Differentiation by assimilation: Nokia plays follow the leader

The deal has been rumored for months, but before today, it was hard to believe. The world’s largest mobile phone manufacturer, Nokia, announced a strategic partnership with U.S. based software company Microsoft that will drastically alter the trajectories of both companies in the smartphone market place. As part of the deal, Nokia will begin to phase out the Symbian and, to a lesser extent, MeeGo mobile operating systems, and instead adopting Microsoft’s new Windows Phone for future smartphone products. In return, Microsoft will benefit from the Finnish company being heavily invested and deeply involved in the success and progression of the Windows Phone OS.

The two companies will share marketing resources, software expertise, and industry contacts to wage war against Apple and Google in the smartphone space. But is this deal equitable? The way we see it, Microsoft gets to have its operating system pimped by the largest phone OEM on the planet and Nokia… well, they get to be reliant on Microsoft for the majority of their smartphone operating system code-base. So what has happened here? The deal has only been official for a few hours, but it looks like the benefits for Microsoft far outweigh those for Nokia, no? Nokia, with a third-party smartphone operating system in its future, is starting to look a lot more like HTC, Motorola, Samsung, and LG than the company we once knew. Is that such a bad thing though? And could it turn out to be profitable for the proud company from Finland? Hit the jump to read our thoughts.

The strategy Nokia has chosen is certainly an interesting, albeit fairly commonplace, one: differentiation by assimilation. That is, the company is looking to make its offerings stand out in a market place where, concurrently, at least four other major hardware manufacturers will be offering devices running identical software. Nokia’s former executive vice president of mobile solutions, Anssi Vanjoki, once likened Nokia adopting Android to someone who pees in their pants to keep warm. The temporary relief from the cold gives birth to a bigger problem in the end. So what makes Microsoft and Windows Phone different from Google and Android? Nokia’s new CEO and former Microsoft executive, Stephen Elop, has already said that his company will have the ability to completely customize Windows Phone, but probably won’t. Android pushers, often to the chagrin of many end-users, differentiate their offerings via heavily customized phone interfaces (to be called “experiences” if you believe the marketing speak). But, according to Mr. Elop, that doesn’t appear to be the plan. So what will be unique? Don’t get us wrong, Nokia makes excellent hardware — check out our review of the N8 if you need further proof – but is that enough to rest on? Can the company gain both U.S. and global market share while pedaling the wares of others? It’s possible, but it’s a huge gamble. There are close to 112 million Symbian smartphone users that, in the next few years, will be forced to move platforms… and that move could be away from Nokia. Forcing users off of a platform, without a clear succession path, seems like a recipe for disaster.

We’ve longed for the phone maker to invest more heavily in software, but this just feels like the easy way out. The Nokia software experience, when compared to the experiences offered by other platforms on the market, was poor… but it was Nokia’s experience. Symbian, with all of its strengths, weaknesses, and shortcomings — for better or worse — was how Nokia differentiated itself. The software is always the differentiator. Ask Apple. Why do people pay $2,000 for a MacBook Pro when you can buy a PC equivalent with more horsepower for $400 less? Because it’s pretty? No. Because they want to run Mac OS X. That’s the differentiator. Why are the Motorola XOOM and BlackBerry PlayBook getting so much media attention? Because of the hardware? No, because they will be among the first devices to run Android 3.0 and the QNX inflicted version of RIM’s BlackBerry software. There are other dual-core tablets with nearly identical specifications available now. The software is what makes these two tablets special.

Now don’t get us wrong, being the same can be profitable. The move to Android has created a huge boom for companies like HTC, Samsung, LG, and Motorola, who ran to Google and Android after their smartphone chops were undermined by Apple and the iPhone back in 2006. Mr. Elop was not shy about saying that cuts to Nokia’s heavy operating budget are on the way. Downsizing the research, development, engineering, and support staff working on Symbian — for starters — will definitely help the company’s bottom line. But it also means giving up control — the ability to adjust the corporate compass accordingly as technology changes and evolves. After all, what’s best for Windows Phone and U.S. based Microsoft may not always be what’s best for Nokia in Finland.

We admit that we’ve been calling for Nokia to take drastic measures with its smartphone division for years. The company needed to do something to globally compete with Apple and, to an even greater extent, Android. Today, that drastic move has been made. What we fear, however, is that with this move Nokia has lost its identity. It is no longer a leader, but a follower. A company that, for the foreseeable future, will have the success of its smartphone division fully hedged against the success of Microsoft. It certainly will be interesting to see how this partnership plays out, in the weeks, months, and years ahead. In the mean time, all we can say to Nokia is onnea.