To better understand Nokia’s decision to partner with Microsoft, I looked at the different potential partnerships that Nokia could have made.
Nokia & Google
With Google, Nokia would have access to a growing developer base, and could reduce their costs by shrinking their development team. In exchange Nokia would have no control over the core OS development and would be competing with other hardware manufacturers such as HTC. Additionally Nokia would also have to abide by hardware specs outlined by Google in order to have access to the newest build of Android. In this scenario Nokia would have the least risk but would forever be a minor player with little control over their future.
Nokia & Nokia
Nokia could have decided to not partner with anyone and maintain control over their own smartphone ecosystem. The N9 with MeeGo clearly demonstrated that they had all the necessary pieces to create a competitive product. However to be truly relevant in the marketplace they would need to be able attract talented developers. Given the strong competition from iOS, Android and RIM and the maturing state of the industry Nokia might have lacked confidence that they could attract developers for MeeGo. Even RIM, with their significant smartphone market share is having difficulty keeping their developers because RIM is eroding market share.
Nokia & Microsoft
With Microsoft, Nokia would not have to create their own OS and developer tools. Nokia would also have more leverage with Microsoft because they would be the single largest partner for Windows Phone 7 and could negotiate beneficial terms at this stage. Nokia would have far more input in terms of hardware specifications and OS development with Microsoft than they would with Android. Another benefit with partnering with Microsoft would be that they would have priority access to Microsoft products such as MS Office. As smartphones rapidly increase in processing power, tight integration with fully featured Microsoft software products not only becomes possible but also could be a major point of differentiation in the future.
We can conclude from the partnership with Microsoft that Stephen Elop did not have confidence that Nokia could attract developers. Elop would also have to have assumed that the smartphone market is not mature and could experience major penetration by significant players such as Microsoft. However this still would be a risky move unless Microsoft showed a compelling vision for smartphones that outweighed the value of having immediate access to developers. This would mean that Microsoft would have to have guaranteed a major investment in WP7 for Nokia to bet the farm on a partnership with Microsoft. The launch of Mango and the surrounding ad campaign will be a good example of the first step in Microsoft’s plan to regain relevance in the smartphone market as well as what they showed to Nokia as compelling reason to join them.