Should Nokia Be Looking At Android or WP7? Not Yet

Nokia’s (s nok) CEO Stephen Elop has set tongues wagging with talk that Nokia must “build, catalyze or join a competitive ecosystem,” which suggests it’s poised to look at Android (s goog) or Windows Phone 7 (s msft), perhaps to up its game in North America. Analysts and observers have been weighing in, saying a move is now more likely than ever. But I think it’s still too early for Nokia to look to another OS, which would be a major admission of defeat and may not provide the momentum to make it worthwhile.

Nokia clearly has its work cut out for it. The company shipped 28.3 million smartphones during the fourth quarter of 2010, up from 20.8 million during the same period last year. But Nokia’s share of the smartphone market has slipped to 31 percent in the fourth quarter, compared to 40 percent from a year earlier.

Elop said in an earnings call, “The game has changed from a battle of devices to a war of ecosystems,” and added later that “Our industry has changed and we have to change faster.” He then later talked of joining or building a competitive eco-system, something Nokia could pull off with its strong brand and relationship with carriers. Elop said he will layout a new plan for Nokia’s strategy next month.

So the discussion is now turning to Nokia aligning itself with Android or perhaps Windows Phone 7. A partnership with Microsoft has gotten a lot of talk lately after a report last month that the two companies were discussing having Windows Phone 7 run on Nokia devices. The fact that Elop came from Microsoft has also stoked speculation. Others are suggesting Nokia is going to look at Android, despite the words of former executive VP and head of Mobile Solutions Anssi Vanjoki, who compared using Android to a boy peeing in his pants for warmth.

It’s clear that Nokia is need of help, but I’m just not convinced that Windows Phone 7 or Android is the answer, not at this point at least. If things keep going down and Nokia can’t get its act together this year, I reserve the right to change my mind. But here’s why both options don’t work for me:

Windows Phone 7 is still a very new OS, and early shipment figures have not indicated how well it’s actually being adopted by end users. There are still some rough edges being smoothed out as well, like fixing the lack of cut-and-paste and multitasking support. WP7 does have a decent-sized application market, but larger developer support will lag as developers sort out how much traction the platform has. To pin Nokia’s smartphone strategy to WP7, even if it’s just for North America, doesn’t guarantee a major reversal in fortunes.

Meanwhile, Android is also not a great fit. There is so much competition among manufacturers that it’s going to be hard for Nokia to stand out. Yes, Nokia has some of the best hardware around, but HTC, Motorola (s mmi) , Samsung and others are putting out top-notch Android devices. Nokia becomes just another Android vendor and will have to compete against not only the big boys, but a host of cheap Asian manufacturers looking to churn on low-cost Android devices.

The larger issue is that Nokia will lose out on the opportunity of creating an integrated hardware and software experience, something Apple (s aapl) has benefited from. There’s a lot to be gained by owning the experience and making it extremely polished and usable. Just because Nokia hasn’t executed on this as well as Apple doesn’t mean it should give up yet. Look at Research in Motion (s rimm). It’s getting good first impressions of the PlayBook tablet, which is using a new QNX-based operating system, which will eventually become the main platform for all RIM devices. Though some suggested RIM would be better adopting Android, I think it’s got a brighter future with QNX. Now, it’s unclear how RIM will ultimately do and the same goes for Nokia, but I think it’s smart to try and go with your own OS rather than ceding control to someone else. And also, Nokia’s value is not only in hardware but owning the service layers on top of that. If Nokia can get its services and apps story together, it can extract more value and profitability. Adopting another platform limits or kills that opportunity.

The fact is, Nokia has a plan and though its pretty late in coming, it should try to execute that before it looks elsewhere. High-end devices running MeeGo are set to appear later this year, while Symbian will serve mid-range smartphones. Both will be tied together in the QT software development framework that will allow developers to write applications once for both platforms. Going with another platform will only confuse developers who are being courted to QT right now. Nokia should see its strategy through first and try as hard as it can to get it done in-house. The smartphone game, despite its massive growth, is still in its early days. We’re going to be talking about smartphones for some time to come.

So Nokia, while it’s been painfully slow in keeping up, should not chase after another OS just yet. It’s been working hard to get its act together, and this year will be telling to see if it’s on to something. Nokia should have the courage to see all that work through. Now if by the end of the year, Nokia has gone nowhere with its plans, then all bets are off. But until then, I think Nokia should consider all its options but hold off for now.

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