Why Nokia Needs To Go It AloneWhy Nokia Needs To Go It Alone

Earlier this week, Berenberg Bank analyst Adnaan Ahmad published an open letter to Nokia CEO Stephen Elop. He had some choice words of advice for Nokia concerning its future.

He said, "Get access to their Windows Phone 7 intellectual property scot-free and access to the U.S. market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least 30%."

"Get rid of your own proprietary high-end solution (MeeGo) -- it's the biggest joke in the tech industry right now and will put you even further behind Apple and Google."

Nokia's smartphone troubles are well documented. The market share of its Symbian platform has nosedived from a high near 80% several years ago to less than 30% in the most recent quarter. There are a number of reasons for this, but it mainly stems from falling behind its up-start competitors. It has suffered through an embarrassing string of flops, such as the N97, and has had trouble shipping its latest smartphones, such as the N8, on schedule.

Ahmad isn't the first to call on Nokia to make changes in its software strategy, but he's flat out wrong to suggest that adopting Microsoft's Windows Phone 7 will help Nokia turn itself around.

For starters, Windows Phone 7 is just barely out of the gate. Its foothold in the market is tenuous at best, and after three months on store shelves, Microsoft has yet to share sales numbers. How is a fledgling, unproven platform going to help Nokia? It's not.

WP7 has strict hardware requirements and allows for little in the way of hardware design innovation. Nokia has always been good at creating solid hardware. Nokia would be unduly restrained with respect to hardware with WP7. If WP7 were a roaring success, perhaps it might be a better opportunity for Nokia, but right now that's just not the case.

It's also worth noting that Nokia likely wouldn't be able to license WP7 "scot-free" as Ahmad suggests, as licensing software is how Microsoft makes money.

Ah, but Android has been successful, right? It has, but Android is also a bit of a hot mess. Dozens of hardware manufacturers are vying for a piece of the Android pie. I've reviewed so many Android handsets in the last year that they are all beginning to look the same. Some have turned to software -- Motorola with "Blur" and HTC with "Sense" -- to differentiate. If Nokia adopted Android, it would be joining the ranks of seasoned Android veterans and would have to rely on its hardware design chops to stand out from the crowd. If it couldn't, it would have to start tweaking the software, too. Finding success down this path is not a foregone conclusion.

I also think it would be amazingly damaging to Nokia's internal psyche to give up on its own software and turn to that of others. It would be a severe blow, the ultimate admission of defeat. Nokia is still the world's reigning maker of cell phones, with over 1 billion sold. It didn't reach that number by relying on others.

So where does that leave Nokia?

Right now Nokia is still working to bring MeeGo -- an open-source Linux platform -- to market on new hardware. Whether or not MeeGo is a joke, it is the bed Nokia has made for itself and it needs to sleep in it, at least for a while longer. Rather than develop dozens upon dozens of high-end and mid-range handsets, Nokia needs to deliver one killer device to kick-start its turn-around efforts. Excluding entry-level devices that Nokia makes for developing markets, if it scrapped or suspended development on its middling devices and focused all its efforts on one super phone (as Apple has), its chances of delivering a hit go up significantly.

Whether it is MeeGo or a revised version of Symbian, Nokia needs to focus on updating and (vastly) improving the user experience. That's been one of the core issues faced by Nokia's smartphones -- the outdated UI. Nokia made progress with Symbian^3 on the N8, but it didn't go far enough.

Then there are the developers to consider. Nokia has a huge commitment to its developer community and has sunk millions into it. Its Ovi store may not be the smash hit that the iPhone App Store is, but the number of downloads from the Ovi stores has increased dramatically in recent months to 3 million per day. Nokia can't simply dump all that investment because handset sales are sluggish. (Besides, handsets running WP7 or Android wouldn't be compatible with Ovi.) One of the reason's Apple's iPhone has been a success is because of the wider ecosystem all under Apple's thumb. Nokia needs to maintain that same level of control. It couldn't if it switched to WP7 or Android.

All Nokia needs to do is produce one killer device that has access to good applications, has easy tools for managing that device from both the cloud and the desktop, and has access to multimedia content and services. Nokia already owns all the technology to do this. The pieces are there. Nokia needs to figure out the right way to assemble them.