Everyone agrees to lose
The relationship between Nokia and Microsoft then mellowed, partly because by 2004 both parties realised they'd failed. Nokia had failed to establish a thriving smartphone mass market: the phones that were 'smart' weren't creating other markets, for content or commerce. Microsoft hadn't won a major first-tier OEM, but realised it could make a tidy but not massive business putting Windows CE in gadgets. HTC and others were happy to help; Microsoft didn't need to fight Nokia and the phone industry at every turn.
In 2005, Nokia and Microsoft signed a collaboration agreement covering a wide range of enterprise and consumer electronics technologies. Microsoft wanted its content DRM in other devices, and it wanted to firm up its its Exchange server against the encroachment of Blackberry. (RIM threatened to take email into the cloud, away from the corporate Exchange servers. In the end, that never happened.)
The years from 2004 to 2007 saw everybody – Nokia and Microsoft included – dumb down their designs in an attempt to catch the elusive mass market. The smartphone became more phone than smart. Yet the underlying economies wasn't changing. This allowed a new market entrant who could take risks, and produce a phone just "good enough" to be a phone, but offered something completely different, a new value proposition. That's just what Apple did.
Once Apple created the smartphone mass market, Nokia and Microsoft quickly found themselves in the "other" category. Nokia clung to the belief that because it was selling more smartphones than anyone else (by the analysts' definition), the company didn't have to do anything too drastic to change. But this was a category error of historical proportions.
For Nokia's smartphones weren't being used as smartphones, and they weren't an "ecosystem". Developer interest was almost zero. Content companies, games developers, retailers were all ignoring Symbian despite its apparent, illusory leading market share. The Ovi store was late, awful and empty. Yet still Nokia executives kidded themselves that the company would prevail through scale and brand. Nokia had forgotten the personal factor that underpinned their decisions in the mid-1990s. They'd become seduced by the awesome scale of the logistical machinery – buying, manufacturing, distributing – that they'd created.
I can't help thinking that Nokia's fate was sealed by a kind of "for want of a nail" decision. Perhaps if Nokia had realised what it needed to do during 2007 and 2008, it could have launched a just-good-enough smartphone in 2009. Instead, in 2009, Nokia gave us the N97 and the Ovi Store. 2010 rolled round and even Microsoft had woken up from its slumbers to present people with a modern smartphone. Perhaps if Nokia had acquired Palm's WebOS, it could have avoided the fate of becoming a Windows. It would have had to swallow a lot of pride, but not as much as it has had to swallow today – leaving behind around €50bn of investment to burn on the oil rig.
Elop's proposition is that Nokia will claw back some of the margin it will lose in the services layer. This was met with some skepticism, bordering on derision, in the analyst briefings today. I wrote earlier today (here and here) that Nokia is really now two things: a brand, and a distribution operation. That's not all: it's also an IP portfolio. There must be an even money chance that in the next five years the company will be acquired for its patents, for a fraction of its former value.®
For fans of surreal coincidences: A few years ago I sat opposite HP's recently appointed CTO, the splendid Shane Robison, wondering why HP didn't join the rest of the phone industry in creating smart mobile devices. I'd got it wrong, he told me. To make a phone, all HP needed was Microsoft Windows CE. This week HP announced a range of devices including new phones based on its own proprietary WebOS, while Nokia committed its future to Windows.