Nokia To Put Windows On Its Phones; Dumps Symbian OS

Nokia is dropping its homegrown platforms and teaming up with Microsoft to put the Windows Phone 7 operating system on its devices.

At an event in London, Nokia Chief Executive Officer Stephen Elop and Microsoft CEO Steve Ballmer announced a strategic partnership in which Nokia will provide the devices and location services, while Microsoft will provide the operating system for Nokia's most advanced phones. It is a major shift for Nokia, which has up to now relied on in-house research and development.

Nokia had previously been using its own operating system, Symbian, and was developing a smartphone (and possibly tablet) oriented system called MeeGo. But Nokia had been falling behind in the smartphone market for some time. Symbian, once the number-one operating system, was losing ground to Android.

This week a leaked memo surfaced in which Elop blasted the Finnish company for not having a device that could compete with either the iPhone or Android-based smartphones and tablets.

At the press conference announcing the alliance, Elop said it was necessary for Nokia to be part of an ecosystem that could be rolled out quickly. A MeeGo device has yet to ship and the Symbian-based app store, Ovi, has not developed the traction that the iOS or Android has.

This is especially true in the market for apps, the small programs that smartphones run. Apple's App Store and the Android Market both have in the hundreds of thousands. Nokia's Ovi had about 30,000 at the end of 2010.

This partnership marks the end of the road for both MeeGo and Symbian, though devices using the two will still be shipped as Nokia transitions to Windows. Elop said Nokia will ship about 150 million Symbian devices and the first MeeGo device will go out this year. But after that the team working on MeeGo will turn its attention to Windows Phone 7 development.

Elop said Nokia had discussed a similar partnership with Google to put Android on its devices. But the problem was then how to differentiate Nokia from the rest of the market. We spent a lot of time with Google, he said. But there was a real risk of commoditization.

Nokia has also been looking to cut costs, and shifting to Windows will help. Elop said that one of the big issues for Nokia is expensive outsourcing and research and development. Nokia spends far more on the latter than other phone makers -- Bernstein Research said Nokia spent $3.9 billion in 2010. One-third was spent on Symbian and 15 percent was spent on MeeGo.

But that hasn't helped Nokia. Even though it is still one of the best-selling phone brands, the company has come under increasing pressure in the low-priced mobile market from Chinese and Korean competitors. Nokia has yet to roll out a smartphone that has gained the buzz of the iPhone and hasn't got a tablet strategy.

Elop noted that the North American market is critical to Nokia's future success, and that by offering a Windows-based device it can make inroads there, an area where the Finnish company has historically been weak.

The partnership isn't all one-way. Microsoft can use Nokia's expertise to get into the lower-end phone market. Ballmer noted that Microsoft, by getting access to Nokia's location applications, will be better able to link local commerce to its Bing search engine. Bing will also power the searches on Nokia phones, and Microsoft plans to draw more revenue from search-powered advertising.

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