Is Nokia About to Destroy Microsoft's Hardware Ecosystem?

Microsoft's success in operating systems was based on a relatively straight-forward business model: Microsoft worked on the software, its partners built the hardware. By working with companies like Dell, Lenovo, and Hewlett-Packard , Microsoft was able to achieve total dominance in the PC space.

Times have changed. Microsoft now competes with its hardware partners -- its Surface tablets go up against rival devices sold by traditional Windows OEMs. For now, Windows tablets remain relatively unpopular; more menacing is the threat of Microsoft building PCs in more traditional form factors.

That could happen -- and soon. Nokia's handset business, soon to be a part of Microsoft, will announce new products later this month, and not all of them could be phones.

Nokia's October 22 event
Nokia will hold an event in Abu Dhabi on Oct. 22. The company is expected to unveil six new devices, including a Lumia 1520 -- a 6-inch phablet running Microsoft's Windows Phone. Ahead of the event, Nokia has released a teaser image, showcasing what appears to be that phablet -- along with a tablet and a laptop.

A Lumia tablet wouldn't be too surprising; after all, most handset makers, including Apple, Samsung, Sony, and LG offer tablets as extensions of their mobile strategy. A laptop, however, would be fairly radical -- although Nokia has experimented with laptops before. Moreover, given Microsoft's philosophy when it comes to operating systems, it doesn't seem too far-fetched.

Rather than use one operating system for smartphones and tablets, as is the case with Google's Android and Apple's iOS, Microsoft has chosen to offer one operating system for handsets -- Windows Phone -- and one for everything else -- Windows 8. Presumably, a Lumia tablet would come equipped with Windows 8; a laptop, then, running the same Microsoft operating system, wouldn't be too much of a stretch.

Hewlett-Packard: Microsoft is now our competitor
But if Nokia does unveil a laptop, it's likely to strain the relationship Microsoft has with its hardware partners. In a recent discussion with analysts, Hewlett-Packard's CEO Meg Whitman labeled Microsoft a "competitor," and blamed the company for much of Hewlett-Packard's current struggles.

If a poorly selling Surface tablet is enough to upset Hewlett-Packard, imagine what a full-fledged laptop could do. Hewlett-Packard, still largely dependent on PC sales, has suffered as shipments of traditional PCs have declined. There's still a demand for PCs running Microsoft's operating system, to be sure, but it's a market that's slowly shrinking. Having to compete with Microsoft for a slice of that shrinking pie isn't good for Hewlett-Packard.

Instead of staying loyal to Microsoft, Hewlett-Packard is branching out, cozying up to Google. So far this year, Hewlett-Packard has released two laptops running Google's Chrome operating system, and two tablets running Google's Android. More of both are on the way.

Microsoft's biggest mistake
The biggest Microsoft made with Windows 8 might have been its decision to release its own hardware. By creating the Surface and Surface Pro, Microsoft has alienated its longtime hardware partners, including Hewlett-Packard. Microsoft could be about to take that a step further. Its soon-to-be subsidiary Nokia could be about to release both a tablet and a laptop. If that happens, it will only enrage Hewlett-Packard further.

And even if Nokia doesn't release a laptop right now, it only seems like a matter of time before Microsoft offers other form factors. The company's reorganization aims Microsoft around "devices and services" -- and I doubt the Surface is the only device it has in mind.

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