Winkia rising

This week’s announce­ment from Nokia that it would get rid of its own plat­form and focus on Microsoft’s seems to mark two key mile­stones: the end of the Win­tel world and the begin­ning of the Winkia one.

The post-PC world

Since the early 1980s, the per­sonal com­puter has been sit­ting at the core of people’s expe­ri­ence with tech­nol­ogy. But sev­eral trends have chipped away at that dom­i­nance for the last few years, first with the rise of ded­i­cated devices with computer-like attrib­utes (eg. eread­ers and MP3 play­ers), then with rein­te­grated devices that brought sev­eral of those fea­tures back together in a more portable form fac­tor (smart­phones and tablets).

Along that curve, Microsoft and Intel found them­selves in an increas­ingly dif­fi­cult posi­tion, largely try­ing to hold on to the legacy plat­forms that sourced the largest por­tion of their rev­enues while unsuc­cess­fully try­ing to find ways to play in the new world.

Along the way, the two com­pa­nies grew far­ther apart. In late 2004, I had called for Apple to move to Intel chips, a call that was met with deri­sion by most peo­ple at the time because they thought Intel would never do any­thing that could run counter to Microsoft’s world­view. A cou­ple of years later, Apple and Intel did make the move, cre­at­ing what was pos­si­bly the first wedge in the Win­tel cartel.

Last month, Microsoft made an announce­ment that was prob­a­bly sim­i­lar in terms of over­all strength, look­ing to ARM proces­sors as the future, and mov­ing to a space where their reliance on Intel proces­sor was rel­e­gated to the back of the bus. It wasn’t entirely clear at the time but one could see that the Win­tel alliance had been hob­bled and could pos­si­bly die off soon (in related news, HP announced this week that it would con­sider run­ning its webtop OS on PCs).

Mean­while, it was only a year ago that Intel and Nokia announced a strate­gic part­ner­ship, where they would merge their OS plat­forms. The intent there, I sus­pect was for Intel to start push­ing its own chips into Nokia devices, allow­ing them a play they had longed for in the mobile space.

Yesterday’s announce­ment from Nokia that it would aban­don its own OS effort and focus on Win­dows Phone 7 prob­a­bly infu­ri­ated some peo­ple at Nokia.

Why Winkia will work: Developers

Of course, there is a lot of doubts about the part­ner­ship. High level part­ner­ship have a ten­dency to fail (in fact, Horace Dediu has shown Microsoft’s par­tic­u­larly bad track record in the mobile space).

But I dis­agree. Ear­lier this year, I argued that Microsoft would acquire Nokia for its dis­tri­b­u­tion foot­print. At the time, I did not elab­o­rate but here’s how I see things working.

For starters, let’s look at areas of strength and weak­nesses. Microsoft still has a large devel­op­ment com­mu­nity used to devel­op­ing with its toolset and aching to get into the mobile space. With Win­dows Phone 7, that crowd now can use the same skills, pro­gram­ming lan­guages and devel­op­ment kits they have been used to for years to cre­ate for years.

But the chal­lenge that was pre­sented to date was that there were no users of Win­dows Phone 7. While the oper­at­ing sys­tem has gen­er­ally been well received by crit­ics, there has been pre­cious few apps devel­oped on top of it to date. Part of the rea­son for this, I sus­pect, is that there isn’t really a built-in pub­lic for those apps yet so many devel­op­ers are wait­ing on the side­lines. In fact, this is some­thing that peo­ple at Microsoft were painfully aware of, as they are now start­ing to explain to devel­op­ers that the deal will bring a larger pub­lic for their apps. In a recent blog entry, Matt Bencke, Microsoft’s Gen­eral Man­ager for Devel­oper and Mar­ket­place in the mobile space, said:

In sim­plest terms, this alliance can dra­mat­i­cally increase the cus­tomer base for Win­dows Phones, and, by exten­sion, your apps and games. […] For exam­ple, Nokia already has strong rela­tion­ships with oper­a­tors in more than 190 mar­kets. Nokia also man­ages an appli­ca­tion mar­ket­place that deliv­ers 4 mil­lion down­loads per day; a chan­nel that will com­ple­ment the exist­ing Win­dows Phone Mar­ket­place expe­ri­ence to bring Win­dows Phone devel­op­ers and Nokia cus­tomers together.

[…]

From a tools and plat­form per­spec­tive, we’re work­ing to make it as easy as pos­si­ble for devel­op­ers to take advan­tage of this new opportunity.

So the mes­sage they send here is clear: more peo­ple to use your apps and you can use the same tools you know already. This is bound to help cre­ate a mar­ket where lots of new apps will end up being cre­ated in a Win­dows Phone 7 envi­ron­ment only.

Why Winkia will work: Footprint

So how big is the mar­ket­place we’re talk­ing about? Well, before we enter this arena, let’s make a few key assump­tions: growth in the mobile space is largely com­ing from the smart­phone cat­e­gory. In fact, the entry of sub-$100 android phones is basi­cally going to kill the con­cept of smart­phone alto­gether by just gob­bling up the reg­u­lar phones and push­ing the trend to every phone becom­ing a smart­phone. So the game here is for the whole pie instead of a smaller portion.

So how does Nokia do in that space? The Sym­bian oper­at­ing sys­tem, the one the com­pany is aban­don­ing, was on 37.6 per­cent of smart­phone devices in the last quar­ter but Nokia over­all mar­ket­share in the mobile space was 28.9 percent.

How does it com­pare to oth­ers?  In the OS game, Nokia has a 15.1 per­cent lead over Android, its next nearer com­peti­tor (Apple comes in 4th, behind RIM) and an 11.3 per­cent lead over Sam­sung in the over­all mobile space.

Mean­while, Microsoft was nowhere to really be seen, with a mere 4.2 per­cent of the OS mar­ket, com­ing in above “oth­ers” in the OS category.

If the tie-up had hap­pened last quar­ter, the com­bined team would hold first place with above 40 per­cent of the smart­phone mar­ket, almost dou­ble their near­est com­peti­tor (Android) and almost triple Apple’s own offerings.

With that large a foot­print, any devel­oper will have to think about sup­port­ing those devices.

Fur­ther­more, Nokia has a long-established rela­tion­ship with phone car­ri­ers around the world (while I have not checked the data, I would be ready to ven­ture that there isn’t really a phone car­rier out there not car­ry­ing some Nokia phones). That kind of net­work will be hard to defeat mov­ing forward.

Why Winkia will work: Patents

When he unveiled the first iPhone, Steve Jobs made it clear that there was going to be a huge legal fight in the mobile space.  Dur­ing the unveil­ing, he high­lighted that oncom­ing fight in the fol­low­ing way (empha­sis is mine):

We have invented a new tech­nol­ogy called multi-touch. It works like magic, you don’t need a sty­lus, far more accu­rate than any inter­face ever shipped, it ignores touches, mutli-finger ges­tures, and BOY have we patented it!

[…]

We filed for over 200 patents for all the inven­tions in iPhone and we intend to pro­tect them

Apple later sued HTC and Motorola over some of those patents.

Mean­while, Microsoft has not been shy in suing some com­pa­nies over patent infringe­ment relat­ing to Google Android. The oper­at­ing sys­tem from Google con­tin­ues to be chal­lenged in court, the most recent law­suit com­ing from Ora­cle over alleged infringe­ment of Java related patents.

So all and all, the mobile game is one dom­i­nated by patent fights. In the lead-up to this week’s announce­ment, Nokia’s CEO was tout­ing its patent port­fo­lio as some­thing to look at. A story on AllTh­ingsD put it as such (empha­sis is mine):

Friday’s investor meet­ing will also address other aspects of the com­pany, includ­ing its ser­vices strat­egy, its plans for its Navteq nav­i­ga­tion unit and its plans to lever­age its huge patent port­fo­lio.

Between Microsoft’s patents in the mobile space and Nokia’s, I sus­pect we are soon going to see some law­suits emerg­ing from the new part­ner­ship and going after dif­fer­ent aspects of the iPhone and Android devices (though I sus­pect Google will be the first tar­get, with the iPhone being left for later).

Con­clu­sion

Between Microsoft’s strength in the devel­op­ment com­mu­nity, Nokia’s strength in the hard­ware and dis­tri­b­u­tion realm, I would ven­ture that we may be see­ing the begin­ning of a major shift in the mobile land­scape. Both of the part­ners are quite strong and I would not be com­pletely sur­prised if they were to both be able to reverse their for­tunes in the mobile space. I also would not be totally sur­prised if, at some point down the line, Microsoft were to announce that it is tak­ing over Nokia and fold­ing it in. An inter­est­ing thing is that the cut in the over­all mar­ket cap­i­tal­iza­tion of Nokia after the announce­ment has now left it in a posi­tion where Microsoft could buy it in cash if it felt like it.

How­ever, there are still a few things to be ironed out. For starters, Microsoft has just tied its OS to one part­ner and may have dif­fi­cul­ties con­vinc­ing other play­ers to build mobile phones. Expect Sam­sung, LG, and HTC to stop invest­ing in Win­dows Phone 7. So if Nokia fails in regain­ing some momen­tum as a result of this part­ner­ship, it may take with it Microsoft’s hopes in the mobile space.