8 will not be compatible. Nokia knew all this before the deal with Microsoft was announced and signed. And they decided to go all the way in, offering platform exclusivity and huge potential sales to Microsoft in exchange for better contract terms and concessions. Only those implicitly or explicitly promised sales never materialized. The “flip a switch magic ship millions” was gone, wasted on N97 and other disasters.
Microsoft thought they were getting a prize stud with “Burning Platforms” deal. Instead they got a dud.
Ballmer&Co. must be feeling not too happy about Nokia right now. Which is why 4+ months ago they might have started working on their own Plan B – a Surface branded Micorosoft’s Windows Phone. If true – it happened right about the time when global Q1 2012 and early AT&T Lumia sales numbers came in.
In the end – it is now beyond obvious that Feb. 11th was a mistake for both Nokia and Microsoft. It is hard to imagine anything else Nokia could have done back in early 2011, that would have made current situation worse. Microsoft also didn’t get even half of what it expected from the deal.
But MSFT is at least executing and producing software more or less on schedule. It is Nokia who has over-promised and under-delivered.
If you liked the post, you might find these interesting too:
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- Did Microsoft offer Nokia $1 billion to choose Windows Phone over Android?