Nokia’s Lumia 710 and 800 phones have only been available in limited markets for about a month. The company just began transitioning away from its Symbian operating system, and these are the first handsets powered by Microsoft’s Windows Phone platform. As a result, it could take time for Nokia sales to start ramping up. The timing is right though; Microsoft recently improved its mobile platform with the Mango software update, which I find to be impressive.

Equally impressive is the hardware Nokia paired with Windows Phones 7.5. The new Lumia 800 may be one of the nicest, most well-designed smartphones I’ve ever held. I’ll have a full review of the phone shortly, but suffice it say: It’s the best Windows Phone I’ve used yet. But maybe that’s part of the problem.

Consumers have essentially witnessed a two-horse smartphone race since 2008, and Microsoft wasn’t one of those horses. Google Android and Apple iOS phones have taken the lion’s share of market growth, while phones running on Palm, BlackBerry and Symbian have either lost ground or been treading water. It’s going to take time for any Microsoft-powered handset to build momentum, even if the software and platform ecosystem are improving.

The other factor here is Nokia’s implementation of a Windows Phone. As I mentioned, the hardware is well done. But there are very few software advantages gained from a Nokia Windows Phone over one from LG, Samsung or HTC. Nokia devices do come with Nokia Drive — a great free navigation app — and Music Mix, but little else in the way of differentiation.

Regardless of Lumia sales, Nokia has to keep pushing the platform in ways its peers aren’t. Microsoft may grab the third spot in the smartphone hierarchy, but unless it continues to grab the attention of consumers, that No. 3 slot may end up being insignificant.

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What the E7 Delay Says About the N8

The delay of Nokia’s E7 isn’t likely to have any direct financial impact on sales revenues because the E7 was always slated for the end of the year. Of course, that means Nokia won’t gain benefit in terms of boosting the ASP, or average selling price, of its handset portfolio, which last quarter was €65 (US $91). The real potential issue here is one of Nokia’s execution as the leader of the smartphone market. According to a Nokia spokesperson statement given to Reuters, the delay is “to ensure the best possible user experience,” which is admirable. Considering the recently released Nokia N8 is the basically the same phone, what does the E7 delay say about the user experience of the N8?

Indeed, the differences between the currently available N8 and delayed E7 are minimal, with the biggest variances being a lower resolution camera, a hardware keyboard and a larger display on the E7. Both offer penta-band 3G radios, the same refreshed Symbian operating system, and share most other hardware features. This chart below from FoneArena illustrates the many similarities:

Given that the devices are far more similar than they are different, and Nokia is delaying the E7 to improve the user experience, it’s not unreasonable to think that Nokia knows it’s flagship line is lacking. My own hands on with the N8 shows an amazing bit of hardware: a beautiful touchscreen combined with arguably the best imaging found in any smartphone today. But the user experience is still muddled and the web browser — a central application that should excel given the importance of the mobile Internet — is essentially the same as it was on prior Symbian S60 devices. That is to say: many will find the browsing experience in Symbian to be sub-par when compared to other smartphone platforms.

Great Hardware Requires Great Software

Nokia has plans to make improve the browser and Symbian as a whole, however: today at the 2010 International Mobile Internet Conference in Beijing, Nokia senior manager Gunther Kottzieper reiterated a software update in the first quarter of 2011 to address issues. Kottzieper also outlined plans for Symbian phones to gain faster CPUs and improved graphics in the first or second quarter of 2011, to later be followed by dual-core processors.

But Nokia’s challenges don’t lie within its hardware, and even if they did, such new dual-core chips aren’t expected in devices until 2012. No, Nokia understands that its mobile platform still needs help: it basically admitted that with the reason for the E7 delay, unless of course, there are production problems, in which case, that’s what the company should have said.

Regardless, Nokia may still be the smartphone leader in terms of sales, but the latest admission of user experience issues shows that it’s fast becoming a follower when it comes to smartphone software. And in today’s world it’s the software that counts. The best hardware in the world won’t fly off shelves nor attract developers if consumers don’t want to use the device’s software.

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Like so many prior Nokia handsets, the N8 is a thing of beauty in terms of design and hardware features, but still falls short by comparison in the software department. Unfortunately for Nokia, software drives the user experience, which can make or break a device. The N8 is, however, the best Nokia device I’ve used yet, and comes closer to offering what the current crop of smartphones bring to consumers. However, the unsubsidized $549 price tag makes this a tough sell in the U.S.

It’s possible that the N8 or a similar Symbian^3 device could wash up on U.S. shores with a carrier subsidy, bringing the price to $199 or less. Such a price point is in line with high-end handsets like Apple’s iPhone 4 or any one of the many Google Android offerings. The N8 is meant to compete with these devices, but even with an improved operating system and app store, U.S. consumers won’t abandon the iPhone or an Android device in droves for the N8. Here’s a rundown of likes, dislikes and other observations from using the device over the past two weeks.

What’s great about the Nokia N8?

• Build quality is superb. The anodized aluminum case keeps the N8 light, but sturdy, and gives the device a premium feel.
• There are ports that aren’t readily available on competing devices. An HDMI-out jack at the top allows you pipe media to an HDTV, which is offered on some other new devices. The USB On The Go function is unique, however. Using the microUSB port and a connector allows the phone to interface directly with USB drives.
• The N8 arguably offers the best smartphone camera solution on the market today, thanks to the 12 megapixel sensor paired with Carl Zeiss optics. The Xenon flash is far better than any LED flash that’s typical fare on other smartphones; it’s akin to the integrated flash of a mid-range digital SLR camera. The phone also has a dedicated picture-snapping button. The 720p video capture is nearly on par with that of Apple’s iPhone 4. While a full 30 frames per second would be ideal, high-definition video from the N8 is quite good.
• Signal strength and call quality are top-notch. I used the N8 with my T-Mobile SIM, and the voice experience was at least as good, if not better, than on my Google Nexus One.
• The AMOLED display is vibrant, actually usable in the sun, and uses the same capacitive touch used in the iPhone and other modern handsets.
• The integrated 1200 mAh battery lasts at least a full day, even with moderate-to-heavy use. Kudos to Nokia for designing a device and operating system that can run a smartphone on one charge a day.
• The software keyboard in landscape mode works really well in my hands and the auto-correct feature is excellent.
• Multitasking is intuitive to use: Hold the only hardware button on the front of the N8 to see, close or switch running apps.
• Nokia wisely incorporated radios that work for data and voice on nearly any GSM network in the world.

What’s improved but still falls a little short?

• Symbian^3 is much better than S60, but isn’t completely baked yet, nor refreshingly new. To be fair, Nokia is caught in the same trap that Research In Motion is: Much like the new BlackBerry 6 OS, Nokia can’t run the risk of alienating its vast S60 user base with a radically new interface. That’s a sound strategy, but one that will mainly appease the existing Symbian users, not attract many new ones.
• Home screens are very customizable with widgets, backgrounds and themes, which is welcome. Alas, there are only three home screens and no way to add more. While the widgets are very handy, and one of the aspects I like about Android, they’re a fixed size, which limits the amount of useful information shown.
• Even without a current-generation CPU, the N8 is a reasonably peppy performer. I witnessed a little more lag with the N8 as compared to 1 GHz handsets I use, but not much, which is a testament to how Nokia has optimized the operating system. Much like the “version 1.0″ feel of Symbian^3, however, the processor could use a boost. Nokia appears to have made a tradeoff between performance and power use here, and the GPU certainly helps as video playback is buttery smooth.
• Nokia’s updated Ovi Store provides a better experience in finding software, although users have to install the Ovi Store on the device, which makes absolutely no sense.
• The N8 works quite well with Google’s Gmail, which I use exclusively. Using the Mail app, I easily set up both my work and personal accounts, complete with calendars and contacts. A unified inbox would be nice, however, and I still don’t see the point of how Nokia treats message composition. Instead of typing directly in the message, you still type in a text box, which feels very 2002-ish.

What needs work?

• For all its improvement, the main Symbian^3 interface still needs help. There are fewer system nags than S60 provides, but they still pop up every now and again. By default, the phone prompts you when hitting a secure site, for example, and will still ask if it’s okay to connect to the cellular data network. I can understand that in some regions of the globe, this is a desired feature, but maybe the default should be set by region.
• Related to the interface: The apps are still hidden in an Applications folder. It’s a hardware button press and a screen tap just to see what apps are on the N8: a level of inefficiency echoed in various places within Symbian^3.
• In portrait mode, the software keyboard is a T9 style, requiring multiple taps for every letter. Some would argue this offers a better one-hand experience, and I agree. However, it’s as if the low screen resolution of 320 pixels wide in portrait mode doesn’t allow for a full keyboard. Again, it feels like another compromise, or Nokia simply didn’t get around to creating a good portrait keyboard yet.
• Social integration for media sharing either isn’t there, or I can’t find it. Perhaps it’s a user error on my part, but as a long-time smartphone user, if I can’t easily find a function, it’s not intuitive. That’s a shame because this type of integration is becoming common on smartphones and is available in prior Symbian devices from Nokia.
• The typing in a text box issue mentioned earlier permeates the system. Typing a password on the web, for example, takes you to the textbox, where you must press a button to return where you started: then you have to hit a login button. It’s a disjointed, inelegant experience.
• Speaking of the web, the browser is WebKit-based, but not nearly as enjoyable to use as that of an iOS or Android device. Text is pixelated and there’s no text reflow when zooming in on a page, causing far too much scrolling. The browser looks nearly identical to that of older S60 devices, and after a few years of revamping the platform, this is a missed opportunity: people are using smartphones primarily for the web and apps, so dropping the ball here is disappointing.

All in all, Nokia’s N8 and Symbian^3 operating system show signs of catching up to the competition in this market. Unfortunately, in many instances, it only catches Nokia up to where its competitors were two years ago. Is it a device that will make some people happy? Yes. If you’re a current S60 device owner that wants a more modern touchscreen smartphone, then the N8 is well worth the look. Will Nokia gain N8 converts from the iPhone and Android handset rank-and-file? Not in any meaningful quantities. For that, we may need to see Symbian^4 or MeeGo devices from Nokia.

Nokia has said it expects to sell 50 million Symbian^3 devices, and I think it will do that. It won’t be because these devices bested the competition, however. Instead, it will be due to Nokia’s global reach and branding in 190 countries in combination with an updated operating system that will keep Nokia’s current customers happy.

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Our detailed, full review of the phone and software will follow in the near future, but as far as the hardware goes, the N8 is likely the best phone Nokia has ever built. The aluminum device is well constructed and solidly made, even if some of the specifications lag behind current high-end smartphones from other manufacturers. There’s little doubt that the 12 megapixel camera sensor paired with Carl Zeiss optics make the N8 a contender to replace a point-and-shoot camera. However, as shown in the video, some initial quirks may limit Nokia’s ultimate success with the N8.

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The contest is arguably one of Nokia’s largest efforts to attract attention the U.S. market, a place where smartphone adoption is quickly rising and yet Nokia has a limited presence. Perhaps the largest reason why Nokia is on the outside looking in at the U.S. is the lack of carrier partnerships: very few Nokia smartphones are subsidized and offered by U.S. carriers.

Indeed, Colin Gibbs provides several examples of how carriers can hold the keys to the castle (subscription required) in a recent GigaOM Pro thought piece. Without carrier subsidies and marketing dollars to help push products, Nokia hasn’t really had a chance to compete. But as my podcast colleague Matt Miller notes at Nokia Experts, this contest may be a foot in the door to the U.S. market for Nokia.

Evidence of this is on the Rules page where the details state, “Qualifying apps must be designed, developed, fully compatible with, and published for, the Nokia N8…” Wow, doesn’t get much clearer than that, does it? I can’t imagine that Nokia is just counting on those of us who will be buying SIM-unlocked N8s and the evidence is mounting that AT&T will be picking up the N8.

Nokia is running this contest for two main reasons. First, it’s continuing to drum up support from developers for the Symbian^3 platform. Current developers building apps for Nokia devices are already happy with the programming tools, but Nokia wants to catch the eye of app makers building for Apple’s iOS and Google’s Android devices. Second, the Nokia N8 is arguably the company’s flagship smartphone so the company is wisely putting some marketing muscle and money behind it. Yes, Nokia announced three other Symbian^3 handsets at Nokia World last week, but the N8 was introduced back in April as Nokia’s “fight back” phone to showcase an improved Symbian^3 platform.

So how does AT&T fit in with the Calling All Innovators contest, aside from assisting with the application judging? Nokia desperately needs a carrier partner if it wants a successful smartphone in the U.S. and AT&T will soon need some new hot handsets to counteract the likelihood that it will lose it’s iPhone exclusivity. However, the U.S. market doesn’t generally support the unsubsidized, full-price model found outside of the U.S. so at $549, the N8 won’t attract big sales numbers.

A deal with AT&T that subsidizes the phone for $199 or so changes the situation, however, and further builds AT&T’s smartphone lineup, which may also be getting the INQ/Facebook phone detailed by Om. Such a carrier deal to bring the N8 to the U.S. would give AT&T customers yet another platform choice, and could give AT&T a competitive advantage long after the iPhone exclusivity is over.

It’s worth noting that Nokia wisely included support for five mobile broadband data bands in the N8. That means every model of the N8 works around the world and in the U.S. with AT&T — or T-Mobile for that matter. I’m expecting a review unit of the N8 in the near future, but my brief hands on with the phone last week showed a vastly improved user interface over prior Nokia smartphones. The hardware specifications rival or exceed competing devices in many areas as well. If Nokia does indeed partner with AT&T to offer a subsidized N8 handset, I’d call it a huge win and a step towards growth in a market where Nokia is a relative unknown.

While no tech player is immune from product delays – customers still can’t order that white iPhone 4, for example — Nokia’s sheer size and breadth of product line complicates matters. The handset maker offers products in nearly 200 countries and I’ve simply lost count of  how many different phone models Nokia makes. Nokia’s global product offerings are both its biggest strength and its greatest weakness because of the massive effort it must take to coordinate hardware, software, services and logistics. For a product like the N8 that was shown off and introduced back in April, this challenge shows.

Indeed, when I spoke to Anssi Vanjoki — Nokia’s executive VP and head of Mobile Solutions — at the Nokia World event last week, he touched upon such challenges, possibly inadvertently. “The Nokia N8 is the dream I realized four years ago,” he told me. The handset might indeed be the best smartphone on the planet, but I circled back to the timeframe Vanjoki mentioned, and asked if “four years” sounded like a problem to him. He candidly admitted that the company often moves too slowly, and vaguely alluded to internal logistics and organizational politics as issues, but provided no further details.

Like its competitors in the mobile handset market, Nokia faces many of the same challenges: developing and maturing the platform, managing component shortages, and creating a compelling ecosystem. By scaling up the company and product offerings, however, Nokia adds layers of organizational complexities that stack the odds against its success. Put another way: Managing the many moving parts at Nokia slows it down and makes it less likely that one cohesive strategy will be achieved. Forgetting its vast array of hardware choices, you can simply look at the many current software platforms Nokia is trying to manage: S40, Symbian S60, Symbian^3, and soon, MeeGo.

The problem is that Nokia has been taking a backseat to smartphones running Apple’s iOS, Google’s Android and Research In Motion’s BlackBerry platforms for the past two to three years, so the company faces what appears to be a “no-win” situation when it comes to the N8 delay. It can either rush a nearly-complete product to market, or it can make the product right and not meet delivery expectations. In a market where product cycles are now often measured in months, not years, that’s a bigger problem than producing smartphones that don’t quite measure up to the competition.

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To some degree, Nokia’s move towards MeeGo for high-end smartphones is actually old news. This past December, Nokia outlined a strategy that included delivery of the first Maemo 6 device in the second half of 2010. Maemo morphed into MeeGo two months later, so while the planned platform did shift, it was clear late last year that a change was underfoot. But Symbian was still in the mix at that time, with Nokia saying it would “re-engineer our Symbian user interface” in 2010. From what I’ve seen of  Symbian^3 so far, Nokia is making progress, but now that progress will be applied to lower-end smartphones — even after it designed a potentially high-margin, flagship Symbian^3 device. As far as I’m concerned, that means Nokia still hasn’t quite figured out what it takes to compete well in today’s high-end, smartphone market.

Rafe Blandford from All About Maemo provides an interesting editorial take on Nokia’s strategic plans for MeeGo and the N-series devices, suggesting the web is making much ado about nothing:

One of the consequences of the narrowed scope of Nseries devices and fierce competition at the high end is that Symbian-powered Nseries devices make up only a small proportion (12% in Q1 2010, less now) of Nokia’s total Symbian device sales. The perception that the majority of Nokia’s Symbian devices are Nseries is simply inaccurate. As such, the end of Symbian-powered Nseries devices will have a relatively small impact on Nokia’s overall Symbian sales.

The figures Rafe quotes actually indicate to me that the problem is bigger than some perceive. If Nokia’s high-end smartphone series — where profit margins and opportunities for value-add services are greater — is small and shrinking, how is that a good thing? Yes, Nokia rules the worldwide roost when it comes to feature phones and the company has stemmed somewhat its smartphone market share losses. But Nokia would face a bleak future by relying on low-cost, low-margin feature phones over the long term as trends indicate a gradual shift away from feature phones to smartphones.

Perhaps I’m reading into Nokia’s reliance on feature phones too much. If that’s the case, how does the company plan to compete against Apple, Google, and Research In Motion? A history lesson might answer that question — how has Nokia competed over the last few years?

• 2007 – This year brought the first Apple iPhone as well as the highly touted Nokia N95. Running Symbian S60 3rd edition, the slider had no touchscreen and just a QVGA display. Even with an excellent 5-megapixel camera paired with Carl Zeiss optics and front-facing camera, Nokia’s worldwide smartphone share began to decline. According to figures from Canalys, Nokia’s share in the fourth quarter of 2007 fell to to 52.9 percent from 53.8 percent in the same quarter of 2006.
• 2008 — Apple introduced both the App Store and iPhone 3G, while very late in the year, Google launched its first Android device. Nokia’s revised the N95 with the N96, still running Symbian S60 3rd edition, but with feature pack 2. Others in the line included candy bar handsets such as the N78, N79 and the N85 slider, none of which helped Nokia add market share. In the second quarter of 2008, Canalys data measured a 45.5 percent share for Nokia smartphones worldwide.
• 2009 — Google Android devices really begin to proliferate, especially in the last quarter of the year due to Android 2.0 and the Motorola Droid , while Apple launched the iPhone 3GS. Nokia introduced the Symbian-powered N86 and N97 but also took experience from Internet Tablet products — the N770, N800 and N810 — and created the N900 handset running Maemo. Om felt that Nokia was on the right track, but “on a very slippery slope and unless it fields a competitive device, it will continue to see its share of the smartphone market erode.” For the third quarter of the year, Canalys reported Nokia’s share to be 39.7 percent of worldwide smartphone sales.

If the history lesson were to end here, one would expect that the N900 would be Nokia’s gateway to the future in this world of iPhones and Android handsets. But along came Symbian^3 in February of 2010 and with it, many expectations that this platform would be used for high-end Nokia phones. In April, I said that Nokia needed to step on the Symbian^3 gas pedal and a week later, the Nokia N8 was announced, which brings us full circle as both the first and last N-series device to use Symbian^3. Making matters slightly worse: Nokia hasn’t announced future upgrade support for the N900. In effect then, both the 9-month old N900 and the unreleased N8 already have an end-of-life tag on them. Meanwhile, Apple sold an estimated 1-1.5 million iPhone 4 devices on launch day and Google is enjoying 160,000 Android activations daily — an annual rate of 58.4 million units, assuming no additional growth.

With such a rich history as a leader in the handset market, the sentimental side of me wants to see Nokia succeed in the smartphone space. But a product strategy that appears to be in constant transition isn’t one that attracts either developers or customers, which makes it difficult to combat Apple and Google. So far the only thing such an approach has attracted is declining market share and reduced revenue forecasts. My hope is that the trend reverses with MeeGo — or will it turn around with the next platform after that?

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