It has been an extremely interesting case and I am not sure if there is a clear solution to the problems mentioned. There are two entities, whose futures are tied together, at least for 10 years. But the company of one is not necessarily good for the other.

While formulating the problem, I was in two minds, whether the problem should be from a Nokia perspective, given the title of the case, or the problem should be from a Microsoft perspective, given that it has acquired the Nokia handset business. I, however, went with the latter, as it gets more complex for Microsoft in the current environment, than Nokia.

It is fairly clear from the case facts that Microsoft ultimately wants to increase the Windows OS base. However, the question would be which route to take? Should it focus completely on increasing the sales of Nokia and thereby gain a higher base for Windows, or should it independently focus on increasing the Windows base and let the Nokia strategy be a subset of the overall strategy. So let’s evaluate the two options

Grow only the Nokia handset business: It is going to be difficult in the short run, given that Nokia has lost out a lot in the smartphone segment and Android has become very popular on the base of the ‘millions of apps’ story.

One of the faster ways to grow Nokia would be to have Android phones from Nokia. That would have been a solution for Nokia but not a solution for MS. Therefore MS would look at all possible solutions to increase its base through increased sales of Nokia handsets. Cutting prices, introducing ‘high on features’ handsets at a lower price and so on would be possible moves.

It would work to some extent as lower price buyers may not be very sensitive to which OS the phone uses. However, this segment will also be distracted by the likes of Karbonn and Micromax as we have seen from their meteoric growth. Also, in this case, MS would not get the benefit of the licence fee on Nokia handsets.

Let Nokia strategy be a subset of the overall strategy: Here the key task for Microsoft would be to convince all handset manufacturers to provide two options of the same model, one with Android and another with Windows. This would be in addition to its efforts at growing the Nokia handset business.

Currently, studies do not show that buyers are demanding Windows OS. They are, at best, accepting Windows OS if the features and pricing of the phone are good. Therefore there may not be a crying need for a Samsung or LG or any other handset manufacturer to provide Windows OS options. This strategy, therefore, hinges on Microsoft’s ability to integrate the windows platform seamlessly with the PC.

Fortunately for MS, it is still the largest OS for PCs by a very large margin. Therefore, the users are familiar with the OS and would be very happy to have a seamless experience between the PC and the phone as long as they are not deprived of the huge number of apps, the user-friendly navigation and connectivity with other phone users. This route will force the current handset manufacturers to seriously look at Windows as a platform. Possible but slow option again.

My Recommendation

A possible course of action for MS is a combination of the above two approaches. Initially, the handset manufacturers will be reluctant to provide Windows OS models unless there is strong demand from the customers and they are afraid of losing out to competition.

Therefore, MS will have to create a situation where handset manufacturers fear losing out to competition because of not having Windows phone options. This will happen if MS can introduce very low-cost feature phones and smart phones, which convert customers at the lower end.

Once the customers get used to the Windows platform they would then possibly prefer the same OS when they upgrade to higher-end phones. At this juncture the large handset manufacturers would look at Windows as a second OS. Therefore, MS will have to create a large base of smartphone users at the lower end to threaten the likes of Samsung to consider Windows as an option. Given that both the OS and the hardware belong to MS in the case of Nokia phones, they should be able to aggressively price their handsets.

On the other hand, MS will have to build seamless integration between the phone/tablet OS and the PC OS. And add features which allow all phone features on the PC and therefore make use of the phone redundant when working on a PC.

Similarly, it would need to build features into the phone, which can access and sync applications including Excel and Word on the PC. All these would happen at the back end and make the user more dependent on Windows OS. MS would, however, have to consider simplifying the Windows 8 platform. It is very different from what the users have used earlier and hence loses out on the advantage of familiarity with the OS. In case of a PC, the users do not have much choice and hence would possibly live with a not-so-user-friendly OS, but the same may not be the case on a mobile.

At the same time, MS would have to spend large amounts of money on communication to popularise the concept of seamless integration between the mobile and the PC, so that this becomes a parameter sought after.

Combined with that will be a hard push at creating a large base of apps on Windows. Maybe MS would have to open the OS to app developers so that they can get a large number of individuals and firms develop apps for them.

In sum, MS would need to:

Get high on feature smartphones and feature phones at very reasonable prices to prevent erosion of share from the likes of Micromax and Karbonn

Aggressively build seamless integration features between the phone and the PC.

Aggressively communicate seamless integration as the next big thing in the mobile world.

Thus, there is no quick-fix solution for MS or Nokia at this stage. It will be a long-drawn-out process of winning customers at the lower and middle levels with better value and better pricing, before they can even think of driving a hard bargain with handset manufacturers to use its OS at least as an option.