Microsoft's decade of de-innovation

'Innovator's dilemma' and a destructive culture have made it a byword for uncool

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As MS gives up on Zune, Nokia warns on WP7 risks

A portent? Just as Nokia admits that its Windows Phone 7 strategy could cost it market share, its new partner has admitted defeat with Zune.

A Microsoft spokesman told Reuters the current 16GB and 32GB Zune music players would be the last, although the software would continue to be supported “across Microsoft platforms.”

Zune has been moderately well-reviewed but has gained negligible market share since debuting in 2006, ceding a five-year head start to the iPod.

With Zune, as with its latest mobile partnership, Microsoft was trying to win from a long way back. That’s a challenge when your targets are Apple and Google.

Technically, Nokia had the biggest smartphone market share in 2010 and, technically, Microsoft is actually one of the handset OS pioneers, with a (mostly-forgettable) record back to 2000.

But as Microsoft sees off Zune, Nokia has warned that its expected two-year transition to WP7  “may prove to be too long to compete effectively in the smartphone market.”

Nokia said in an SEC filing:

“The Windows Phone platform is a very recent, largely unproven addition to the market focused solely on high-end smartphones with currently very low adoption and consumer awareness relative to the Android and Apple platforms, and the proposed Microsoft partnership may not succeed in developing it into a sufficiently broad competitive smartphone platform.”

Nokia also cautions that the MS partnership may harm its brand identity and the company may be unable “to change our mode of working or culture to enable us to work effectively and efficiently with Microsoft.”

 Apart from that, it’s all good.

With iPad 2, Apple disappears over the horizon

With more than 90% of the market, Apple has been streeting the tablet field. With the early release of iPad 2 it’s disappeared over the horizon.

A price war seems inevitable. Even the iPad 2 – which starts at $499 - is priced below Motorola’s Xoom, but the heavy blood-letting will be among the lower orders. As WSJ reported a couple of days ago:

By the end of 2010 there were already 30 different tablets for sale, according to research company PRTM. The company now counts 102 tablets from 64 different makers that are either available now or in development.

Another Journal story points out that Apple keeps its costs down by pre-paying for components and buying manufacturing capacity, as well as the fact that a third of its sales are through its own retail outlets.

Meanwhile, Microsoft’s declaration that it will be ready for the tablet wars some time in 2012 says something about how far ahead Apple is. Though it also tells us much more about how far Microsoft has fallen behind.



Android to the rescue

If you’re under 20 years old and not Japanese you might be surprised that Japan actually makes mobile phones.

Today only Sony Ericsson, half-owned by the Japanese electronics firm, sells phones in any volume outside the Japan market.

The disappearance of Japanese handset firms from the global stage is a business study on “how not to succeed” (and probably says a lot about the country’s wider economic retreat).

One reason has been the industry’s inability to refresh itself. Whereas western handset brands like Nortel, Alcatel and Siemens have disappeared or were sold off, only in the last 18 months have the Japanese players consolidated.

The other is because they decided to focus on the local market, building handsets to specs set by domestic operators - NTT DoCoMo in particular – perhaps in the belief that the rest of the world would follow.

In any case, the days of the narrow focus are over. Japanese handset guys are putting their faith in Android, the broadest church of them all.

Sharp, NEC, Kyocera and Sony Ericsson are all betting big on Android, the NT Times reports, noting that one of the shocks was the smash success of the iPhone, gaining 70% market share in a territory where foreign brands find it tough to get traction.

So Sharp is doing things it’s never done before, like opening up its lab and working with developers, and trying to focus on customers, not operators.

The combination of Android and Japanese hardware smarts is a natural one and, who knows, might propel one of the Japanese firms into the handset top ranks again.

But Gerhard Fasol, chief executive of Tokyo consultancy Eurotechnology, reminds that the Japanese firms are merely “soldiers in the Google army, with Google as king.”

Which also reminds that the Japanese firms are also missed recruiting targets for Nokia-Microsoft, who are well short of an army.

Nokia marries Microsoft, commits to WP7

As widely expected, Nokia has announced a “broad strategic partnership” with Microsoft, betting that the low-flying Windows Phone 7 platform can halt its slide.

It makes sense in that Microsoft is a software company, and Nokia desperately needs help in software. Indeed, the software development process is so beyond clearly its own competencies that Elop had no choice but to seek outside.

The financials of the deal have not been revealed, but reportedly both Microsoft and Google offered “hundreds of millions of dollars worth of engineering assistance and marketing support.”

Nokia’s statement asserts:

With Windows Phone as its primary smartphone platform, Nokia would help drive the future of the platform by leveraging its expertise on hardware optimization, software customization, language support and scale.

But Microsoft’s smartphone market share fell by more than half last year to just 4.2%, according to Gartner. Windows Phone 7, released in October, may have enjoyed an early bump in sales, but it is still well below the radar for consumers and developers.

Elop and Ballmer offer brave words about creating scale and disrupting “other mobile ecosystems,” but without specifying how this will come about.

Presumably the deal means Symbian has finally been put out to pasture, although Nokia camouflages this in dense corporate-speak:

With Nokia's planned move to Windows Phone as its primary smartphone platform, Symbian becomes a franchise platform, leveraging previous investments to harvest additional value.

MeeGo, the planned Nokia-Intel platform which is way behind schedule, will now become “an open-source, mobile operating system project” with “increased emphasis on longer-term market exploration of next-generation devices.”  The first MeeGo product is likely to ship this year.

As well as the partnership with MS, Elop also unveiled a company restructure – the fifth in five years.

In any case, both moves, announced at the start of Nokia’s capital markets day, left investors underwhelmed. Nokia’s NYSE stock fell 95c, or just under 10%, in after-hours trade.