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Earlier, Ryan Paul was rather down about the announcement that Nokia and Microsoft were partnering, and that Windows Phone 7 would be Nokia's primary smartphone platform. It might work out well for Microsoft—it gives the software company a strong hardware partner with substantial international reach. But, for Nokia, he felt it meant the loss of control over its own destiny: Nokia is going from a vertically integrated supplier, building hardware, software, and online services, to just another handset builder, like HTC, Samsung, LG, or even Dell. A huge step backwards.

I'm not so sure. In fact, I think he has it backwards. I think that the advantages to Nokia are clear. Given the scant details revealed so far—perhaps no surprise given that nothing has been formalized just yet—it's Microsoft that's in a position that looks more difficult, and is the company with a lot of questions to answer. 

Nokia needs a modern operating system

Nokia, in spite of consistent poor performance in the North American market, is a cellphone powerhouse. The biggest seller of cellphones in the world, it's a consistent technology innovator (for example, Nokia has had phones supporting NFC for several years: technology that other handset companies are only just beginning to integrate). It's also something of a smartphone pioneer; the Nokia Communicators were legendary, and even today the company's smartphone business is substantial.

Substantial, but waning. The Symbian operating system that the company has used for many years doesn't live up to the expectations of today's iPhone-aware smartphone users. We want fluent, touch-friendly, easy-to-use systems with a wealth of applications. Symbian, even in the latest Symbian^3 incarnation that's found on phones like the Nokia N8, doesn't offer that.

In spite of considerable development effort by Nokia, it never appeared that it would be suitable for modern smartphones. In October 2010, the Finns announced that a separate Symbian^4 release was cancelled in favor of incremental updates to the Symbian^3 release.

Nokia's next hope for smartphone salvation was MeeGo, a Linux-based embedded platform co-developed with Intel, Novell, and the Linux Foundation. It's an ambitious project, designed not just for smartphones, but tablets, in-vehicle systems, TVs, and more. At one time it was even intended for netbooks, too. What it lacked, however, was timeliness: it's not clear when MeeGo will actually be good enough to use on the kinds of device that Nokia wants—and needs—to compete with iOS, Android, and Windows Phone 7.

So, as Nokia CEO Stephen Elop wrote in a memo leaked earlier in the week, the company was stuck on a "burning platform." Jumping off that platform might be risky, but it also provides the possibility of salvation. Sticking on the platform will lead to inevitable failure.

Windows Phone 7 is that operating system

With in-house development ruled out, the company had essentially two options: Android and Windows Phone 7. Android might seem the obvious choice, especially with Nokia's existing Linux experience from MeeGo, but Android has its problems. Android manufacturers are already engaged in a vigorous race to the bottom, with cheap and cheerful handsets like the Huawei Ideos (T-Mobile Comet), Motorola Cliq 2, and LG Optimus. 

There's a huge number of Android phones on the market, and they're becoming increasingly interchangeable. The only real means of differentation (aside from weird gimmicks) is custom software. Nokia plainly doesn't feel that being "just another Android vendor," in a market tarnished by low budget, low-margin handsets with non-standard, typically ugly software, is the best way to reinvigorate its smartphone niche.

There's also pressure from network operators: they don't want a market dominated by Android at the low and mid-end, with the iPhone taking the high-end. They want competition across every segment, and Windows Phone 7 is beleived to be a possible way of achieving that.

With Android out of contention, Microsoft's operating system is the only real alternative. It's risky: it's very much an underdog in the battle for smartphone supremacy, and its success remains far from assured. But it provides what Nokia has consistently failed to develop for itself: a high quality, user-friendly, touch operating system. Nokia's problem is a software problem, and Windows Phone 7 solves that software problem.

Microsoft needs partners

Microsoft's position is more difficult. There are certainly upsides. The two companies made clear that this was a special partnership, and that Nokia isn't just buying Windows Phone 7 licenses from Microsoft in the way that HTC or Samsung do. Rather, the pair will be collaborating to integrate their services. 

Some of these collaborations are easy and obvious and already announced, at least in vague terms. Nokia Maps, powered by the company's own mapping data company Navteq, will be integrated with Bing Maps. This integration will, I hope, result in broader availability of street mapping, and the introduction of turn-by-turn navigation support.

Nokia turns out some pretty good hardware, too, and if the leaked pictures are anything to go by, the aesthetic appeal of Windows Phone 7 handsets is set to make a big leap forward. In any case, Nokia's hardware expertise will inform Microsoft's future hardware specifications and platform requirements.

Nokia will also be in a different position compared to other handset vendors when it comes to promotion of the platform. Samsung, HTC, LG, Dell, and Asus all sell smartphones powered by a range of operating systems. None of them want to promote one platform at the expense of another, leaving Microsoft's operating system underpromoted. Nokia, in contrast, is going to transition to using Windows Phone 7 pretty much across the board. This means the Microsoft should receive full-blown support and promotion from the company.

However, Microsoft also needs a strong platform

But it's not all good. Elop and Microsoft CEO Steve Ballmer weren't clear about some of the details, and there were a few areas of concern. They plan to "bring Windows Phone to a larger range of price points," presumably with a wider range of hardware specifications and form factors than are currently permitted on the platform. That's bad news for developers: diverse hardware specs make it harder to ensure performance is adequate and user interfaces scale properly. 

This is a problem iOS substantially avoids (through Apple's policy of aiming at the higher end of the market such that new models are simply better versions of old models), but which causes problems on Android. Windows Phone 7 currently avoids the issue entirely, but if the two companies push the platform down-market, with smaller screens and slower processors, the platform could become a whole lot less appealing.

Such a move downmarket means that Nokia will be driving the same kind of margin slashing that has already affected Android phones. Precisely the kind of commoditization that Elop said he was trying to avoid!

There is also a risk to the platform's broad support. OEMs might not have gone overboard in their promotion of Windows Phone 7, but they've given it a stab nonetheless. If Microsoft gets too chummy with Nokia—and it's already looking as if it will—it's easy to see the other OEMs doubling down on Android and abandoning the platform. After all, if Nokia gets all kinds of special privileges and special treatment, how are they going to compete with that? There's not much point in participating in a field stacked against you.

That might be tolerable if Nokia was already selling 100 million Windows Phone 7 handsets a year but, at this early stage in the platform's life, it would be a disaster. Stephen Elop made the point himself: the other OEMs are an essential part of the ecosystem at the moment, because they make the platform that much more prevalent, and hence provide a larger development target.

Can Nokia fragment Microsoft's platform?

Given these issues, some of the vaguer comments made by the companies are a concern. Elop said that Nokia's deal with Microsoft gave the phone company "the ability to do customizations and extensions to the software environment that are unique and therefore differentiate." 

Now, Elop never gave any explicit clarification about that statement, but he did make several mentions of Nokia's camera and image technology, suggesting they are unique offerings. If this is the kind of customization that Nokia can perform—using its excellent camera technology to shame the often mediocre cameras found in other phones—then that's fair game. Any OEM could develop high-end cameras; it's just that Nokia has actually done so, making the hardware unique to the Finns.

If, on the other hand, he's talking about something substantially more—offering customizations that other OEMs simply aren't permitted to make, regardless of technical ability—then it's extremely bad news for the platform. If Nokia can, for example, make modifications to the Windows Phone 7 user interface, or offer unique form factors, it alienates the other OEMs, regardless of anything Elop might say. That undermines Windows Phone 7's value as a coherent, consistent platform.

Such a move would be rather peculiar, as it's plain to see that Nokia's expertise does not lie in software. I don't doubt that the company has had many skilled people working on Symbian and MeeGo, but the company's management and internal organization has consistently failed to translate this work into high quality, desirable software products. Microsoft's track record in this area is considerably stronger. 

If Nokia can perform extensive, unique, software customization, then it will be diminishing the value Microsoft brings to the partnership, and it will mean that Nokia still has to do considerable software work: an area of known weakness. This is not playing to the strengths of both companies.

It could have just been sloppy speaking; it may mean nothing more than Nokia is planning to use its existing unique expertise—industrial design, cameras, turn-by-turn navigation—to deliver special, Nokia-specific value within the existing OEM framework. That's to be welcomed, and indeed, it's the entire point of the OEM customization provisions. If, on the other hand, it means that Nokia will be free to fragment the platform, it will be a devastating mistake.

Nokia wins either way

Devastating for Microsoft, at least. For Nokia, such fragmentation may not be such a big deal. If it can get a decent amount of sales, then "Nokia-variant Windows Phone 7" will simply serve the role of a cheaper-to-develop Symbian or MeeGo: one where Microsoft pays for most of the development work, and Nokia just pays to customize, taking most of the profit with it. It's Microsoft that's trying to promote a much broader platform and ecosystem that isn't tied to any one vendor, so it's Microsoft that suffers here. Its platform ambitions will be scuppered, holed below the waterline.

And, of course, even if the platform sinks, making Windows Phone 7 untenable even for Nokia, the phone company can eat some crow and fall back on Android, or maybe even MeeGo. Microsoft, however, has no such fall-back position.

Windows Phone 7 developers and early adopters already face uncertainty, with a lack of roadmap both for updates and new form factors (including tablets), and an unspecified relationship with Windows 8 for ARM processors. To that uncertainty, we now have to add the prospect of Nokia almost forking the platform. That's not a happy situation to be in. 

As with so much of Microsoft's recent actions, addressing these issues would do a lot to reassure the community. As has been the company's consistent trend, however, I doubt the questions and concerns will be dealt with in a timely manner.

If the two companies play this well, the results could be phenomenal. If the deal between the two is such that we get the best of both—strong software from Microsoft, strong hardware from Nokia, Nokia's global reach, and Nokia's phone expertise helping Redmond keep abreast of developments and trends in the phone markets. Provided the partnership is structured to ensure that we don't get the fragmentation that I fear they want to introduce, then it will boost both companies. Microsoft will gain flagship handsets and massive market expansion; Nokia will be able to reverse its slide in the premium (and hence, lucrative) smartphone market with competitive, modern devices.

That combination could eventually drive enough sales of Nokia hardware to make the other OEMs irrelevant. In such a situation, an eventual Microsoft purchase of the company would seem an inevitability, as it would further reinforce those strengths. Nokia has a lot of business that would be non-core to such an acquisition, but the prospect of a fully vertically integrated smartphone (and tablet) business would make it worthwhile.

But if it's done badly? Nokia will still get its smartphone operating system, but Microsoft will lose its platform.