“In the beginning there was the mobile phone and all was good. People were able to call each other and eventually text. But then they realized that a device like the mobile phone could be so much more. While many incumbents tried to create a smarter, easier to use mobile phone that anyone could use, they failed. And so came the iPhone and all was good. It had fulfilled the promise of smart and easy to use and the people cheered. The incumbents still did not realize that their time was coming to an end. They became envious of the iPhone and the control Apple had over it and so Android came into being. As the iPhone got a first real competitor, one that offered choice, the people cheered and all was good. But…”

Android came on to the scene as the answer to the iPhone from a number of companies – Google and incumbent mobile phone manufacturers – the members of the Open Handset Alliance. See, the fundamental issue the incumbents were facing was not that of the iPhone’s hardware. No, the issue was that Apple created a mobile software experience that was unmatched by anything anyone had on a roadmap. Nobody had an answer to that at the time.

Along came Google with Android and offered Utopia – a free open mobile phone OS with similar capabilities as the iPhone that the incumbents and carriers could mold to their liking – that was at least the promise. Google’s motivation was clear – while it had agreements with Apple on providing map and search technology for the iPhone and hence getting revenue from mobile search of every iPhone user, they knew that Apple wanted to maintain complete control over the iPhone and could dump Google’s offering at any point. This type of tight control scared Google as it would lose the fastest growing internet platform at the time – the smartphone. So Google bought Android and started its own software platform. But Google never designed or manufactured phones and as such needed support from those who knew how to do it. The word open was meant to lure as many manufacturers to the Android platform as possible as Google wanted to grow market share as fast as possible.

What the incumbents that went into bed with Google did not realize is that Google does not care about their profits. They only care about getting as many Android phones into as many consumer hands as possible. While the manufacturers earn their money by selling phones, Google earns it from the use of the very same phones. And as suddenly all manufacturers are selling phones with the same software on it – the only remaining differentiator is price. And so with more and more manufacturers joining the fray the average selling prices of Android phones fell off a cliff. And that is precisely what Google wanted – competition on price. This allows consumers to get Android phones almost for free and again increases Android’s platform share compared to iOS. More users on Google’s platform – more revenue for Google. That this puts a lot of pressure on the ASPs and profit margins of the manufacturers – hey that is competition. Many tech pundits are asking when we will see the first smartphone for free or the first laptop for free – well we already do. Google got exactly what they wanted.

When you now consider Nokia’s decision not to go to the Android platform in light of this context – it starts to make a lot of sense. I believe that the new Nokia CEO Stephen Elop saw what would happen to Nokia if it were to become one of the many in the race to the bottom. He stared into the abyss and said no. He looked into what Nokia had at the time and saw a second abyss – nothing in the internal pipeline was ready to ship and would be outdated by the time it came to the market. And so Elop phoned up his previous boss Steve Ballmer and made him a proposition that made Ballmer probably smile. He told him – “Listen up Steve, we will go to bed with you and Windows Phone 7. We will build the best WP7 phones you can imagine and we will deliver competitive devices that will match iPhone or Android devices. We will be your flagship reference design. But for that we want money and more access to and say in what WP7 will be. We want to be your number one and we will get everything you have first before anyone else.” I believe Ballmer smiled and just asked where he could sign.

And so in the end the story of Nokia is not over. They made the very move that most people think will kill them to survive as something else than just another Android manufacturer. They wanted to remain a player and made a deal to stay different. Now they hope to build premium phones with great software that will compete with the best Android phones and the iPhone. Whether they will be able to make it – I don’t know. Their latest press release and earnings warning suggest they are running out of time.