Nokia Microsoft marriage is the end of Nokia’s handheld business

Nokia and Microsoft announced a partnership today. Together they will form a smart phone alliance. The high end profitable market of Nokia smart phones is moving to the Windows mobile platform. Nokia will move the Symbian platform which they used exclusively up until now to power the mid and low range models.

The effect of this decision is very profound for Nokia and Microsoft. For Microsoft it finally opens up the market for smart phones for them. Nokia’s market share is still very sizable. For Nokia on the other hand it will move them into a hardware maker. The implementation of Windows mobile will lead to margin erosion on their handheld business. Even if they manage to be a huge player in the smart phone market and become successful with bring Windows mobile handsets to the market they will loose anyway.

There is no exclusivity in the Windows mobile platform. When it Is successful other handset players will enter into this market too. The added value Nokia will bring is limited to the quality of their hardware. Any add on service or software they bring will be copies any of the other handheld makers or Microsoft themselves.

The only company who wins in this marriage is Microsoft. Nokia has nothing to gain from this deal and can only loose. Either the platform is not successful and they will loose even more market share. Or the platform is successful and other companies will jump in and erode the market for Nokia.

The future for Nokia is now very bleak. Most likely it will end the Nokia handset business in a few years — possibly 5 years from now. Nokia will sell its handheld business to a competitor who is interested in the hardware technology Nokia created. Most likely an Asian company will take over and use it to jumpstart their handheld business or bring it to a higher level.

It is decisions like this which makes you wonder what the board of Nokia was thinking at the time when they brought in Elop. I am sure they are scratching their head right now since Nokia’s shares went down from $12 to $9 in 2 days.