Weekly Update

Nokia is all-in with Microsoft, but Windows Phone success won’t be enough

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Nokia appears to have a few tricks up its sleeve as it prepares to unveil its lineup of Windows Phone 8 handsets this week: In addition to 32GB of storage and an 8-megapixel camera (as reported by The Verge), the Lumia 920 will also feature wireless charging as well as supporting the manufacturer’s new streaming music service. We’ll have to see much more than that from Nokia in the coming weeks, though, if the company is to finally reverse its slide. Because one thing has become clear since the April launch of the Lumia 900: The once-dominant phone maker has gone all-in with Windows Phone, and there simply is no viable plan B.

No turning back

Disappointing sales of the Lumia 900 – which was supposed to Nokia’s flagship phone – recently prompted my colleague Bobbie Johnson to explore some possible paths to redemption for the company. But the window has closed on any opportunity for any dramatic redirection. There’s no returning to Symbian – which still accounts for about 60 percent of Nokia’s smartphone sales – because the antiquated platform has simply been abandoned and now is living on borrowed time. MeeGo, which once appeared to be Nokia’s future, still shows some promise but isn’t nearly mature enough for Nokia to return to in any substantial way. And while some have argued that Nokia should build Android handsets, that platform runs on a vast range of devices, which makes differentiation extremely difficult. Additionally, recent data suggests Android’s market share may be plateauing – at least in the U.S.

Meanwhile, the clock is clearly ticking for Nokia. The company posted an operating loss of $1.72 billion in the second quarter as its smartphone sales sank 34 percent of the year-ago period. It has more than $12 billion in cash on hand, according to its most recent posting, but that bankroll is partially offset by its $6.57 billion in debt. To put it simply: Nokia can’t afford to start investing in another platform, and it won’t survive if its Windows Phone devices don’t start selling in a big way. But the success of Windows Phone alone won’t be enough to ensure Nokia’s survival.

The challenge of differentiation

Windows Phone and Nokia aren’t inextricably linked, of course: Other manufacturers are building mobile devices for Microsoft’s platform, and Nokia sales could stagnate even if Windows Phone manages to grow its audience in a big way. So it’s up to Nokia to come up with ways to make sure its Windows Phone handsets are more compelling than its competitors’. Wireless charging is a good way to differentiate – even if it’s mostly a novelty – and the new Nokia Music may sway some consumers. But Nokia must continue to develop content offerings and services that appeal to users who are considering a variety of Windows Phone gadgets. It must create some brand loyalty of its own alongside the brand of Windows Phone. And it must move more aggressively to market its phones in coordination with Microsoft and its carrier partners – a strategy Nokia has stubbornly refused to embrace for years.

Nokia could survive even if its handset business continues to crumble. (We are talking about a company that has completely reinvented itself several times over the course of nearly 150 years, after all.) It continues to build an impressive patent portfolio in an era where intellectual property is the coin of the realm, and its telecom gear joint venture with Siemens appears to be on the rebound as carriers around the world enter the 4G era. If Nokia hopes to retain its standing as a relevant handset manufacturer, though, it will do it through Windows Phone, and it will have to do it soon. Microsoft can afford to be patient with Windows Phone, but Nokia can’t. And Nokia’s alternatives have simply run out.

Question of the week

Can Windows Phone 8 help Nokia return to relevance in the world of smartphone manufacturing?