Nokia admits defeat in smartphone war, teams up with Microsoft at Mobile World Congress

Telecommunications giant Nokia has effectively conceded defeat to its rivals in the smartphone war, after announcing on the weekend that from now on all of its gadgets will be powered by Windows Mobile software.

The announcement came just days before the start of the Mobile World Congress, where major telcos including Sony, Samsung and a range of smaller companies will all take to the stage to show off the latest innovations and breakthroughs in mobile technology.

The Nokia announcement was not unexpected. Late last week a secret memo was leaked which showed chief executive Stephen Elop, himself a former Microsoft executive, was preparing for a major announcement which would signal a shift in the company’s strategy.

Nokia has been struggling for years. It maintained the strongest position in the market 10 years ago, but has failed to innovate in the area of smartphones allowing rivals to catch up. It now has a 27.1% share of the global mobile phone, according to the latest figures from Gartner, down from 36.6% at the end of 2009.

Elop announced the company would partner with Microsoft from now on, and it would start phasing out the Symbian operating system in favour of Windows Mobile. This is a significant development given that Symbian still holds the largest market share for mobile operating systems, although its hold is loosening thanks to Android and iOS.

“The game has changed from a battle of devices to a war of ecosystems,” Elop said during a press conference. “I think there was a recognition that for something to effectively compete and ultimately win against Android and iPhone, it would require some big muscle.”

Elop said he preferred to choose Microsoft for an alliance, as partnering with Android would provide Google with too much power in the marketplace. Using Windows Mobile, he said, would provide a “third horse” in the smartphone war.

The struggle for market share will now be fought by three giants – Google, Apple and Microsoft.

The deal, which Elop said is of “substantial monetary value”, will also see Nokia split into two units – Smart Devices and Mobile Phones. The former will focus on high-end smartphones and the latter will develop the lower-end, mass-market gadgets.

“Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing,” a company statement said.

The Smart Devices unit will cover Symbian Smartphones, MeeGo Computers, while the new Mobile Phones unit will handle customer care, manufacturing and logistics.

Moreover, Nokia will use the Microsoft Bing services to replace current search engines on Nokia phones, but Nokia Maps will remain. The Nokia app store will be combined with the Microsoft Marketplace as well.

“Today, developers, operators and consumers want compelling mobile products, which include not only the device, but the software, services, applications and customer support that make a great experience,” Elop said.

Microsoft chief executive Steve Ballmer also said that “the partnership provides incredible scale, vast expertise in hardware and software innovation”.

The deal represents a lifeline for Nokia. The company’s profit fell by 21% in the fourth quarter as it lost more ground to rivals Android and iOS.

But the deal is important for Microsoft as well. Windows Mobile’s share hovers around 3-4% worldwide – partnering with Nokia, a strong hardware manufacturer, will hopefully give it some more reach globally.

Meanwhile, several other telcos have announced new gadgets at the Mobile World Congress. Samsung launched the Galaxy S II, with a sharper screen, thinner body at 8.49mm and the new Android Gingerbread software.

Sony, along with launching its long-awaited PlayStation phone, also showed off the Xperia Neo, with a 3.7 inch screen, 1Ghz processor and an eight megapixel camera, along with the Xperia Pro, which features a slide-out keyboard as well.

Tablets have also made an appearance – Samsung showed off the Galaxy Tab 10.1, a new version of the tablet device. IT features Honeycomb OS and a 10.1 LCD display with 1280×800 resolution.

The Mobile World Congress will continue for another day in Barcelona.