Analysis of Strategic Alliance:

Nokia – Microsoft

Strategic Management II Course

8/20/2012

MDI, Gurgaon

Submitted to: P Ramakrishnan

Section A - Group 4

Abhinav Sharma 11P001

Amitesh Kamani 11P008

Aseem Jagadev 11P012

Balaji Kunjeti 11P024

Nirmal P 11P029

Prateek Singh Malhan 11P033

Saurabh Bhandari 11P041

Table of Contents

Nokia - Microsoft Strategic Alliance .............................................................................................................. 3

Why the alliance was much needed? ....................................................................................................... 3

What‘s most important in US to be successful in mobile space? ............................................................. 3

Market share and revenues of different Mobile manufacturers .......................................................... 4

Market share of different Mobile OS –Globally .................................................................................... 4

Nokia – Microsoft Strategic Alliance Structure ......................................................................................... 5

How Nokia changes from the deal ................................................................................................................ 6

Advantages for Nokia ................................................................................................................................ 6

Disadvantages to Nokia ............................................................................................................................ 6

What is in for Microsoft in this deal.............................................................................................................. 7

Motivations to Microsoft .......................................................................................................................... 7

Disadvantages to Microsoft ...................................................................................................................... 8

Issues with the alliance ................................................................................................................................. 9

Organization structure of Nokia ............................................................................................................... 9

Cultural Issues ........................................................................................................................................... 9

Other issues .............................................................................................................................................. 9

Impact on the industry due to this Alliance ................................................................................................ 10

Future challenges ahead for this alliance ................................................................................................... 10

Bibliography ................................................................................................................................................ 11

Nokia - Microsoft Strategic Alliance In 2011, Nokia and Microsoft were very happy to announce a strategic alliance between the two

companies. Stephen Elop of Nokia described it as a step in building “new global mobile

ecosystem”. Nokia will be producing smart phones running on Windows phone 7 OS. He further

explained about the alliance in the press meet that “Nokia and Microsoft will combine our

strengths to deliver an ecosystem with unrivalled global reach and scale. It’s now a three-horse

race.”

Of course, for any strategic alliance to work, both companies need to offer something that the

other does not have (Sharing complementary resources). And according to Elop, this is exactly

why the Nokia/Microsoft partnership makes sense. “Together, we have highly complementary

assets and competences, allowing this ecosystem to achieve more than any other industry

partnership could achieve”. Both the companies brought vital components to the alliance (Paul

Thurrott, 2011). They had agreed to collaborate on joint marketing initiatives, share development

plans and build products together.

Why the alliance was much needed?

As the numbers in the tables suggest, market share for Symbian was decreasing. In addition to it,

sales of Nokia phones also started decreasing. Even though Nokia was the market leader, Apple

and Android mobiles started grabbing market share of Nokia. Nokia was in need of a strategy

that could make it regain its leadership position in the market. Nokia’s mass market for mass

feature phones was under severe threat from cheap Chinese competitors. They thought it would

be no easier down the line.

From the other end, Microsoft wanted a stronghold in the mobile market, where it was not more

than non-existing. If the deal was not fructified, Nokia would have been partnering with Google

and it would have shut the doors for Microsoft into the mobile devices market.

The deal would give a route to their aspirations.

What‘s most important in US to be successful in mobile space?

The importance can be explained with the Google-Carrier deal. Google's Nexus One, on the

amazing Android OS which at the start of last year was the hottest thing going - and defeated

both Apple and RIM - and at the time the Nexus One was a highly rated 'iPhone killer' but

suddenly, US carriers decided not to subsidise the Nexus One, and Google killed the phone in 2

months. It was not the desirable OS, it was carrier relationship.

Market share and revenues of different Mobile manufacturers

2010 Q4 2010 2009

Revenue ($

m)

Market Share

(%)

Revenue ($

m)

Market Share

(%)

Market Share

(%)

Nokia 100.3 34 28.3 28 39

RIM 48 16 14.2 14 20

Apple 47.5 16 16.2 16 15

HTC 25 8 10.2 10 5

Samsung 24 8 10.5 11 4

Motorola 13.7 5 4.9 5 4

Sony

Ericsson 9.5 3 5.2 5 3

LG 7 2 4.7 5 2

Fujitsu 6.2 2 2 2 2

Sharp 5.2 2 1.7 2 2

Others 11.6 4 1.5 2 4

Source: Datamonitor, Mobile space market (Global)

Market share of different Mobile OS –Globally

Mobile OS Company Market Share (%)

2010 2009

Symbian Nokia 38 46

Android Google 23 4

Blackberry RIM 16 20

iOS Apple 16 14

Windows Mobile Microsoft 4 9

Bada Samsung 2 0

LiMo LiMo Foundation 2 4

Phone 7 Microsoft 1 0

Palm WebOS HP 0 1

Source: Datamonitor, Mobile space market (Global)

Nokia – Microsoft Strategic Alliance Structure

A combination of complementary assets, which make the partnership truly unique, including

Nokia to deliver mapping, navigation, and certain location-based services to the

Windows Phone ecosystem. Nokia will build innovation on top of the Windows Phone

platform in areas such as imaging, while contributing expertise on hardware design and

language support, and helping to drive the development of the Windows Phone platform.

Microsoft will provide Bing search services across the Nokia device portfolio as well as

contributing strength in productivity, advertising, gaming, social media and a variety of

other services. The combination of navigation with advertising and search will enable

better monetization of Nokia’s navigation assets and completely new forms of advertising

revenue.

Joint developer outreach and application sourcing, to support the creation of new local

and global applications, including making Windows Phone developer registration free for

all Nokia developers.

Opening a new Nokia-branded global application store that leverages the Windows

Marketplace infrastructure. Developers will be able to publish and distribute applications

through a single developer portal to hundreds of millions of consumers that use Windows

Phone, Symbian and Series 40 devices.

Contribution of Nokia’s expertise in operator billing to ensure participants in the

Windows Phone ecosystem can take advantage of Nokia’s billing agreements with 112

operators in 36 markets.

Microsoft will receive a running royalty from Nokia for the Windows Phone platform,

starting when the first Nokia products incorporating Windows Phone ship. The royalty

payments are competitive and reflect the large volumes that Nokia expects to ship, as

well as a variety of other considerations related to engineering work to which both

companies are committed. Microsoft delivering the Windows Phone platform to Nokia

will enable Nokia to significantly reduce operating expenses.

In recognition of the unique nature of Nokia’s agreement with Microsoft and the

contributions that Nokia is providing, Nokia will receive payments measured in the

billions of dollars.

With the definitive agreement now signed, both companies will begin engaging with

operators, developers and other partners to help the industry understand the benefits of

joining the new ecosystem. At the same time, work will continue on developing Nokia

products on the Windows Phone platform, with the aim of securing volume device

shipments in 2012. The scale of the mutual commitment from both companies is

significant and is in keeping with the intention to build a new ecosystem based on a long-

term, strategic partnership

How Nokia changes from the deal Even in 2011, Nokia did not have a phone that could challenge apple’s iPhone. The increasing

market share of Android OS was also posing a threat to Nokia.

If there’s one positive aspect to this whole partnership for Nokia, it is that it is not just another

OEM. Remember the words they used? “Strategic Alliance”. While companies like HTC, SE, etc

will still make WP7 phones, Nokia is the only one so far that has been given permission to make

changes to the UI. Nokia is more than an OEM. It is going to play an active role in the future

direction of WP7.

Of course, with Microsoft’s history of bad partnerships (HTC, Motorola, LG have all been

disillusioned by Microsoft), the amount of say Nokia will have is suspect. But it is still a sweeter

deal than what other companies have) (Nokia-Microsoft Strategic Alliance: Win-Win or Lose-

Lose?, 2011)

Nokia had to reorganize its structure. It divided its business into two business units: Smart

devices and Mobile phones. Smart devices unit took care of producing windows mobiles while

the latter took care of producing Nokia mobiles for mass market.

Advantages for Nokia

Nokia gets to pare down a bloated corporate structure. With a pared down structure,

Nokia can focus, become more streamlined and potentially get a cut of future ad revenue

via Bing and location based services

Microsoft would continue to invest in the development of Windows phones

Microsoft development tools would be used to develop applications for Windows phones

Much easier and attractive customer experience using Microsoft marketplace

Microsoft’s marketing budget can help Nokia break into the U.S. and open a new market

Nokia would be paid for its intellectual property rights, which otherwise would not yield

any income

Microsoft have a powerful brand position in every country in the world, but especially in

America where consumers have a patriotic feeling about the company and its

founder Bill Gates. Because of this powerful position in the US, Nokia may have seen a

way to increase their focus for the American market and regain their position as market

leaders. The cooperation between Nokia and Microsoft will allow Nokia a new try at

entering the American market, which they seem to have lost

It can now differentiate itself from its competitors like Samsung, HTC, Sony Ericsson

By terminating the Symbian platform and moving research in software and development

from Nokia to Microsoft, the company will save $4 billion in yearly cost

Disadvantages to Nokia

Future of the windows phones is uncertain

Many companies were already making applications for Symbian devices. Nokia have to

develop this extensive network once again to sustain.

With this move, Nokia could be placing all its resources behind a losing mobile platform

(Fern, 2011)

2 year transition to windows phone 7 may be a deterrent for NOKIA in the rapidly

evolving smart phone segment

Huge Trainings expenses need to be incurred to switch symbian DEV to work on

Windows 7 platform

Even though Windows Phone will be the primary operating system for Nokia in the

future, they are forced to keep supplying Symbian based phones to demanding markets in

Russia and China (Bloomberg, 2011). This shows how difficult world-based strategic

decisions are and one decision may be correct for one market and may be wrong for

another market. Nokia have to act now if they want to survive on the American market,

but because of existing profits in other markets they have to keep developing and

investing in an operating system which has an expiration date. Keep in mind that Nokia

will only invest the absolute minimum in Symbian to keep it running

Confidence and loyalty from its own internal employers has been lost , as many are laid

off and many have to start again from scratch after gaining sufficient exp in symbian and

QT

Microsoft partnered with many mobile manufacturers (With Motorola, LG) in the past,

but they proved failures.

Timelines of the deal

What is in for Microsoft in this deal Till then, Microsoft’s mobile strategy had been lackluster and tardy. For the first time, the sales

of Smart phones were greater than those of PCs. Microsoft, which sells software to the PCs, felt

a threat to its business.

Microsoft was in search of an easy access route into mobile space which it was not able to do

amid huge investments since last decade. Excellent mobile distribution network of Nokia in the

developing nations provides the need to Microsoft. Every day around 1.3 b people communicate

with one another using Nokia devices in the world (Microsoft News center, 2011).

Nokia will contribute its expertise on hardware design, language support, and help bring

Windows Phone to a larger range of price points, market segments and geographies

Motivations to Microsoft

An alliance with Nokia gives Microsoft access to the world’s largest phone maker and its

huge mindshare—in many developing nations a mobile phone is known as a Nokia (Ben

Rooney, 2011)

Better monetization of Nokia’s navigation assets

It is now into two most prolific business segments ( PC and Mobile), where internet

plays a key role and acts as a complement

Microsoft gets distribution for its Windows Phone 7 OS

The software giant dents what could have been mobile domination by Google

Intellectual property possessed by Nokia in the mobile space

Nokia maps would be a core part of Microsoft mapping process

Nokia is the market leader in Imaging

Microsoft will get more developers on board due to Nokia’s global distribution

The US is a very important market for Microsoft and this deal will benefit the company

on business areas like the Bing search engine, which will be expose to a huge amount of

consumers which will be provided by Nokia. This is a huge business opportunity for

Microsoft and their Xbox Live universe. Xbox Live is a gaming console where gamers

are able to play online, and with the partnership with Nokia, users have the ability to stay

connected 24 hours a day, as well as downloading games directly onto their smart

phones.

Microsoft will benefit from Nokia’s global reach and from the possibility for computer

users to be connected with their Windows computer everywhere they go.

Disadvantages to Microsoft

This announcement also poses risks for Microsoft. It seems to elevate Nokia above

Microsoft’s other handset partners, such as HTC. This may cause handset manufacturers,

other than Nokia, to reallocate resources away from WP7 to Android development. The

net effect is that Microsoft may reach just as many consumers with Nokia as it would

with a broader array of partners

Issues with the alliance

Organization structure of Nokia

It is clear that Nokia could not adapt their global strategy to the American market. Nokia’s

organization structure may block its success with the alliance. The size of Nokia could have been

the reason for this problem, making it impossible to change the strategy set by top management.

In large corporations like Nokia strategic decisions are made at absolute top management level

and have to be applied for many years to come. (No flexible strategy by top management to

counter attack competition)

Cultural Issues

Culturally, Nokia and Microsoft are very different. The biggest reason for cultural issue in this

deal is difficulty for software and hardware companies to work together because of cultural

differences and work styles. A look at the issues in Nokia’s culture that adversely impacts the

strategic alliance between Microsoft and Nokia:

A local Finnish culture, insulated from outsiders

Managers who have worked for the business for their whole careers

A masculine culture, with deals brokered in the sauna (the firm’s offices from

Afghanistan to Zambia have been fitted with steam rooms)

A lack of innovation and lengthy product development times

A lack of focus, with too many products on the market

Exclusively run by Finnish executives, and some of the senior executives deliberately

keep foreign counterparts at arm’s length

Microsoft, an American firm, would be a hard pill to swallow for many in the company

whose are staunch supporters of Nokia

Other issues

As per CCS, there are no silver bullets, to drive out the tough competition from Apple

and Android, with any of the companies (Matt Warman, 2011)

As few analysts pointed out, is this alliance a precursor to a mega merger that happened

as with Sony and Ericsson with the Japanese giant acquiring Swedish top mobile

manufacturer. But past experiences suggest us that mega mergers is never an easy task.

Whether the alliance has the ability to create a nimble competitor to Android and iOS is

still questionable

Risk of laying off employees

Competitors could gain much as the deal restricts Nokia to concentrate on a differentiated

product strategy (Windows phones) when the world is thriving with Android and iOS

phones

Impact on the industry due to this Alliance The success of the deal has the ability to change the dynamics of mobile strategy

The International Data Corporation (IDC), an analytics company which monitors the

market for smart phones, expects Windows Phone to be the second largest software

provider for smart phones in the world, behind Android, based on the news of Nokia and

Microsoft’s partnership (IDC, 2011).

With the synergies between Nokia and Microsoft, they plan on creating the so called

third mobile ecosystem (First two being Apple and Android)

The Integration of Windows PC and Phone can bring a revolution in this industry. It will

make much easier for people to be connected with their PC’s while travelling. Nokia’s

overall idea of joining all Microsoft’s products and services is well aligned with the

massive use of personal computers today. PCs are a part of our everyday life and

Windows PC users have to realize the huge potential this cooperation may be in terms of

synergies between their Smartphone and PC. If this is realized there is no doubt that

Nokia will come back very strong on the American market. And there is no doubt that

both Nokia and Microsoft will see massive growth in market shares in the coming years.

Future challenges ahead for this alliance Windows Phone platform has been there for several years and had not been so successful.

So now with the same architecture how it will succeed that remains to be seen

How Nokia would integrate windows phone platform in its lower end products in the

future that needs to be also seen

Evolution of windows market –to match competitors like App Store and Android market

How can Nokia sustain its 3 platforms ( Symbian, Meego and now windows phone

platform)

With Tablet market fiercely picking up, can MS sustain its PC business (so challenge

here in would be to balance its resources towards mobile and PC)

Investors reacted negatively to the announcement of the deal. Nokia’s stock fell in

Finland stock exchange

How swiftly can PC be integrated with Windows phones has to be observed

Developers community shaping of interest in making apps for so many platforms (iOS,

Android, RIM, and now Windows)

Shelf space for all those different OS phones in a retail outlet(how it will be managed will

be a big concern for retailers to avoid confusion among customers)

Bibliography Ben Rooney. (2011, February 11). Analysis:Microsoft and Nokia embrace in Smartphone Alliance.

Retrieved August 18, 2012, from TechEurope: http://blogs.wsj.com/tech-europe/2011/02/11/nokia-

and-microsoft/

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2012, from Fern Strategy: http://fernstrategy.com/2011/02/14/a-brief-assessment-of-the-microsoft-

nokia-alliance/

Matt Warman. (2011, February 11). Nokia announces Microsoft deal. Retrieved August 19, 2012, from

The Telegraph: http://www.telegraph.co.uk/technology/nokia/8317896/Nokia-announces-Microsoft-

deal.html

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center: http://www.microsoft.com/en-us/news/press/2011/feb11/02-11partnership.aspx

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lose-lose/

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August 17, 2012, from Supersite for Widows: http://www.winsupersite.com/article/windows-phone-

7/nokia-microsoft-an-analysis-of-the-strategic-alliance

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Microsoft. Retrieved August 17, 2012, from Communities dominate brands: http://communities-

dominate.blogs.com/brands/2011/02/first-analysis-of-nokia-microsoft-alliance-wow-this-is-good-for-

microsoft.html