Nokia's nightmare: There's no room for a third ecosystem

Why the mobile-maker faces a gruelling battle

Analysis Humiliatingly, Nokia was forced to deny rumours last week that it was planning to break up and sell its crown jewels to Microsoft. Normally a company can remain impervious to Twitter-born gossip, particularly from a known antagonist.

Acknowledging the rumour simply gives it a chauffeured ride around the internet. But not this time: the 'Microsoft buys Nokia' story fulfils so many conspiracy theories, thousands of people wanted it to be true.

And the notion of Microsoft buying a hardware company and ripping up its licensing business has become much less outlandish after Google's acquisition of Motorola's phone business. Ah, but that was desperation, I hear you say; the Chocolate Factory had miscalculated its IP strategy catastrophically, and it had to grab what patents it could at almost any price.

But there's a whiff of something - it isn't desperation, more like earnest exasperation - around Microsoft's phone business these days. Redmond has got an excellent product, for the first time, and people who have a Windows Phone love using it. But there just aren't many of those folk around. The phones aren't shifting. Christmas has come and gone, and while we wait for some reliable channel figures, Nokia's flagship seems to have made almost no impact on the UK market. It's the phone that leaves no footprints.

So that makes Nokia's American comeback all the more challenging. Your reporter has lost count of the number of thwarted US comebacks Nokia has made over the years - each time the story ends the same way. Either the operator gets cold feet or Nokia gets cold feet first.

In recent years Nokia baiting has become a cruel bloodsport for American pundits and bloggers, the latter even refusing to review Symbian phones on the reasoning that, well, they must be rubbish. After years of being patronised by Europeans and told to catch up, talking heads in the States are now taking their revenge. Europe's dominance turned out to be temporary; the US public is now getting the best gadgets and fastest data networks first - even if the nature of the competition means they're paying a high price for it. And as the industry leader in Europe's 2G dominance, and general bossy boots, Nokia is now getting thoroughly beaten up for missing out.

This is not the most promising position from which to launch your comeback - but then again, expectations are now calibrated so low that any success is going to mean a lot.

Yesterday Nokia launched what's probably its most competitive US product for a decade. You're welcome to contest that claim, of course (fire away!) but bear in mind that the last time Nokia caused a ripple was four years ago. That was with a US model of the N95 - marketed under the slogan "this is what computers have become" - which was delivered six months after the Apple iPhone had started shipping.

The Lumia 900 has a fair bit going for it. It's got a modern UI that's really nice to use. It's got the backing of a major operator. And it's bang up to date with advanced network technology - it'll be able to use AT&T's LTE data network, which is already live and due to be rolled out in full by the end of next year.

But it also has the drawbacks of The Phone That Leaves No Footprint. The 900 is identical to the 800 but with a larger screen - which brings no additional increase in screen resolution - and larger battery. The 900 also shares the 800's peculiar camp colour palette, which restricts its appeal. And the same harsh square corners - and the camera mirror that scuffs if you so much as breathe on it. All these points have been flagged by multiple reviewers but Nokia seems quite deaf to them, and quite insistent that it's the greatest design ever.

"It looks sleek and progressive on the outside," according to CEO Stephen Elop in a canned promo video. I can understand sleek, but what on Earth does progressive mean here?

The tech bloggers' criticism that it's not cutting edge remains a valid one: compare the screen resolution to the Galaxy S2 or the Razr Android. This matters, not because most punters fit the boy racer category (they don't), but in perception: it's a fast moving market and regular buyers don't want to lock themselves into two-year contracts with something they fear will be obsolete. And how frustrating this must be: the Lumias perform extremely favourably to the competition.

The greater problem for Nokia - and Microsoft - is the nagging idea that there's no room for Windows at the smartphone table, no matter how fabulous it is. Remember that Elop's great gamble at Nokia is to make Windows the 'third ecosystem'. Well, maybe there isn't going to be a third 'ecosystem' in smartphones. Maybe there's going to be Apple, Android, and everything else - BlackBerry, featurephones and dumbphones. After all, there wasn't room for more than two in PCs.

It's too early to tell yet. Nokia has yet to throw its best designers (assuming they haven't all left) or radical innovations at Windows Phone yet. This is very much a product market, one that's crying out for some differentiation at the moment.

But if it turns out to be the case that there are only two 'ecosystems', then the Armageddon option of breaking up the company doesn't look quite so irrational. ®