Blog Post

Microsoft and Nokia Are Buddies in Mediocrity

The latest smartphone figures from Gartner are in and they highlight just how much Microsoft (s msft) and Nokia (s nok) are in desperate need for each other. But with the way both are giving up large amounts of market share, it shows that the new partnership might not be enough for either.

While Android (s goog) continues to run away with the smartphone market, Windows Phone 7 mustered just 1.6 million in estimated sales to end users in the first quarter, according to research firm Gartner. Microsoft overall sold 3.6 million smartphones in the first quarter, with 2 million of them being older Windows Mobile devices. Microsoft’s share of the smartphone market has nearly been cut in half over the past year, from 6.8 percent in Q1 2010 to 3.6 percent in the first quarter of this year as it struggles with the migration to the new operating system.

With service providers still enamored more with Android sales, it’s been a tough start for Windows Phone 7. Android is seeing 400,000 device activations daily compared to about 17,800 WP7 units sold each day. But Gartner still sees a brighter future for Microsoft as it eventually enjoys the benefits of its partnership with Nokia, which is moving its smartphones to Windows Phone 7. And that’s likely why the two banded together in the first place, because they desperately needed each other to make a go of it in smartphones.

However, Nokia’s impact on the smartphone market continues to fade, with 27.4 percent of the market in the first quarter with its Symbian operating system, down from 44.2 percent a year earlier. Overall, Nokia’s share of all mobile phone sales has also slipped 5.5 percent from 30.6 percent to 25.1 percent. While most manufacturers are selling more phones, Nokia actually sold about 2.5 million fewer units from a year ago. If this keeps up, Nokia’s smartphone footprint could be pretty small by the time it starts really cranking out a wide portfolio of Windows Phone 7 devices.

Overall, the smartphone market grew by 85 percent, eclipsing the 100 million unit mark in the first quarter with 100.8 million smartphones sold. Smartphones outpaced the overall mobile phone market, which grew by 19 percent to 427.8 million units. Android continued to lead the way with 36 percent of the platform market, up from 9.6 percent a year earlier, followed by Symbian (27.4 percent), iOS (s aapl) (16.8 percent) and BlackBerry (s rimm) (12.9 percent.) Apple’s operating system doubled in sales from a year ago but grew its marketshare modestly from 15.3 percent a year ago while RIM’s share slid from 19.7 percent.

Gartner predicted last month that Window Phone 7 is headed for the No. 2 smartphone spot with a 19 percent marketshare by 2015 with the help of Nokia. That’s a sign of hope for Microsoft and Nokia, though I wouldn’t assign much weight to predictions like that four years into the future in a market that is changing so dynamically and rapidly. What we do know now is that Microsoft has a big challenge ahead of it selling its operating system and while Nokia is a great partner to have, its place in the smartphone market is slipping too. So it will take some amazing work by both to achieve success in this market. It’s not to say that it won’t happen, but 1.6 million WP7 phone units in the first quarter shows that the two have their work cut out for them.

14 Responses to “Microsoft and Nokia Are Buddies in Mediocrity”

  1. Dennisvajmes

    Having used an iPhone and recently had an Evo, I’ve opted for a Windows Phone 7 from Samsung. Interesting note, I like it better than either. I don’t really do games; I use it to keep track of my email (from every source), text others, an ebook reader, calendar, netflix, looking around the internet, and a variety of other daily tasks. Don’t care if I have fifteen weather apps, I just need it to have a consistent interface and seamlessly let me get work done. And that it does well. The Nokias I’ve had were good technically, but the interface sucked. With WP7 they might have a contender. You might want to check WP7 out, you might like it. BTW, I don’t work for Microsoft.

  2. I think with the WP7 being tepid with the consumers, it’s high time that the unsuccessful experimentation of Microsoft teams up with Nokia so that with a partner deal their product at least proves a competition with kings of the mobile space. With no much up gradation in the WP7 since its launch this scenario was not a surprise when it occurred. Thanks for sharing the update.

  3. Droidfan

    MS and Nokia will surely get on track eventually. But the degree of their success is solely up to them. And that may be the fatal problem.
    Nokia has alienated a lot of traditional Nokia fans with this deal. Cheap Android phones are stealing their markets in Asia. And this deal has left them drifting for at least another nine months.
    MS shipped a product that was less than half baked. Its been slow to bring it up to speed. And its biggest problem may be Apple. As a walled garden wanabe, its unclear why a potential buyer would chose WP7 over iPhone. Finally, there are no clear signals from MS that their mobile division has legs. At least for now, MS fortunes remain with Windows and Office. And Windows mobile wouldn’t be the first MS venture sabotaged by a competing head of the Windows Hydra.
    But its a fun soap opera to watch.

  4. I think those two mediocre cellular phone companies have tremendous synergy. Each lacks precisely something the other has:

    MSFT brings to Nokia a competent, modern mobile phone OS that has basically no distribution or handset maker support. MSFT has extensive enterprise connections.

    Nokia brings to Microsoft tremendous production capability, distribution capability, and brand value in the mobile space especially with consumers outside the USA, while Nokia had absolutely lacked a coherent mobile OS or content strategy.

    Unfortunately, what they both currently lack is the complete smartphone ecosystem that includes apps, enthusiastic developers, and accessories. However, MSFT has extensive relationships with developers and can leverage that. Also, they have good penetration into IT departments and Exchange email servers.

    The article says. “If this keeps up, Nokia’s smartphone footprint could be pretty small by the time…” Irrelevant! Who cares what their Symbian penetration rate is? The epic global battle isn’t over existing smartphone users. The battle is over the billions of feature-phone users when they upgrade to smartphones. Nokia dominates, and is a trusted brand to many in that target demographic. When those people convert to smartphones, will they have a competent WinPho7 option, and stick with Nokia?

    Can the two behemoths execute a winning combination that leverages the strengths of both, while filling in the gaps? It’s possible, and I hope so…but it’s often ugly when two 800lb gorilla’s dance.

  5. I note that Microsoft is the only one to sell *less* phones this year than last year, in spite of having an exciting new smart phone OS. Even “other” sold more phones this year than last.



  6. Lucian Armasu

    I’ve been thinking the same as you Ryan, but I did ever since Nokia announced the partnership with Microsoft. By the time Nokia releases some WP7 phones, Nokia will have around 15% marketshare. I doubt they will sell more than a few million WP7 units in 2012, too, which will not be enough to stop Nokia’s decline.

    Should they have gone with Android? Yes, I think they would have more chances like that because of the huge Android ecosystem. But even if they did that I doubt the result would mean Nokia gets to remain the #1 phone manufacturer. They should’ve made a drastic change years ago, not in 2011, four years after iPhone launched. I believe no matter what decision they took now, it’s already too late for them. I think Samsung will become #1 phone manufacturer within 2 years in number of phones sold, and will take Nokia’s place.

  7. kevin

    first, having facebook comments in a separate tab seems useless… pick one.

    second, dude cut msft some slack. wp7 has been on the market for like 5 months. i can’t even get one on verizon; when it is available i will quickly turn over my droid, which has been good but not great.

    android is really just a small leap from windows mobile – prettier, more apps, but same frustrations w/ locking, sluggish behavior, inconsistencies, etc. looking forward to kicking around wp7 on verizon.

    we are in the second inning in the mobile space; there is still lots of ball to be played.

    • “i can’t even get one on verizon”

      Yes, friend, but that in itself is a very big part of the problem. Distribution is an extremely important part of winning in the mobile industry. Just ask Palm with their great PalmOS, which had one worldwide carrier (sprint) carry it for the first year.

      If MSFT can’t win handset maker partners, and can’t win distribution deals with carriers, it can’t win.

      “we are in the second inning in the mobile space; there is still lots of ball to be played.”

      Very true.

  8. RIM still has nearly 20 percent of the market? Maybe it’s because I’m young but where are these people located? I rarely see anyone using a BlackBerry.

      • Actually, there are substantially more Blackberries out in the world every year than the year before. The company is shrinking in market SHARE of sales, but NOT in number of units shipped or units in the field.

        You don’t see them as often, because, sadly, they’re not as useful as iphones. People don’t pull them out as often for wide varieties of random tasks (apps), media, or play. They do their email, message, calls and put it away.

        Also, you may not float in the strong demographic for Blackberry. Enterprise employees, business people, staff from big companies for whom security is a priority. If you are in a big city, especially San Francisco or NYC areas, iOS and Android dominate more than other areas.

        Also, you may be wealthy, and float in circles where an expensive iPhone and plan is affordable for all yer buds. But some Blackberry’s go 2-for-1 at $100 with a contract. Less affluent people take that deal over the iPhone.

        OK, it’s a fact that Blackberry is in decline, and does not shine next to its two big competitors. However, it’s still out there, big time.