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Microsoft-Yahoo, Microsoft-Nokia: Will They Ever Pay Off?

Microsoft is currently paired with some big partners, with big risks. With Yahoo in the midst of an executive upheaval and Windows Phone still trailing badly in the smartphone race, can these partnerships yield the results Microsoft is looking for?

One of the hallmarks of Steve Ballmer's tenure as Microsoft's CEO is to partner big with a struggling giant in a joint effort for both companies to claw back into a market already dominated by others.

The two prominent examples are Microsoft's partnerships with Yahoo! to take on Google in search and with Nokia to chase Apple and Google in smartphones.

It's a risky strategy, but in many ways it's hard to argue that Microsoft had better options available. Organic growth alone wasn't working for Microsoft. Redmond was rebuffed in a 2008 Yahoo! takeover bid, and it didn't appear that Nokia was open to one.

The recent earnings season provided some updates on these two critical partnerships. Both are showing promise, but huge challenges remain.

The Yahoo! situation is diciest. Between them, Microsoft and Yahoo! have made some small headway against Google, with both companies at about 15 percent in U.S. search share. Under a 2009 partnership executed in 2010, Yahoo! uses Microsoft Bing technology for its search results and handles search advertising. Google remains dominant with a 66 percent share, according to ComScore, but the Microsoft-Yahoo! duo has gained share since 2009.

That said, Yahoo! is in the midst of a shareholder revolt. Founder Jerry Yang resigned under pressure, along with other members of the Yahoo! board. New CEO Scott Thompson ran PayPal for eBay and emphasizes technology. For now, the action revolves around Yahoo! selling its Asian assets. After that, we'll see if Yahoo! will continue its media company strategy (and Microsoft partnership) or try to reassert its own identity on the technical side.

Microsoft's other huge partner, Nokia, is attempting to execute a delicate shift in gears. Run by former senior Microsoft executive Stephen Elop, Nokia is trying to de-emphasize the once-dominant but now seriously outdated Symbian OS-based line of smartphones while spinning up a new line of products based on Windows Phone.

Earnings numbers showed that the Espoo, Finland-based mobile phone maker's Symbian business is collapsing faster than expected while the nascent Windows Phone business is starting to boom -- also faster than expected but not fast enough to offset the Symbian shortfall.

The stock still got a boost from the earnings report, arguably due to Nokia's confirmation that it sold "well over" 1 million Lumias, the new devices built to run the Windows Phone OS.

"From this beachhead of more than 1 million Lumia devices, you'll see us push forward with the sales, marketing and successive product introductions necessary to be successful," Elop said in a statement.

That ability to jump into the market and immediately sell 1 million smartphones makes clear why Microsoft was willing to invest $250 million in the Nokia partnership in Q4 alone.

Together, though, Microsoft and Nokia will need to spark Windows Phone sales in a smartphone market that saw Apple move 37 million iPhones in the same quarter.

What's your take: Are these two partnerships in the early stages of paying off for Microsoft or are they dragging the company down? Let me know at sbekker@rcpmag.com or in the comments section below.

More Channel Watch Columns by Scott Bekker:

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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