On Friday, Microsoft and Nokia announced a partnership that will put Windows Phone on all future Nokia smartphones. Yes, the news is huge, and will turn the smartphone market on its head. However, already many people are saying that this is a desperate attempt of two failing companies to save dying product lines.

I think the partnership could spell huge success for both companies, if the companies can innovate quickly enough and build a powerful presence in the market. However, there are a lot of variables at work, and the team's increasingly powerful competitors will not be standing still. Below I've included two possible scenarios—one where Microsoft and Nokia take the market by storm, and another where the partnership's offerings fade to irrelevance.

Scenario 1: Windows Phone Becomes a Market Leader

Nokia immediately sets to work throwing its weight behind high-powered, cutting edge smartphone devices. The company recruits engineering talent from heavyweights such as HTC to design a fleet of new smartphones. As an exclusive provider of Windows Phone, the company builds its devices around best utilizing the OS, and begins a product roadmap to coincide with upcoming releases of Windows Phone.

Microsoft and Nokia both agree to aggressive pricing of the devices, citing a common Microsoft strategy to undercut the competition to get in the game. Within just a year, one-third of Nokia's customers have upgraded to Windows Phone devices.

Thanks to the platform's increased dominance in the marketplace and the fact that building Windows Phone apps is easy if you have a background in Microsoft development, the Windows Phone app store rapidly grows to 50,000 apps, including both the most popular consumer apps and enterprise-class apps to meet a variety of business needs. (Read: Top 10 Windows Phone Enterprise Features)

Microsoft ramps up development for Windows Phone (again, investing more resources in the short-term to tighten the gap with competition), and is soon offering full Exchange support, compatibility with popular enterprise software, and a powerful management platform that provides security, management, monitoring, remote control, the ability to push apps to employee phones, and more. Enterprises see Windows Phone as the platform for the future, as Nokia smartphones tighten the innovation gap and Microsoft's management software rivals BlackBerry Enterprise Server.

With Windows 8, Microsoft combines the Windows desktop and Windows Phone experiences. Windows 8 tablets offer the best of both laptops and phones in terms of manageability and portability. Soon, Microsoft is leading the game in both the European market (thanks to Nokia's vast starting point with customers) and in large enterprises (due to Microsoft's robust management software and competitive, large-scale discounts and services for enterprises).

The Result: Nokia and Microsoft both enjoy a successful end of 2011 and push forward as market leaders into 2012.

On page 2, let's explore a less rosey scenario, and look at some practical steps Microsoft and Nokia need to take to succeed.

 

Scenario 2: Microsoft/Nokia's Big Splash Dries Up

Following the launch of Microsoft and Nokia's partnership, the team at Nokia sets to work designing cutting-edge Windows Phone–based devices. However, disputes between Nokia and Microsoft about design specifications arise quickly—both companies want the first entry into the market to make a big splash. Microsoft/Nokia demo an early version of the new device at the Mobile World Congress, and anticipation starts to gather.

However, what starts as a few short release delays turns into a debacle. The iPhone 5, making a huge splash on Verizon's new 4G network, continues Apple's strong showing in the mobile market. A new fleet of 4G-equipped Android smartphones begin to eat away at Nokia's smartphone market in Europe as the company is unable to bring the Windows Phone smartphones to market fast enough.

As tensions continue to rise, the Windows Phone team continues to struggle to push out an update offering the features (such as copy and paste, multitasking, and full Exchange support) that the public is waiting for. Suddenly, several executives at Nokia leave the company out of frustration over the two companies' inability to get the device to market in time.

At last, as CES 2012 gears up, Microsoft and Nokia decide to push their latest smartphone to market. They can't wait any longer. However, the smartphone is equipped with last-generation's hardware—4G is in full swing and the device is not capable. Furthermore, continued negative press and a growing number of businesses moving to Android and Apple has nearly halted application development for Windows Phone—apps are still in short supply, especially on the much-needed enterprise side.

Nokia's Windows 8 tablet hits the marketplace amidst a great fanfare of marketing, but the device doesn't take off. Nokia and Microsoft can't appease the finicky, brand-loyal consumer market, and struggles to innovate in Windows Phone have left the tablet lacking the perfect marriage of mobility and manageability.

Meanwhile, HP launches a very successful Windows 8 tablet, prompting Nokia to mostly walk away from its latest entrant and focus on its upcoming smartphones. Nokia continues to innovate, but its market share (now half what it was when the deal was originally announced) is not enough to get the company's numbers to a place of prosperity with investors. More executive changes are announced in an effort to push the next set of devices forward.

As tablets continue to grow in personal and corporate use, Microsoft shifts its focus on Windows 8 and tablets. The Windows Phone team continues to innovate, but the devices never break into the enterprise in a meaningful way. Application development continues but the platform is still a distant third for apps.

The Result: Nokia becomes a minority player in the smartphone market; Microsoft's smartphone business declines as it focuses on tablets and PCs.

 

Takeaways

For Microsoft and Nokia to succeed, I believe they need to:

  • Release a cutting-edge device, fast. The smartphone market is getting saturated. The first thing Nokia needs is a cutting-edge smartphone that can compete with the iPhone and leading entrants from Android and BlackBerry. This will keep the majority of current Nokia customers on the platform and bring in a few new customers.
  • Keep Windows Phone updates frequent, on target. Microsoft needs to update Windows Phone fast, offering much-needed features. Microsoft needs to push all Windows Mobile customers to Windows Phone, and begin innovating in enterprise management.
  • Both companies need to throw their weight around. To succeed, both companies will need to invest heavily in partner relationships, earning wins with multi-national companies implementing Windows Phone and hardware partnerships to get the best-quality equipment in the phones. Then, both companies will need to execute an effective marketing campaign (including advertisement, prominent shelf space in stores, etc.) in both the US and Europe to get the new smartphones in consumers' hands.

If Microsoft continues to innovate on Windows Phone, and consumers see and test the system on excellent hardware, many will be sold on the platform. If the companies can grab hold of a sizable share, they can continue to innovate and appeal to the markets they are strongest in.

What do you think? Will Microsoft and Nokia be able to innovate fast enough? Should they focus on the consumer market, the business market, or both? Will US customers try out devices made by a company that has very little presence in the US?

Let me know in the comments or follow me on Twitter

 

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