From time to time on this blog, I write about strategic positioning based on case studies from the technology and software markets. In this week’s post, I am going to highlight some strategic partnership positioning lessons that startups can learn from Nokia’s partnership with Microsoft.
Nokia Surprises Market with Windows OS Exclusivity Agreement
In 2011, Nokia’s Former CEO, Stephen Elop, made the decision to abandon its Symbian Operating System and adopt Microsoft’s Window’s OS. This was a strategic decision that the company made that came under significant scrutiny from the stock market, but in hindsight was brilliant.
Wall Street poked fun of Nokia for adopting a less established mobile operating system than the one it had abandoned. The market assumed that Android was the only viable option for them.
However, Nokia’s management team saw things very differently. Android was prospering in the market. It already had several handset manufacturers developing on their operating system and was not going to be able to provide Nokia with the financial and marketing support it needed to bounce back from its tailspin.
Elop and the Nokia management team saw Microsoft as a perfect target — the company knew it needed to find a way into the mobile OS space and was going to spend lots of money and effort trying to do so. It also knew that Windows OS was not gaining much traction and did not have much support from hardware vendors. This was going to make it hard for Microsoft to make themselves relevant in the mobile operating system space.
Two Reasons this was a Dynamite Partnership Opportunity
- Nokia needed the financial and marketing resources to reinvent itself
- Microsoft needed a committed hardware vendor with a powerful brand behind it to build some tailwind for the Windows OS.
These factors set the stage for a mutually beneficial partnership that could endure through some painful times as both companies knew they needed each other to reach their desired outcomes. This same bond would not have been achieved with Google and its Android operating systems.
Nokia Exercised Pre-Emptive Positioning to Keep Microsoft in Check
While it was a great match, Nokia’s management team knew that partnerships rarely last forever. Even those that do last the life of a company typically change radically over time.
Consequently, Nokia positioned its resources to deal with potential risks that were tied to this partnership and worked to ensure that both parties continued to be satisfied with the relationship.
Nokia had a secret team working on an Android version of its Lumia line of phones at the time of the Microsoft phone division acquisition. This does not come as a surprise at all. Nokia knew that Microsoft had at least dabbled with the idea of releasing a Surface smartphone and Nokia needed to keep Microsoft in check. They probably had been doing so for quite some time, as this helped them stay a step ahead of Microsoft’s next move.
Leveraging Partnership Position for An Exit
Nokia has the option to terminate its Windows OS exclusivity contract in 2014. With its exclusivity window coming to a close and Nokia claiming over 70% of the Windows OS market share, Nokia knew it had the upper hand in its partnership. The future of the Windows OS likely hinged on it.
There are rumors circling that Microsoft got wind of Nokia’s “secret Android development project”. I don’t doubt that this was the case as Nokia wanted to remind Microsoft that it was now in the power position in their relationship. The message was clear — Microsoft was going to need to incentivize them to remain exclusive and committed to Windows OS.
This would have forced Microsoft to evaluate its risk and consider its options. Nokia knew one of them was selling off its handset division. As it turned out, Microsoft ended up paying a premium for it ($7.2 Billion), taking it off Nokia’s hands and alleviating some of the financial duress Nokia had been under after committing to purchasing the Siemens half of their joint venture, Nokia Siemens Network (NSN). They also used it to solidify the position of their patents and mapping services through prepaid licensing contracts with Microsoft.
4 Key Takeaways
Although startup partnerships are generally at a much smaller scale, there are several lessons that startups and expansion-stage companies can learn from Nokia’s strategic partnership positioning with Microsoft.
- No partnership lasts forever. Plan accordingly. Your partner is going to be pre-emptively planning for its post-partnership scenario, so you need to be doing that as well. This also helps keep your partner in-check and will sometimes even help you foster a better relationship, as the other side will not take the relationship for granted.
- Save up for your next move. In order to maintain business continuity and ensure that your company is prepared for reality post-partnership, your company should allocate a certain percentage of its resources towards exploring various post-partnership opportunities and situations. That way you can always have one-step forward toward your next move.
- Partner up for the long haul. Look for partnerships that offer long-term benefits to both parties and set the groundwork for a long lasting partnership. This will ensure that both parties are fully engaged and committed for a significant length of time. In many instances, the market share leaders in a specific space are not the best or even a logical fit, and can actually end up being more of a time suck than a leverage point. Partnerships without engagement will just cost you time and money. You need to pursue ones that will provide lasting value.
- Keep your eye on a potential exit. Ecosystem partnerships can be a great way to position your company for an exit or business unit spin-off. Partnerships give you a chance to work directly with one another and build interoperability of your technology and prove their benefits as a cohesive unit. This is always something to think about as an added bonus to partnership choices. See my series on market exit positioning for more on strategically planning your exit before you are ready to do so.
What else have you learned from this case study on strategic partnership positioning? I’d love to hear your thoughts and/or comments. Please share them below.
Disclosure: I own shares in Nokia (NOK) and plan to maintain my position for the next 72 hours.