Microsoft/Nokia Partnership Not Enough to Challenge Apple

Early this morning, Microsoft and Nokia announced a partnership that will see Windows Phone 7 become the primary platform for Nokia’s high-end smart phones. It’s a bold move that will help solve Windows Phone 7′s small market share problem in one fell swoop if it goes as planned. But is it enough to seriously challenge Apple, arguably the two companies’ most entrenched competition?

In a word, no. Bobbie Johnson argued in his piece that just combining two companies with flawed strategies does not necessarily mean that each will shore up the other’s weaknesses. That’s true, and it’s the weaknesses of both that left the path open for Apple to gain and keep its significant advantage in the high-end smart phone market. Here are the core advantages Apple’s mobile products have that Nokia and Microsoft playing nice simply won’t solve.

No Devs, No Dice

Windows Phone 7 has had some success attracting developers in the short-term, but there are indications that this might have had more to do with grand gestures and publicity stunts, and less to do with the long-term viability of the OapS’ app platform. In the very early days, prior to launch, Microsoft was said to be offering cash to potential devs to get them on board. And even as recently as November of last year, some were claiming Microsoft is offering comped devices to make WP7 development more appealing.

Despite a promising start, it’s not all roses for WP7 development. One successful (top 50) developer for the platform recently revealed his sales figures, and they were dismal. The revenue from the sale of his app was barely enough to keep the lights on, let alone build a business on.

Of course, Nokia, as the biggest smart phone maker in the world, should have a healthy developer pool to draw from. It should, but it doesn’t. Even before the move today, developers had been frustrated with Nokia’s development platform efforts. Now that the company is basically telling devs that they should throw out what they have learned and switch to a completely different set of tools (since Nokia’s cross-platform Qt development framework isn’t part of its WP7 strategy), I wouldn’t be surprised if most just throw up their hands and move to a stable model with a proven ability to generate revenue, like iOS.

App Gap

The app gap is oft-cited as a prime reason behind Apple’s success, but it bears repeating. iOS currently has almost 350,000 active apps available to consumers through the App Store. Windows Phone 7 has about 8,000 apps. Even with a growth rate of 125 apps each day, Apple’s advantage at this point may be insurmountable. Each Apple iOS device averages more than 60 downloaded apps, and the App Store remains the top destination by a huge margin in terms of time spent browsing app marketplaces by consumers.

In terms of making users feel like they have a financial stake in a mobile platform, little else compares to apps. Changing platforms means buying all new apps, so if a platform is good at selling software, it’s more likely to result in subscriber lock-in or loyalty. Apple has the added advantage of offering multiple, non-phone platforms that also use and encourage the sale of apps (iPod touch and iPad), which adds to the perceived value of software purchases for consumers. Try as it might, Windows can’t gain purchase in the personal media player market, and WP7 doesn’t seem poised to make the jump to tablets anytime soon.

The Holistic Approach

Under the new arrangement between the two companies, Nokia builds hardware and Microsoft builds software. Apple builds both. The advantage of having both hardware and software teams constantly working together to deliver the best possible consumer experience as a total product cannot be overemphasized. Any partnership between two companies, no matter how closely it may resemble an actual merger, isn’t one. Corporate cultures, offices and ultimate goals remain distinct. In this case that’s especially true, since Microsoft announced that this was a non-exclusive deal and that it would still be working with other hardware partners (though their history of doing so isn’t exactly encouraging).

Apple’s ability to pair the hardware and software development sides of making a smart phone not only allow it to win the UX game, but also advantageously affects cost and the pace of breakthroughs and advances, and downplays the importance of internal specifications. It’s why an iPhone that’s almost a year old can still compete with just-released hardware from competitors in terms of real-world performance, and it’s a big part of why Apple enjoys the high margins that it does on the sale of each piece of hardware it makes.

Because Nokia and Microsoft aren’t starting from scratch, it’s most likely that the partnership will bear all the earmarks of success, at least from the outset. If they do it right, we’ll see the simultaneous release of a bunch of shiny new handsets sporting WP7, and these will be decently well-received by Nokia’s existing customer base. But without significant changes from either camp in the way they think about how to make phones and software, Apple doesn’t have to worry about being knocked off its rock just yet.

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