Nokia and Microsoft form strategic partnership

It would seem that the only way two major business are able to compete in the competitive mobile phone market is by joining forces. Microsoft and Nokia are set to pool technology and assets in the hope of creating a worthwhile impact on the smart-phone market. Will they succeed?

How can this story be used in the classroom?

Gartner, the US research group, released data showing sales of mobile devices jumped 31.8 per cent to 1.6bn units in 2010.

Sales of smart phones, up 72.1 per cent in 2010.

Apple sold 46.6m units in 2010, which was an 87.2 per cent increase from 2009.

Overall Global Market Share for Mobile Handsets in 2010

Nokia 28.9%
Samsung 17.6%
LG 7.1%
Research in Motion (Blackberry) 3%
Apple 2.9%

Market Share for Platforms Q3 2010

This may appear at first glance to make comfortable reading for Nokia, but in reality their market share for handsets has dropped by 7.5% between 2009 and 2010. Nokia is not only facing stiff competition at the bottom end of the market, but there is criticism that Nokia’s Symbian platform (the platform that is used to power their high-end devices) is no match for the likes of Android and Apple’s iOS.

The strategic response is for Nokia and Microsoft to collaborate. Nokia will be brining to the deal – mapping, imaging and operator billing agreements, whilst Microsoft have the Windows Phone platform and the adCentre search advertising services. The plan is to work in partnership on marketing.

Will the new romance be a success?

Questions remain about the potential success of this blossoming relationship if neither are in charge. Collaboration can work, look at the car industry for one such example, but there is little precedence of two giants from different continents with such varied products and services successfully uniting without a more formal merger and or take-over.

Ultimately the answer will come when the results of this unification hit the shelves and the consumer reaches for the plastic in their wallet. However, Ms Milanesi also predicted that overall growth in the mobile handset market would be constrained in 2011 as device makers face the prospect of component shortages amid growing competition for parts from tablet producers. So we may have to wait awhile!

Questions for the Classroom

1. What sort of market structure is the mobile telephone market?
2. What are the barriers to entry and exit?
3. Will the consumer benefit from this collaboration?
4. Explain how firms in oligopolistic markets are affected by interdependence and uncertainty
5. What is the difference between collaborating and colluding?

This BBC Video features an interview with Nokia CEO Stephen Elop and his counterpart at Microsoft (Steve Ballmer) who discuss the underlying business strategy behind the new strategic partnership.