Nokia’s Smartphone Success Depends on Microsoft Windows Phone OS’s Network Effect Capabilities
In the third quarter of 2011, world smartphone sales totaled 115 million, which is up 42 percent from the third quarter of 2010. Nokia, the world’s second biggest smartphone vendor, has seen sales fall 37 percent to 16.8 million phones from 26.5 million a year ago.
In that same period, Samsung has tacitly risen to the top of the list by selling 24 million smartphones, which is three times the quantity sold during the third quarter of 2010. Samsung’s success in recent quarters can be attributed to its decision to support the Android operating system (OS) on its smartphones. The Android OS currently controls 52.5 percent of the smartphone operating system market, and it is also the OS used by various other smartphone makers.
Nokia’s smartphones, on the other hand, carry the relatively unknown Symbian operating system. As a result, Nokia will attempt to regain its share of the smartphone market by partnering with Microsoft to utilize its Windows Phone OS on Nokia’s new line of smartphones.
The success of Samsung in comparison to Nokia this past year can be explained by discussing network effects in relation to the smartphone industry. Nokia’s previous smartphone operating system, Symbian, has lacked the tremendous amount of application developers that are constantly working on “apps” for the iPhone OS and the Android OS. These two operating systems have gained far greater success in recent years because of the benefits that come with app development. As more users are willing to use the OS, more developers are willing to create applications for the OS. The network effect dominates because consumers are willing to purchase phones made by certain handset makers mainly based on the OS which that phone supports.
The Symbian lacked the application developers that would make the network effect possible using that OS. As a result, Nokia’s answer is the Microsoft Windows Phone OS. The Finnish handset maker is hoping that Windows Phone OS application developers will create the network effect necessary to regain its share of the market. It is becoming more and more evident that the smartphone industry is not dominated by the maker of the cell phones, but by the operating system that the phone supports. The OS has the potential to create a network effect that creates welfare for all users as more consumers decide to use the product. Application development has become a major component of the smartphone industry, and the ability of handset makers to embrace this new trend will be crucial to ensuring their future success.
Sources:
[1] http://bits.blogs.nytimes.com/2011/11/08/nokias-comeback-strategy-in-smartphones/?scp=37&sq=app%20network&st=cse
[2] http://www.pcworld.com/article/243861/samsung_becomes_biggest_smartphone_vendor_as_androids_market_share_grows.html