Skype Stunting Microsoft, Nokia Turnaround

The reviews of Nokia’s newest phone, the Lumia powered by Windows Phone 7, have been generally positive. The sleek design, the easy-to-navigate interface, the stable platform and the ease of integration with Windows-based infrastructure seem like a winning combination.

Yet, Nokia reports it’s having a hard time getting wireless carriers to pick up the smartphone, even as the popularity of the vaunted Apple iPhone begins to wane. The reason: Skype.

Nokia CEO Stephen Elop recently told shareholders that carriers are hesitant to pick up the new smartphone because of Microsoft’s ownership of Skype, a Web-based telephony and video conferencing service that bypasses many of the voice and text subscription charges.

“If the operator doesn’t want us, it doesn’t want us. We will appeal to them with other arguments. We have more to offer to them. It is a good point to start the discussion from Skype,” Elop said, in response to shareholder questions.

Skype, which was acquired by Microsoft last year for $8.5 billion, may seem like a good scapegoat for the struggling handset manufacturer. The one-time market leader has been racing to rekindle its sagging fortunes against Apple and Samsung. The Microsoft relationship, which came with more than $1 billion in fresh capital, is the cornerstone of that strategy. But there is some truth to the assertion.

In an interview at the Milken Institute’s Global Conference, AT&T CEO Randall Stephenson said Skype was becoming a more viable voice service because of the improving quality of wireless data networks. It wasn’t a compliment, as Stephenson lamented about offering the Apple iPhone with unlimited data plans, a move that crushed the carriers’ wireless network capacity and forced it to make capital investments with little new revenue.

Lurking in the background of this discussion is a much larger issue: the need for vendors to incorporate more and different arrows in their quiver, even when it brings them into competition with onetime allies and friends. Skype may prove just such an example of turning Microsoft and Nokia’s telephony carrier allies into at best “frienemies” or, at worst, outright hostile competitors.

The technology market has been seeing a steady increase in collaborators turning competitors. The biggest and best example of this is Cisco, when it entered the server market. For the better part of two decades, Cisco was the friend of server vendors Hewlett-Packard, IBM and Dell, as its networking gear complemented their data processing devices. When Cisco unveiled its Unified Computing Strategy, which included virtualized servers, it instantly became a hostile competitor and it redefined the server market landscape.

Over the past three years, the rapid consolidation of the industry through mergers and acquisitions has repositioned many vendors from partners to more competitor collaborators. Hewlett-Packard, for instance, is collaborating with Microsoft in cloud computing and competing for hosted and platform services. Dell has ended its longtime relationship with EMC in storage as it’s steadily bought storage assets, such as EqualLogic and Compellent. And carriers are steadily looking for new opportunities to both grow revenue and keep their networks from being overrun by new technologies and applications.

“You lie awake at night worrying about what is that which will disrupt your business model,” Stephenson said in his interview. “Apple iMessage is a classic example. If you’re using iMessage, you’re not using one of our messaging services, right? That’s disruptive to our messaging revenue stream.”

So, that larger issue lurking in the background is nothing less than unforeseen disruption, as described by Stephenson.

Rapidly emerging technologies, as well as new and different business models, have the potential of keeping the IT marketplace unstable as vendors and service providers look for ways to replace commoditized revenue and increase their value. Caught in the crossfire will be solution providers, who will be forced to either concede pieces of the market to direct sales or get wedged between vendors in their conflicting go-to-market strategies.

The morale of this story: Don’t expect things to get easier anytime soon. The technology, cloud and channel are in for a bumpy ride as the entire market goes through a transition for which there is no precedence.

As for Nokia and Skype, the conflict is likely true. The unfortunate consequence is fewer Microsoft phones making it to market, which will hurt both Microsoft’s consumer and business efforts to revitalize its mobility fortunes.

Related Articles:

7 Responses to “Skype Stunting Microsoft, Nokia Turnaround”

  • I’m afraid Stephen’s actual response to the question doesn’t support your claims. If you want to reference a quote from Stephen, the full transcript and video can be found here:
    Please feel free to quote Stephen, but could you kindly use his words, as opposed to the opinions of a known ‘distortionist’? Thank you.

    • Doug, I’ve read the Nokia blog and the other materials you provided. While I will acknowledge many of the reports, including ours, is missing some of the elements, I don’t see this as an unfair interpretation. In fact, the inclusion of the comments about Skype ownership being a benefit for carriers swings in the other direction, IMHO. Regardless, the point of our perspective was everyone needs to be wary of disruptive technology and how the acquisition of new assets can change competitive and collaborative relationships.

  • wp7Dave:

    Another example of poor research…

    Skype is on EVERY major platform. Apple has it’s own proprietary technology for video chat and text messaging that uses the data plan and not the cell network. The same goes for Google.

    • Actually, Dave, that’s kind of the point. As noted, the anti-Microsoft argument based on Skype ownership is rather hollow. The real issue is how the drive for new revenue and value proposition is leading to interesting relationship shifts among vendors and carriers.

  • OpenFly:

    “the popularity of the vaunted Apple iPhone begins to wane” – citation please. Haven’t seen any evidence of this …

    • There are reports that carriers are pushing iPhone alternatives — most notably Samsung — because the iPhone hasn’t improved as rapidly. iPhone remains the top selling smartphone, but the iPhone platform is falling behind Android in terms of overall market share.

    • LeninLukose:

      iPhone is top selling smartphone in US mostly. But the margin between Apple iPhone and other smartphone vendors are reducing rapidly now. There are lot of people who think they can buy better phones for half the price of iPhone.

      iPhone position is weak in Asia, which is the largest future market of smartphones. Even one operator in China has more users on thier network than US population.

      Currently the trend is low end phones are dominated by Android. They are making in roads to Smarphones, but not that effectively as in low end. Recent trend seen on high segment is Windows Phone is dislodging both iPhone and Android. The user reviews and satisfaction is really high for Windows Phones. But still its only a small chunk of the market share. But reason to worry is Nokia is a dominant name in Asia where they will start selling these Windows Phones , which will provide them with market share to succeed, also they are planning for low end Windows Phones like Nokia 610, which has the potential to kill low end adversaries since most of the low end models have quality issues. But Windows Phones is really stable there, but need to see the pricing. It seems they will price it to compete, which if happens, it will be interesting competition.

Leave a Reply