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Success With Windows Phone OS: Nokia's Catch-22

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It's no secret that Nokia (NYSE: NOK  ) has bet its entire mobile future on the Windows Phones OS. The company needs a sizable number of consumers to switch from iOS and Android in order for Nokia to make it in the mobile world. But if the Windows Phone OS becomes a huge success, Nokia may face another potential threat: other handsets wanting in on the action. 

Too much of a good thing
There are enough reports, articles, and blogs explaining that Nokia needs the Windows Phone OS to work, but it's important to take a minute to consider a scenario where the Windows Phone software becomes too successful. Yes, too successful. For Microsoft (NASDAQ: MSFT  ) , there's no real downside to this. Microsoft is smack-dab in middle of reinventing itself within the mobile age, and having its mobile OS gain valuable market share with smartphones would only be a good thing for the company. But for Nokia, this storyline could turn into a tragedy very quickly. 

First off, Nokia is tied to the Windows Phone platform. Other handset makers that make a few Windows Phone handsets, such as Samsung and HTC, have a plethora of Android phones as well. The Windows Phone OS makes up just 2.6% of the worldwide smartphone market share, so Nokia doesn't have to worry too much right now if a handful of companies sells a few Windows Phones. But if the Windows OS grabbed much more market share, Nokia would have a lot of competition from the likes of Samsung, which just overtook Nokia as the largest cell-phone maker with 29% of the global market share, compared to Nokia's 24%.

A recent International Data Corp. press release said Windows Phone software will begin taking the No. 3 spot for mobile OS from BlackBerry this year, and will gain further ground over the next few years. IDC expects the Windows OS to have 11.4% of the global smartphone market share by 2016.

IDC analyst Francisco Jeronimo expects Samsung to shift more of its phones toward the Windows platform in 2016 as a result of the latter gaining traction. Jeronimo told The New York Times back in September that "they [Samsung] will do what they did with Android. They will swoop in and take over the market in Microsoft phones."

Microsoft's option
While Nokia has been building its company around Microsoft's platform, the Redmond company has been free to court other partners. Most recently, Microsoft and Chinese-based Huawei announced that the two are working together to bring low-cost Windows smartphones to Africa. According to Reuters, Africa is the fastest-growing mobile market in the world.

But it's not just that Microsoft can license its platform to other companies -- it's also the fact that if the company wanted to make its own smartphone, it can (or possibly already has). Rumors have popped up several times that Microsoft is testing its own smartphone and with the Surface tablet already available to consumers, Microsoft could use much of the Surface's technology in its own smartphone.

What to watch for
Nokia investors have to play the waiting game right now and see if the Windows OS takes off or at least slowly grabs more market share over the next few years. As Windows Phones become more prevalent, you can expect that other handset makers will want in on the action as soon as possible. If that happens, Nokia could lose its first-mover advantage in the Windows Phone spectrum.

It's imperative that Nokia make the best Windows Phones available to keep consumers from wandering to another company for the same operating system. If the company can't sell the most desirable WIndows Phones now and in the near future, Nokia may see itself being outpaced by other handset makers who know more about the smartphone landscape, like Samsung.

Although Nokia used to be top dog in mobile phones, the company is essentially playing catch-up in the smartphone realm. It's not too late for Nokia to make a comeback in this space, but it won't be easy by any means. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or a sell. To get started, simply click here now.

Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On February 12, 2013, at 7:36 PM, marv08 wrote:

    "But if the Windows Phone OS becomes a huge success, Nokia may face another potential threat: other handsets wanting in on the action."

    Well, considering that world peace, food for all and me satisfying 72 virgins will happen earlier... I am sure that this is THE one threat Nokia does not have to worry about. Ever.

  • Report this Comment On February 12, 2013, at 9:21 PM, techy46 wrote:

    So has Windows becoming a successful OS really hurt Dell, HP and Lenovo? No, then telll ma again why will Windows Phone's success hurt Nokia?

  • Report this Comment On February 12, 2013, at 9:56 PM, H3D wrote:


    And compaq and gateway and IBM.

    Yes, the success of Windows drove a race to the bottom putting many of the suppliers out of business.

  • Report this Comment On February 13, 2013, at 7:27 AM, RandomMeaning wrote:

    "So has Windows becoming a successful OS really hurt Dell, HP and Lenovo? No, then telll ma again why will Windows Phone's success hurt Nokia?"

    Dell - going private, trying to get out of the hardware business and follow the same path as IBM

    HP - also tried to get out of the hardware business before investors freaked out and they backed off. Also, they realized that a good part of their printer and service strategy relies on being in the hardware game anyway.

    Lenovo - gaining marketshare by undercutting the other leading players, thus lowering profits all around.

    What was your point again?

    Oh right, Windows Phone success for Nokia. Well, there may yet be a future pay off for them but so far Windows Phone has destroyed Nokia. Maybe Nokia was doomed anyway but Windows has been a complete loss so far. Even for Windows Phone market share, which has also dropped considerably over the last 5-7 years. Nokia's decline over the same time period is even more miserable.

    Hmmm. Consumers are less than enthusiastic in adopting Windows 08, Windows Phone 08, and Microsoft's Surface. Maybe they figure that they already have enough Windows in their lives and are not eager to add more. An interesting experiment would be for Microsoft to change the name of the XBox to Windows Game Machine (or Windows whatever). Would sales increase, decrease, or remain the same?

  • Report this Comment On February 13, 2013, at 4:31 PM, janjorissen wrote:

    There is no reason for Nokia to get nervous about others joining the WP platform. There also many players in the Android field. Samsung remains the biggest seller because they had a headstart on other manufacturers.

    @ RandomMeaning

    Microsoft needs Nokia because of Nokia "HERE" maps. It would be very unwise for Microsoft to step into Google maps Furthermore, Nokia has the right to change the WP OS and differentiate themselves from other WP vendors.

  • Report this Comment On February 13, 2013, at 5:28 PM, jeffreber44 wrote:

    Catch 22 my butt.

    Don't forget, every windows phone has Nokia software in it. Like, maps. Which in turn creates revenue for Nokia. No wonder Nokia wants more windows phones out there. Beside, you have to realize Nokia phones are superior in build and quality than other windows phones. Why do you think they sell 80% of WP8 phones.

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