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Nokia and Microsoft are looking at increasing their market share in the smartphone market segment and the recent alliance between the two is a step towards this goal. Nokia and Microsoft formed an alliance recently, which would take the latter's office applications like Word, Excel and Powerpoint to a range of Nokia handsets from the coming year.

For Nokia, the alliance is a desperate attempt to stop the increasing market share of BlackBerry in the enterprise segment. According to some media reports, Nokia's E-series is likely to come loaded with Microsoft's applications. This will definitely increase the appeal of the E-series in the market, especially the users who might already be using Windows in their offices. Nokia refused to comment whether it will form similar alliance with other companies like Google's Android, etc. As of now, Windows was officially available only in Microsoft's mobile devices. The agreement calls for the mobile version of Microsoft Office to run on Nokia's open source Symbian operating system and not Windows mobile operating system.

Smartphones have emerged as a major battleground for the handset manufacturers. According to a Gartner report, smartphone sales increased by 27% in Q2 of 2009, even as overall sales of mobile phones dropped by 6.1%. However, Nokia is believed to be losing market share in this segment. Worldwide, Nokia has a market share of 45%, Research in Motion (makers of BlackBerry) 18.7%, and Apple 13.3%.

However, Nokia's much anticipated N97 launch in June this year met lukewarm response in the market. It sold only 5,00,000 units since its launch, while Apple's iPhone sold 1 mn units during the first weekend of its release. The smartphone category is very important for all handset manufacturers, because of its high margins as well as high average selling price (ASP).

That Nokia is in need of a revamp is evident. The company recently reported decline in its earnings, and its market share is likely to remain stagnant as last year. This deal will help Nokia attract more business users, which the company has been unable to do in the past. Earlier, Nokia had bought and then discontinued an enterprise push email offering from Intellisync. Nokia had also launched a business channel program aimed at helping resellers and operators better target enterprises and introduced families of phones aimed squarely at business users, including some that looked very much like BlackBerry.

The partnership is also aimed at countering Google's move to offer free online software targeted at Microsoft's business customers and the growing popularity of Apple's iPhone device which is very popular in the American and the European market. Since both Microsoft and Nokia are facing challenges, this alliance helps them to counter their competitors.

There is also confusion regarding smartphone operating systems. Nokia owns Symbian OS, which recorded around 51% market share in the second quarter of 2009, down from 57% in the same period a year ago. Android, on the other hand, has around 2% market share, but market analysts believe that this is going to increase with more and more devices having Android OS likely to hit the market soon.

While offering Windows on Nokia handsets is not likely to offer a substantial revenue stream for Microsoft. Besides, it is not clear whether this is an exclusive agreement with Nokia.  Microsoft has tried to replicate its success of desktop OS market in the mobile OS market as well. However, it has met with limited success and has never really been able to challenge Nokia's Symbian. Windows has just 9% market share in smartphones and this deal with Nokia is further likely to marginalize Windows for mobile operating system.

While the deal will give Nokia's customers a variety to choose from, it will give Microsoft a chance to boost office mobile sales by partnering with the handset leader.

Gagandeep Kaur
gagandeepk@cybermedia.co.in