Nokia/Microsoft deal: a tale of two reactions

By Derek du Preez
15 Feb 2011 View Comments
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In the wake of a considerable backlash following Nokia's announcement that it will partner with software giant Microsoft, nine disgruntled Nokia shareholders have announced plans to overthrow president and CEO Stephen Elop.

The nine have said they will do this at the next annual general meeting, scheduled for 3 May.

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But is the backlash warranted or was the announcement actually a smart strategic move that will see both companies ramp up their influence in the smartphone market?

In recent years, Nokia's Symbian mobile platform has lost significant market share to the likes of Google's Andoid and Apple's iOS, and although the partnership with Microsoft came as a shock to some, it was not wholly unexpected.

"Yes a lot of us were surprised," says Tony Cripps, principal analyst for Ovum.

"However, if you take a step back and look at it with some perspective it is perhaps less of a shock considering Nokia's position in the market and how important it was for the company to make a significant move by the end of the year."

Elop obviously harboured serious doubts about Nokia's long-term future. In a leaked memo to staff he likened the company to someone "standing on a burning platform".

"The first iPhone shipped in 2007, and we still don't have a product that is close to this experience," wrote Elop.

"Android came on the scene just over two years ago, and this week they took our leadership position in smartphone volumes. Unbelievable," he said.

Just days after Elop's leaked memo hit the headlines, Nokia announced it was jumping into bed with Microsoft, so it is perhaps unsurprising that shareholders and investors do not have complete confidence in Elop or Nokia's strategic direction.

This perhaps explains the rapid decline in share price, from €8.4 on the day of Elop's "burning platform" pronouncement to €6.6 today.

This is significant, and perhaps surprising considering Elop told delegates at the Mobile World Conference this week that Microsoft would be investing billions in the company.

Today's news, that nine shareholders plan to challenge the alliance at the next AGM, could prove to be a further hurdle for the company.

The group spelled out its objections to the Microsoft deal and what it would like the company to do instead in an open letter entitled "Nokia Plan-B", which stated:

"We are a group of nine young Nokia shareholders. All of us have worked with Nokia in different capacities in the past.

"We plan to challenge the company's strategy and partnership with Microsoft."

The letter also stated that if the group were to be elected to a majority at the Nokia board of directors it would take the following actions:

• Immediate discharge of Stephen Elop from his duties as president and CEO of the company.

• Restructure alliance with Microsoft as a tactical exercise focused primarily at the North American market. Release one or two Windows Phone devices under a Nokia sub-brand.

• Developer strategy based on [cross-platform application framework] Qt with primary focus on MeeGo, but providing a credible developer story for Symbian. Enable developers to make money by targeting the huge Symbian installed based while simultaneously offering their best user experience on the MeeGo platform.

• Increase the lifespan of Symbian to a minimum of five years. Reap the profits of the existing market share and consumer preference that Symbian already enjoys in Europe and Asia.

Despite the anger it has provoked, Cripps believes Nokia's decision to team up with Microsoft was the right one.

"If you look objectively at the choices Nokia had, it has made a sensible decision," said Cripps.

"It had the option to go in deeply with Microsoft or go in deeply with Google, and it was made very clear to me that they investigated both possibilities. However, it seems the outcome of the latter would have just benefited Google," he added.

"Nokia devices in the future would have been vectors for Google services, whereas Microsoft has been relatively good at pinpointing ways in which assets could be leveraged on both sides."

The findings of a recent Ovum survey of mobile application developers suggest most developers would be happy with a three-way split in the mobile platform market. 

 

"The ideal scenario pinpointed by this survey reflects what is happening in reality. If Nokia and Microsoft are successful it could see Apple and Google Android faced with another big competitor," said Cripps.

"Elop's announcement this week that Nokia wants to release a Windows 7 phone this year is necessary if they wish to achieve this. One of the great benefits of this partnership is speed - they are going to be able to bring products to the market very quickly," he added.

"Having said that, it has to be said the industry has become a whole lot less interesting, it is all too simple now".

 

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