Switched On: Nokia's Windows of opportunity

Perhaps it bore repeating for the shock value to sink in, but Nokia CEO Stephen Elop missed nary an opportunity to defend his company's choice of Windows Phone as its future smartphone foundation. Nokia, he said, was making "a big bet" on Microsoft and vice versa. However, Windows Phone is only one leg of Nokia's strategy moving forward. Its "next billion" initiative is tied to handsets in which Nokia and Microsoft interests do not meet. And Nokia's third task, creating or planning for the next disruption, will keep the company tethered to the MeeGo operating system.

Indeed, the Wall Street Journal's behind-the-scenes look at how the Microsoft-Nokia alliance came to be, revealed how close it came to not being at all. Nokia seriously considered Android as the operating system of choice for its smartphones, and was only persuaded differently by a big check and an exceptional flexibility to make changes to the Windows Phone 7 operating system. Because, for all the attention around Nokia's selection of Windows Phone, it ultimately neither guarantees Nokia's success nor dooms it to failure in the US smartphone market. Here's what will:

If Nokia wants to change, it will have to differentiate in atoms as well as bits.

Winning hardware. For the past decade, Nokia has been consistently behind the curve in delivering handsets in step with popular trends – RAZR-like thin clamshells, QWERTY-enabled messaging phones, and of course finger-friendly touch screens. Over the past year, the market has become saturated with big touchscreen slabs with occasional sliding keyboards that have been variations on the iPhone aesthetic. Alas, mostly by design, we've seen even less variation in the first batch of Windows Phones than we have in the Android camp. If Nokia wants to change, it will have to differentiate in atoms as well as bits to bring value to its adopted ecosystem.

Cloud services. Though the company may not have followed the fashionable form factor du jour as quickly as could be, Nokia has long understood the power of the cloud. However, despite an acquisition binge a few years ago, the Ovi message has not been communicated effectively, and now there is the chance that -- like Symbian -- it might fade into the shadow of Microsoft's offerings. Nokia has some strong Ovi services, and they could be a key differentiator. With Windows Phone, the company needs to feature them more and integrate them better.

Carrier relationships. There's been a little progress and a bit of hope as Verizon Wireless has switched to Nokia's home court of GSM-derived LTE, but there is still much progress that needs to be made if recent comments by Verizon CTO Tony Melone are indicative of US carrier feelings towards the Nokia-Microsoft alliance. However, Microsoft can be a boon in this regard: Windows Phone 7 launched with four devices on two carriers in the US -- more of a splash than Symbian ever made -- and Windows Phone's predecessor Windows Mobile continues to be sold by all four carriers in the United States. Contrary to what the company has indicated, Nokia's battle here is not one against Android, but fighting for attention versus the Windows Phones of Samsung and LG, both of which traditionally have strong carrier relationships, and HTC, which has been slowly building them.

Nokia has taken on an operating system backed by a company with the financial resources to stay in the fight for the long term, a powerful lineup of integrated products and services (albeit not all equally appealing) and a focus on user experience. Yes, it will have to pay for Windows Phone licenses and work to bring Windows Phone to a wider range of architectures to meet its handset portfolio needs, but Microsoft seems to have more than offset that expense.

Most of the risk in Nokia's choice was not picking the wrong operating system, but continuing not to pick one at all. Now that it has, it needs to deliver on all three fronts to improve its smartphone standing in the United States.