Nokia Reboots their OS

by Kris_Tuttle on February 11, 2011

Nokia has made some big waves in the last week. First, with the big ”out of the fire and into the icy waters” memo from the new CEO, Stephen Elop. Sec­ond, by announc­ing a sweep­ing part­ner­ship with Microsoft which makes the new Microsoft mobile OS tech­nol­ogy the cen­ter of the Nokia strategy.

The move is major and quite abrupt. Just two months ago, Nokia was tout­ing their ”next gen­er­a­tion UI” on top of their own Meego plat­form as a game changer over iPhone and Android. Of course, nobody believed them which prob­a­bly made it easy to aban­don this strategy.

Fans of Nokia are dis­tressed and unhappy. Every­one else seems to think this won’t help either com­pany much since they have both missed the rev­o­lu­tion in mobile com­put­ing that has occurred in the last three years. Before the events of this last week, we had offi­cially con­demned Nokia to a slow but inevitable death in our note posted on August 14th that focused mostly on the need for Research in Motion and Nokia to wake up and embrace a plat­form like Android.

But what about now? It’s been a few years since we sounded the alarm and pub­lished ”Mobile Inter­net: Time to Pull the Trig­ger” in June of 2008 and high­lighted the urgency to get port­fo­lio expo­sure to mobile. At that time, Nokia wasn’t worth con­sid­er­ing so we focused instead on Apple, Google and Research in Motion. Nokia was a promi­nent mem­ber of the mobile Inter­net ecosys­tem but one that has only been in decline. My guess was that Microsoft would acquire Research in Motion to shore up the enter­prise mobile mar­ket but that hasn’t come to pass, at least so far.

How­ever, the let­ter from Stephen Elop looks like the right med­i­cine to me. Until that let­ter appeared, Nokia was liv­ing in a fan­tasy world in which they were a leader. Rec­og­niz­ing the depth of the prob­lem is a first step. But the let­ter is just rhetoric; until it’s backed up by deci­sions and actions that illus­trate a depar­ture from the past, it’s just so much eyewash.

Now we have the announce­ment of the big Nokia – Microsoft part­ner­ship. There will be piles of analy­sis com­ing on it but at a high level we know that the cur­rent ver­sion of the Win­dows mobile OS is actu­ally not bad and works well with both Face­book and XBox. It’s not an iPhone killer but it’s also not DOA either. Smart, thought­ful peo­ple who have used both the iPhone and Android have spent time with it and while it still doesn’t fit most users, it’s not garbage. Way to go Microsoft!  ;-)

Before look­ing at the major mov­ing parts objec­tively, let me get it out of the way – the man­age­ment teams of these two com­pa­nies, par­tic­u­larly Steve Ballmer, have an abysmal record of under­stand­ing tech­nol­ogy and the under­ly­ing mar­kets, and putting strate­gies and pro­grams in place that make sense. Our posi­tion on Ballmer was made clear last June with our note, ”Microsoft’s Future is Hope­less with Steve Ballmer.”

Let’s take a look at the strate­gic part­ner­ship with soft eyes and at least review the potential:

OS: Nokia needs to embrace a dif­fer­ent OS. Months ago, we thought it should be Android but after wit­ness­ing the suc­cess of Sam­sung, HTC and Motorola it’s pretty clear Nokia would not have fared so well on Android. Microsoft is a very mixed bag of tech­nolo­gies and exe­cu­tion but in the con­sumer OS depart­ment they can hold their own. They are not a bad OS part­ner from a tech­ni­cal standpoint.

Apps: This could be a good story. Although the Nokia ”OVI Store” is a joke, some appli­ca­tions like OVI Maps are quite strong. Microsoft also has a large base of Win­dows appli­ca­tions, tools and dis­trib­uted archi­tec­ture that devel­op­ers have spent decades devel­op­ing for. Until Nokia, these devel­op­ers had no path but Nokia is still large enough to rep­re­sent an attrac­tive alter­na­tive for them.

Cloud: Appli­ca­tions, con­tent and use cases in the cloud are still in the early stages. Nei­ther Apple nor Android has all the issues squared away as of yet. As an Android user I can say it works very well, but feels dis­jointed. Apple has a more inte­grated solu­tion, but it’s closed. Microsoft Live actu­ally has some good fea­tures that makes Microsoft Office work bet­ter in the cloud in many ways than Google Apps. We use both extensively.

Unfor­tu­nately, the suc­cess of all this inte­gra­tion depends might­ily on exe­cu­tion. The usual man­age­ment procla­ma­tions of ”over­com­ing chal­lenges” and ”mov­ing swiftly” to ”dis­rupt other mobile ecosys­tems” seem com­i­cal com­ing from these man­age­ment teams. Is there any joy inside these com­pa­nies about this strategy?

Are design­ers, devel­op­ers, man­agers and engi­neers excited? It’s hard to imag­ine this work­ing out if that’s not the case. Maybe next week at the Mobile World Con­gress some clues will emerge. The first set of dis­rup­tions is likely to occur among Nokia mid­dle man­age­ment and staff along with long-suffering but faith­ful users.

This morn­ing, we did a quick Intrin­sic Val­u­a­tion analy­sis of Nokia and using what appear to be con­ser­v­a­tive assump­tions, we arrive at an IV of $20.

[Dis­clo­sures: none]

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