Windows Phone might be the most impressive bit of software Microsoft has produced – but it isn’t setting the world on fire. The iPhone and Android go from strength to strength – the latter proliferating so widely even Google doesn’t know how many Android systems are out there. (It can’t count the Chinese forks which don’t use any Google services and don’t phone home.)

This discrepancy puzzles people. Reviewers like WinPho a lot – it’s clean, fast, functional and forward-looking. The social media integration is very clever. Operators have a soft spot for Nokia and WP7 too, because – if for no other reason – they dislike and distrust Google and Apple even more. So what’s the problem?

Three weeks ago I raised the prospect that there may never be a third smartphone ecosystem – something upon which Nokia has bet the company. Many markets only have room for two leading players – and in the technology platform world, many have only one. On the margins the niche players are little islands. No matter how impressive WP is, if the needle doesn’t move, then it too becomes a marginal player. Ecosystems can perish more rapidly than they arise. If Windows Phone is to avoid the same fate as WebOS then the dynamic has to change.

But what might this be?

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Humiliatingly, Nokia was forced to deny rumours last week that it was planning to break up and sell its crown jewels to Microsoft. Normally a company can remain impervious to Twitter-born gossip, particularly from a known antagonist.

Acknowledging the rumour simply gives it a chauffeured ride around the internet. But not this time: the ‘Microsoft buys Nokia’ story fulfils so many conspiracy theories, thousands of people wanted it to be true.

And the notion of Microsoft buying a hardware company and ripping up its licensing business has become much less outlandish after Google’s acquisition of Motorola’s phone business. Ah, but that was desperation, I hear you say; the Chocolate Factory had miscalculated its IP strategy catastrophically, and it had to grab what patents it could at almost any price.

But there’s a whiff of something – it isn’t desperation, more like earnest exasperation – around Microsoft’s phone business these days. Redmond has got an excellent product, for the first time, and people who have a Windows Phone love using it. But there just aren’t many of those folk around. The phones aren’t shifting. Christmas has come and gone, and while we wait for some reliable channel figures, Nokia’s flagship seems to have made almost no impact on the UK market. It’s the phone that leaves no footprints.

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Is Google’s acquisition of Motorola Mobility is good for Android, or an expensive mistake for Google, made in a moment of irrational panic. Columnist Matt Asay thinks it “spells iPhone doom“, and he’s not alone. John C Dvorak thinks it’s “pure genius“. This supposes that Google performed a cost-benefit analysis and calculated that the cost of not buying Motorola’s phone and set-top box division was greater than $12.5bn.

I beg to differ. Not all business decisions, made in the pressure cooker, are as rational as they should be.

On Monday, I explained that Google hadn’t bought what it thinks it has bought. Since then some very interesting new detail has come to light. This suggests that the Chocolate Factory really doesn’t understand the value of its proposed acquisition, and snapped up Motorola not merely in a hurry, but a blind panic. Pulling out of the deal may now be sensible – but also costly for Google. The deal carries a $2.5bn break-up penalty, which is smaller than AT&T’s penalty for failing to complete its acquisition of T-Mobile US, but is still a hefty sum of money. Should this happen, Google will have paid almost as much to buy nothing as it did to buy Doubleclick, its largest ever acquisition.

Let’s look at some evidence.
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Pundits this week are describing Nokia’s fall from grace as one of the greatest corporate car-crashes of all time. But here’s an unfashionable view. Nokia’s problem is not Stephen Elop, or his strategy. Its problem is it didn’t have Stephen Elop, or his strategy, in place two years ago.
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How things have changed. Fifteen years ago attendees at a select mobile conference might have been found sparring over spectrum allocation and control channels. Back then, 3G loomed large, and huge geo-political battles were being fought. Today the talk is – how do you make it all work nicely?
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Nokia has bowed to international pressure and agreed to end the cruel and unusual practice of programming natively for the Symbian OS. It still wants developers to target Symbian, but using the more humane Qt APIs instead.

Nokia has also torn up the OS roadmap, and will speed up the delivery of new functionality to users in chunks, as and when it’s ready, instead of in milestone releases. In less prominent statements, Nokia has clarified what had become a very confusing development picture.
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You may have had your fill of Nokia analysis and features, but I’d like to draw your attention to one more – one that’s very special. The Finnish daily Helsingin Sanomat has published a report based on 15 interviews with senior staff. It reads like the transcript to an Oscar-winning documentary where the narrative thread is held together entirely by the talking heads.

The report is very long on detail and short on opinionising – and for those of you fascinated by technology and bureaucracy, something quite interesting emerges. What we learn is that the company’s current predicament was fated in 2003, when a re-organisation split Nokia’s all-conquering mobile phones division into three units. The architect was Jorma Ollila, Nokia’s most successful ever CEO, and a popular figure – who steered the company from crisis in 1992 to market leadership in mobile phones – and who as chairman oversaw the ousting of Olli-Pekka Kallasvuo this year.

In Ollila’s reshuffle, Nokia made a transition from an agile, highly reactive product-focused company to one that managed a matrix, or portfolio. The phone division was split into three: Multimedia, Enterprise and Phones, and the divisions were encouraged to compete for staff and resources. The first Nokia made very few products to a very high standard. But after the reshuffle, which took effect on 1 January 2004, the in-fighting became entrenched, and the company being increasingly bureaucratic. The results were pure Dilbert material.
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My US colleagues are regulars on John C Dvorak’s excellent Cranky Geeks and a highlight of the show. I was recently intrigued to hear the opinion from Vulture West Coast (in Episode 232) that RIM was toast, and Android would triumph. Now, bearing in mind that I’ve been wrong about mobile more than I’ve been wrong about anything else – quite epically and unheroically wrong – I beg to differ.

Apple will continue to rule the roost, dictating terms and charging eye-watering prices to punters. The punters will continue to be delighted with Apple, and will clamour for more; while BlackBerry has an ace up its sleeve – probably the biggest mobile sensation of the year.

When the crystal ball lies

But first things first. It’s sometimes useful to revisit why you’ve been wrong, because it can tell you a lot about the future.

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One of the oldest mottos at Vulture Central is Show Us The Money. There’s one even better, I think, which is Show Us The Profits. Are there any? If there are, where are they going? At a stroke, this cuts through huge amounts of hype and puts entire industries (and, for good measure, almost anything WiReD magazine has ever endorsed) in a much clearer perspective. So have a gander at the following analysis of the mobile phone business – it’s quite startling.

Asymco is a one-man analyst company operated by Horace Dediu, a former Nokia manager in Helsinki, erudite and informative with a good eye for history. Earlier this week he looked at the profits of the largest seven manufacturers, responsible for 80 per cent of the phones sold, over the past three years. The trend indicated last year is now quite clear, with two North American companies capturing the lion’s share of the profits. In Q2 2007, Nokia pocketed 63 per cent of profits; Apple and RIM just seven per cent between them. Wind forward three years, and Apple and RIM snag 65 per cent of the profits, largely at the expense of Nokia, but helped by the collapse of Sony Ericsson and Motorola, who are a tiny shadow of their former selves.

There’s a conclusion to be drawn for Google and the Android licensees, thinks Asymco. None of the three leaders are likely to abandon their in-house platforms for Android, it’s either inferior (to iOS) or (as with BlackBerry OS, Symbian or Meego) switching simply isn’t worth it. So Android is left to target the very manufacturers who have been squeezed. And that in turn leaves them with some tricky choices to make. Android is becoming a commodity platform, so they need to differentiate themselves from the rest of the Android rabble: we’ve seen Sony Ericsson, HTC and Motorola invest heavily in their own UIs. But because Android is a commodity platform, this investment isn’t worth it. (more…)

A couple of months ago, a book appeared in Finland which has become a minor sensation. In the book, a former senior Nokia executive gives his diagnosis of the company, and prescribes some radical and surprising solutions. Up until now, the book has not been covered at all in the English language. This is the first review of the proposals outlined in Uusi Nokia (New Nokia – the manuscript) and draws on three hours of interviews with its author, Juhani Risku.

It’s very, very timely – and even if you don’t follow Nokia, mobile or telecomms it’s a fascinating exercise in business analysis and organisational studies. Enjoy.

Read more at The Register…