Nokia-Microsoft Alliance: Joining Forces in the Smartphone Wars

Nokia-Microsoft Alliance: Joining Forces in the Smartphone Wars
Case Code: BSTR399
Case Length: 14 Pages
Period: 2010-2011
Pub Date: 2012
Teaching Note: Not Available
Price: Rs.500
Organization: Nokia Corporation, Microsoft Corporation
Industry: Smartphone, Information Technology
Countries: Global
Themes: Joint Developments, Strategic Alliances, Competition
Nokia-Microsoft Alliance: Joining Forces in the Smartphone Wars
Abstract Case Intro 1 Case Intro 2 Excerpts

"We are standing on a burning platform."

-Neeraj R. S. Kanwar, Vice Chairman and Managing Director, Apollo Tyres, in 2009.

"There were certain things we needed.... There were certain things Microsoft required. We have found them in each other and we have built something here that together is going to be very successful."

-Stephen Elop, in February 2011.


In October 2011, Nokia announced the launch of its Lumia 800 mobile phone. The Lumia 800 was Nokia's first mobile phone to be released with the Windows Phone mobile Operating System (OS) of Microsoft Corporation (Microsoft). Nokia and Microsoft had entered into a partnership in February 2011 whereby the Windows Phone would become the primary operating system for Nokia's high-end smartphones. Nokia's partnership with Microsoft was intended to help it face up to the heavy competition in the smartphone segment from the newer entrants into the market. Nokia was a pioneer in the smartphone business and held the majority share in the smartphone market till 2007.

But it started to face heavy competition from other players like Apple Inc.(Apple) and Google Inc. (Google) which entered the high-end smartphone market after 2007. The new mobile OSs of these companies like Android3 and iOS4 captured a large share of the high-end smartphone market. Nokia started to quickly lose market share. With much of the hardware remaining the same, the OS used in the mobile phones and the number of applications available for a mobile OS were the most important factors which differentiated one smartphone manufacturer from the other. To ensure that there was more of a focus on software, Nokia's board replaced its CEO Olli-Pekka Kallasvuo with Stephen Elop (Elop) in the year 2010. Elop had been the president of Microsoft's business division before being appointed as Nokia's CEO. Soon after taking over as CEO, he wrote a memo to Nokia's employees underlining the need for drastic changes in the company.

Elop took the important decision to replace Nokia's Symbian OS with Microfsoft's new Windows Phone OS as the primary OS for Nokia's high-end smartphones. As per the deal reached, Nokia would pay royalties to Microsoft for using its OS in its smartphones. Microsoft paid Nokia US$1 billion for developing and promoting Windows Phone smartphones. Under the deal, Nokia could continue to develop and use many important applications like Nokia's own mapping software in its phones. News of the alliance received mixed reactions from analysts and industry observers. Some analysts criticized Nokia for its selection of Windows Phone instead of Android.

They wondered if Windows Phone had been chosen as Elop was more comfortable with the culture of the company in which he had already worked. Elop responded to the criticism saying that Android would not have permitted Nokia to differentiate itself in the market as many other handset manufacturers used it. Nokia was also criticized for taking a risk in selecting an OS which had not proved itself in the market and which came from a company with a poor track record in the mobile phone business. Many industry experts believed that Microsoft was the biggest beneficiary from the alliance. Microsoft had got the biggest mobile phone manufacturer in the world to use its OS as its primary OS without even formally acquiring it. Industry observers said it remained to be seen whether the alliance would pay off and whether Nokia would be able to regain the foothold it had lost in the smartphone business. According to Ben Wood, analyst at CCS Insight , "This is a clear admission that Nokia's own-platform strategy has faltered. Microsoft is the big winner in this deal, but there are no silver bullets for either company given the strength of iPhone and Google's Android." The challenge before the senior management team at Nokia and Microsoft was how to make the alliance work....

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