February 13, 2011, 4:01 PM —
Friday, I speculated that Microsoft stood to gain more from its new partnership with Nokia than the Finnish phone maker. While it was clear that Microsoft would make some financial investment in Nokia, the speculated amount appears to be much more than initially thought.
On the eve of the opening of the Mobile World Congress in Barcelona, Nokia's CEO let some details of that investment slip. Stephen Elop (himself a former Microsoft employee), let slip that Microsoft's investment is well beyond the millions of dollars previously assumed saying "In fact the value transferred to Nokia is measured in B's not M's". That indicates some serious capital to keep Nokia afloat while it restructures to produce smartphones based on Microsoft's Windows Phone 7 platform.
The significant investment may have been the result of a bidding war as Elop implied that Nokia had also been pursued by Google as a partner to develop smartphones based on Android. Exactly how much competition was involved is hard to say. Google already has a wide range of Android manufacturers, though Nokia would've been quite a coup for the company.
Elop and other Nokia executives haven't given much up about how interested Google was or how seriously the company considered partnering with the search giant. In fact, the company has generally given the impression that it deliberately chose Microsoft and Windows Phone 7 because of the array of Android devices and manufacturers already in the market and the lack of space to differentiate itself from existing devices.
Differentiation is something that Nokia won (beyond apparently a lot of monetary investment) in its deal with Microsoft. Unlike other Windows Phone 7 manufacturers, who are kept to strict device design guidelines and not allowed to modify the WP7 interface (an area where Microsoft has take a page from Apple's playbook rather than Google's), Nokia will be allowed to customize the WP7 experience. So far, other manufacturers haven't responded to this provision, but none can be happy about the situation.
It isn't clear if Nokia will receive its infusion of cash immediately or over time. My guess would be that it will get some investment immediately to help it shift gears and begin producing WP7 devices as quickly as possible, with the rest to follow at some later point.
In fact, photo mock-ups of future WP7 handsets from Nokia have already found their way onto the Internet and Nokia's senior VP of marketing, Jo Harlow, said she is under pressure to deliver Windows Phone 7 devices by the end of the year. To make a real dent in the market, I would hope that we see those devices well before the end of the year, but we'll have to wait and see.
Exactly what customizations of WP7 interface Nokia may use to differentiate itself is a mystery. The company's teams of developers have a wealth of smartphone and traditional phone interface design experience to draw on. It's also unclear if Nokia will focus solely on its own WP7 advances or will work in tandem with Microsoft. Nokia has agreed to offer Microsoft development resources including those around the company's Ovi application store (which could be significant given that Nokia has billing arrangements in place with 100+ carriers to have purchases added directly to a user's wireless bill).
Nokia working with Microsoft could mean faster Windows Phone 7 development overall, benefitting Nokia, Microsoft, and all Windows Phone 7 manufacturers, but Nokia would have a strong strategic benefit to keeping its advances only on its devices. That could be a point of contention between the two companies down the road.
Overall, I suspect that there are further provisions about the partnership that we'll continue to discover over the next few weeks or months.