Nokia and Microsoft Exchange BlackBerry Pie

[Editor's Note: The first chart and text were updated to clarify differences between cell phones and smart phones.]

The licensing deal is for Nokia handsets running Symbian S60 software, which N95-3 runs. Microsoft and Nokia both benefit from the licensing deal, which will allow S60 devices to connect to Exchange Server, but in somewhat overlapping and in different ways.

Where their interests overlap: small businesses and hosted Exchange; competition with RIM. Where they digress: competition with RIM. That's not a typo.

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I'll start with Nokia-RIM competition. According to Gartner, Nokia's handset market share rose about 3 percent during second quarter, year over year. But Nokia's Symbian operating system lost 8.5 points of share on smart phones. By comparison, RIM nearly doubled its smart phone OS share—from 8.9 percent to 17.4 percent. However, RIM didn't ship enough handsets to rise out of the "others" category.

Symbian OS smart phone shipments were about the same in both the 2007 and 2008 quarters—it was the market share that changed, with mainly RIM picking up Symbian's losses. Something else: A year ago, Windows Mobile ranked second, ahead of the RIM OS. Microsoft added push e-mail—RIM BlackBerry's standout feature—with Exchange 2003 Service Pack 2 and Windows Mobile 5 back in 2005. Nearly three years later, RIM is a distant, but gaining No. 2 to Nokia and it has pulled well ahead of Microsoft. What's that saying about the enemy of my enemy is my ally?

But Nokia also is an enemy of Windows Mobile, because of Symbian. So why should Microsoft license ActiveSync to Nokia? Microsoft the corporate entity is an opportunist. What's stale bread for one division is a fresh loaf to another. Something else: Microsoft has changed since Steve Ballmer assumed the chief executive's role in 2000. There was a time when Microsoft might not have licensed ActiveSync to a rival like Nokia, instead treating the technology as a competitive differentiator. Today, Microsoft announced a Live Search deal with RIM for BlackBerry. That's a smart opportunistic deal for Microsoft, too.

For Microsoft the corporate entity, Windows Mobile's losses are potentially Exchange Server's gains. Nokia claims the marketing deal will make ActiveSync available to about 80 million handsets—and not just smart phones. That number doesn't seem like much in a market where more than 1 billion mobile phones ship every year. But Nokia ships more S60 devices every day—and at a faster rate than RIM and in more categories than just smart phones. Many of these S60 devices will go to small businesses, particularly in emerging markets where the first Internet device is a mobile phone and not a PC. From that perspective, the licensing deal is a Trojan horse for hosted Exchange services, whether directly from Microsoft or one of its partners. Sure, the deal is a little about big corporations, but longer term it will be more about smaller businesses.

Conceptually, push e-mail should pull more business sales for other products and services. There, Microsoft and Nokia are as much potential partners as competitors. E-mail is a very sticky service. Nokia has cloud services, like Microsoft, but the big gains will be in software. Microsoft partners could sell hosted Exchange users Windows PCs with Office, as businesses expand.

Nokia e-mail delivers, by the way. I've been testing the delightful Nokia E71 smart phone, which is designed more for business users. E-mail is easy to set up, for Exchange, IMAP or POP accounts, and delivers more than just messages. IMHO, Exchange e-mail is better on the E71 than any Windows Mobile device that I've tested. I'm anxious to test ActiveSync on the N95.

I'd like to circle back to the Gartner numbers to make a few additional observations. The other big loser, perhaps to Microsoft's delight, was Linux, with smart phone OS shipments and market share declining year over year. But Apple is the upstart to watch. The iPhone operating system, which Gartner labeled Mac OS X, rose from 1 percent to 2.8 percent of the smart phone OS market share year over year. It's worth noting that iPhone only had two days of sales in second quarter 2007.

Apple is a competitor on the horizon, but not the one Nokia is worried about today. The iPhone poses shorter-term problems for Windows Mobile, but not Symbian. (Caveat: That's in the broader mobile OS category. For smart phones, iPhone OS could start squeezing Symbian in as few as two quarters.)

The question everyone should ask: What about Google's Android? Will Microsoft license ActiveSync to Google? If I were a Microsoft executive, the answer would be an emphatic no. Google is a different category competitor than Nokia. Google's platform competes with Windows. Nokia has no platform competing with Microsoft.

Looked at another way, the licensing deal is for both Microsoft and Nokia proactive responses to Android. Who knows. Maybe Microsoft and Nokia will smear a little blackberry pie over Google's automaton.

[Please send your tips or rumors to watchtips at live.com].

Related Posts:

• Nokia-Symbian: Brilliant or Clueless?, Apple Watch, June 24, 2008
• Windows Mobiles Good, Bad and Ugly, Microsoft Watch, June 6, 2008
• Do IT Simply with Sync, Microsoft Watch, March 11, 2008