Nokia jumps from burning platform straight into the arms of Microsoft

One of the world’s largest cell phone manufactures just kicked its mobile operating system to the curb.

No, we are not talking about iOS. The iPhone is still kicking just fine, if Apple’s fourth-quarter numbers are any indication. Android is not going anywhere, and recent reports say that it is now the most-used mobile OS in the world. I am not sure if you could ever fully kill BlackBerry, even if you really wanted to. Even webOS just made a comeback.

We are talking about MeeGo.

What is MeeGo? It is the software that runs high-end smart phones for Nokia, a company that dominates the world cell phone market. That may come as a surprise to the average American consumer for whom there are only Apple, Android and everything else. Along with its Symbian platform, Nokia ships almost half a billion phones everywhere in the world every year.

But Nokia has two problems: Apple and Google.

“The first iPhone shipped in 2007, and we still don't have a product that is close to their experience,” said Nokia CEO Stephen Elop in a memo to employees, published by tech blog Engadget.  “Android came on the scene just over two years ago, and this week they took our leadership position in smart phone volumes. Unbelievable.”

The memo, which is being dubbed the “burning platform memo,” will go down as perhaps the most brutally honest memo from a CEO in the last five years -- maybe the next five years, too. Elop starts it with the scenario of an oil rig worker on a platform in the icy Atlantic Ocean. The platform catches fire. The worker must decide if he is going to stay on the platform or jump to the freezing sea below.

The worker jumps.

“Nokia, our platform is burning,” Elop wrote. “We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.”

Now, Elop and Nokia have jumped as well.

Straight into the arms of Microsoft.

Nokia has always had a software problem. Symbian is a difficult platform for developers to work with and creates a product that is slower to the market than other ecosystems. MeeGo was just never any good. Elop laments in the memo that only one device from MeeGo was scheduled for market in 2011. The company's application front, Ovi, is at the mercy of its struggling operating systems and lack of developers. Elop says that a mistake Nokia has made was trying to compete in the smart phone fray on a device-by-device basis.

“And the truly perplexing aspect is that we're not even fighting with the right weapons," Elop wrote. "We are still too often trying to approach each price range on a device-to-device basis. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyze or join an ecosystem.”

On Friday, Nokia joined an ecosystem. Microsoft CEO Steve Ballmer and Elop announced that Nokia would be abandoning MeeGo in the high-end smart phone market and going with Windows Phone 7.

It looks like, for the time being, Symbian will survive in the medium-range smart phone market. Overall, though, it looks like Nokia and Microsoft have joined arms in a game of “red rover” in an attempt to keep each company from losing any more market and mind share in the mobile sector. On paper it seems like a great idea for both companies. Nokia is a hardware company with a software problem. Microsoft is a software company with a hardware penetration problem.

The partnership, which some speculate could turn into a full-blown merger, is more than just Microsoft adding Nokia as another manufacturer the way it does with Hewlett-Packard, Acer, LG and others. In an open letter from Elop and Ballmer, the pair outlines how the companies will work together.

The Ovi store will be integrated into the Windows Phone 7 application store, Nokia’s map technology (Ovi Maps) will now be the default service for Microsoft’s search engine and Bing will also be the search engine to all Nokia phones. The companies will also “collaborate on development, joint marketing initiatives and a shared development road map to align on the future evolution of mobile products.”

The problem facing Nokia and Microsoft, outside of competition, is that neither company has done anything really well in the mobile category recently. Nokia sells a lot of phones, but, by Elop’s own admission, none of them have been very good. Microsoft tossed its old mobile operating system and started fresh with Windows Phone 7, but as of last month it had little market traction. There is no doubt that the Nokia/Microsoft deal will increase sales of Windows Phone 7 but can it truly become the third major player in the smart phone market?

That is a good question and brings up an interesting point. Who really owns third? Apple is undoubtedly on top in the popular vote. Android now has the most market share. Then there are BlackBerry, HP with webOS and Nokia/Microsoft.

My guess, for what it is worth, is that BlackBerry goes back to the niche from which it came – enterprise and government with good yet decreasing consumer sales. That leaves the battle between HP and Nokia/Microsoft. It is an interesting matchup. HP has always been a great hardware company that had to buy software (Palm) to make any inroads into mobile. That is much the case between Nokia and Windows.

What it will really come down to is a battle of ecosystems. In that case, Elop was dead right. Apple and Android have beaten Nokia with ecosystems – armies of developers working to create applications for their platforms. Who will build the better app store? Microsoft has its own legion of developers, so it looks like it gets the head start. Can HP use what is seen as a superior OS to rapidly build its own application environment?