What Nokia, Microsoft means to the industry

Microsoft (NASDAQ:MSFT) and Nokia’s (NYSE: NOK) partnership, announced yesterday, to bring Microsoft’s enterprise software suite to Nokia handsets brings together two competitors in hopes of strenghtening brands that have struggled on their own. Yet rather than be a clear formula for success, the partnership brought up questions about the viability of Microsoft and Symbian – separate and together – and if the two companies together can really take on Research In Motion (NASDAQ:RIMM), as they intend to do.

Microsoft Business Division President Stephen Elop and Nokia’s Executive Vice President for Devices Kai Öistämö announced the agreement yesterday, noting that Microsoft’s suite of enterprise software will be available to a broad range of smartphones, starting with the Nokia Eseries. The companies will begin with Microsoft Office Communicator Mobile on smartphones, followed by other Office apps and related software.

Can WinMo not survive alone?

Many industry observers took the partnership as an implicit admission that Microsoft cannot make a business from Windows Mobile alone. While widely deployed, WinMo lacks the buzz that newer, flashier operating systems like Android have captured. In the second quarter, it lost out to Symbian, RIM and Apple, capturing only 9.3% of the market for smartphones, according to Gartner.

“It is unclear how today’s announcement could be good news for Windows Mobile,” IMS Research analyst Chris Schreck wrote in a research note. “Licensing their enterprise software for Symbian is clearly a win for Microsoft as a whole, but it seems to come at the expense of one of Windows Mobile’s greatest selling points, namely tight integration with Microsoft’s enterprise tools.”

Microsoft has also not traditionally embraced writing for other OSs with zeal, said NPD Group wireless analyst Ross Rubin. Even in the PC space, Microsoft stuck with Windows, building suites of apps specifically for it. To move all these apps from WinMo to an open-source platform like Symbian would be a big challenge for Microsoft in terms of delivering something users really want, he said.

Will Nokia abandon Symbian for Windows Mobile?

Nokia’s Öistämö emphasized that Windows Mobile will not be running on Nokia phones, but rumors that Nokia is considering dismantling its relationship with Symbian have been stirring all week, following an article in the German Financial Times that claimed Maemo will become the OS of choice as Nokia’s trust in Symbian wavers. Nokia denied the reports, but with the 6.5 release of WinMo due out by the end of the year, it’s feasible that they may rethink letting another OS in.

“Microsoft of course has a broad array of business interests and partnerships, and Nokia is clearly a company that does not have interest in Windows Mobile at this time,” Rubin said. “But getting Office onto Symbian helps provide some Microsoft presence on the devices. Nokia has also been supporting Silverlight on its devices, so even though it’s not embracing Windows Mobile, it is looking for some compatibility with Microsoft.”

Symbian, although also dealing with its fair share of challenges, has a much larger market share on a global basis than WinMo. While its market share fell in Q2, Nokia remains the largest mobile phone maker, and Symbian is embedded in 51% of smartphones on the market, including all Nokia’s smartphones. According to most analysts, partnering with Microsoft actually reaffirms that, for the time being, Nokia is invested solely in Symbian.

“It has too much investment in Symbian, particularly in the optimization of its Ovi platform on Symbian,” Kevin Burden, director of ABI Research’s mobile practice, said in an email. “In fact, protecting its work on Ovi to work on Symbian is why I suspect that Nokia finished purchasing Symbian and is turning it over to the open-source community – to keep Symbian competitive and so operators don’t start asking Nokia to optimize Ovi on another platform, like Android.”

Can Microsoft and Nokia take on RIM?

In the press conference announcing the news yesterday, Öistämö stated definitively that the partnership was about “creating a formidable challenger to RIM.” This will especially be true in Europe, where RIM has struggled and Nokia excelled, but RIM’s foothold in North America will make it a daunting task in the US.

“Many of the enterprise partners/acquisitions Nokia has had in the past, like Intellisync and mFormation, haven’t delivered the enterprise base that a company the size of Nokia would call successful,” Burden said. “In fact, Nokia severed ties with many of these partners last year, saying it now had the knowledge and IP to do it themselves. Perhaps what it was really saying was that it needed a better partner.”

Nokia began moving away from the enterprise after it stopped development work on Intellisync, its enterpise mobile email service, and instead purchased consumer email and instant-messaging company Oz Communications. It has since focused on toning down its services strategy and building up Ovi. RIM, on the other hand, has been the one to watch in the enterprise market, but it has also been challenged by its lack of Exchange integration. Over the years, more and more enterprises have migrated to versions of Exchange with Microsoft’s ActiveSync built in, Rubin said, but not enough to outpace RIM.

Can Nokia and Microsoft ward off competition together?

Nokia and Microsoft’s partnership clearly bolsters their presence in the enterprise space, but it may not even matter from a competitive perspective. Even RIM has realized that most of the action today is in the consumer space. Joining forces with Microsoft might not help Nokia compete against consumer-favorite Apple, but it could threaten the business of other third parties dedicated to office solutions. Synchronization company Visto Mobile recently acquired Good Technologies from Motorola to target both enterprises and consumers. The space also includes proprietary solutions from Apple, Synchronica, Visenza and mobile applications like that from ThinkFree, which yesterday launched an office productivity app for Android.

“Assuming they do execute well, this fills a big hole in Nokia’s enterprise mobility software portfolio and extends Microsoft’s reach to Nokia’s customer base,” said Avi Greengart, research director of consumer devices at Current Analysis, in an email. “However, it will still be almost completely irrelevant to Microsoft and Nokia overall, since the smartphone market has shifted from an enterprise-productivity orientation to a consumer-experience one. In this respect, both Microsoft and Nokia are badly behind Apple (and, to a lesser extent, Google/HTC and Palm).”

Given the size of the two companies and their sometimes competitive relationship, it is not difficult to imagine the partnership facing challenges outside of the competition as well. It ultimately depends on how well they execute. Nokia’s Exchange email client performs differently depending on the smartphone, Greengart noted, and while adding Office, OneNote and Sharepoint integration should help Nokia offer a better enterprise productivity experience, RIM still has advantages in terms of manageability.

“Each has tried through their own efforts to derail RIM without much success,” Burden added. “This partnership is an admission that neither can do it alone, which is a key incentive to for them to make it work”