Microsoft and Nokia: Making a Square Peg Fit a Round Hole

In a few weeks I will get together with the former members of the Nokia UK running club. We meet up every year at an evening 10km race. After the race we will head to a local Indian restaurant for curry and, likely, plenty of beer. The banter will be rich and the language ripe. However much talk will inevitably turn to the fate hanging over our former Nokia colleagues. The ones who remain, now under Microsoft ownership, survived successive rounds of job cuts at Nokia before making the transition to Redmond’s control. Following Microsoft’s 17th July announcement, those workers now face a deeply uncertain few months.

In an email communication from Stephen Elop – who smoothly transitioned from Nokia CEO to Microsoft’s Head of Devices – he outlines the rationale behind the restructuring that will result in up to 18,000 job cuts, 12,500 of those within the old Nokia Devices and Services business, or roughly half the number that made the transition to Microsoft.

The logic of the restructuring, looked at from a Microsoft perspective, makes sense. Microsoft is more of a platform and productivity business than a pure hardware maker. X-Box, Surface and other hardware initiatives enable delivery of Microsoft’s growing portfolio of services – an increasing number now cloud-based. Together with Google, we believe Microsoft is best placed to take advantage of the next wave of web development.

In this context, Nokia devices have to fulfill a similar role. It is hard therefore to see a place for feature phones running a warmed-over version of Nokia’s venerable S40 operating system. Neither can there realistically be a place for the AOSP-based Nokia X series of low cost smartphones – notwithstanding the fact they’re currently Nokia’s top selling product.

What we likely see instead is Microsoft providing exemplary devices at each price point to demonstrate to the industry what it is possible to do with Windows Phone. In this way it will be akin to what Google does with the Nexus line – although in Microsoft’s case, it will do it with in-house hardware rather than sub-contracted to the likes of LG and HTC.

The challenge Microsoft will face is the disruption to any momentum it has been able to achieve with Lumia devices so far. Windows Phone is arguably the best smartphone OS currently available. It is more multi-dimensional than iOS and shares at least some significant look and feel with Windows 8. And it is more logical and intuitive to use than the seemingly haphazard mish-mash that is Google’s Android. Nevertheless, despite its considerable benefits, the buying public has, so far, been much less enthusiastic about Windows Phone than either of the competing OS-ecosystems.

If the teams responsible for key functions including: productization, manufacturing, marketing, sales and after sales feel existentially threatened, then we will very likely see a poorer performance in overall terms – even if some strive hard to show they’re worthy of their roles.

We therefore likely see Microsoft’s Nokia slipping backwards in the sales rankings, rather than advancing strongly.

The members of the ‘ex-Nokia running club’, now forging careers at a host of other industry players, will undoubtedly feel for their former colleagues, but be glad they’re no longer having to role with successive organizational punches as Nokia is beaten to a hollow shell of the power house it once was.