The alliance between the world's largest software company and cell phone maker means the latest versions of Microsoft's Office applications, including Word, Excel, PowerPoint and messaging, will be available on a range of Nokia cell phones, which make up 45 percent of the global smartphone market.
The two companies, at one time fierce rivals in the mobile telecommunications business, expect to offer Nokia phones running Office sometime next year.
This is giving some of our competitors -- let's spell it out, RIM -- a run for their money, said Nokia Executive Vice President Robert Andersson, in a telephone interview. I don't think BlackBerry has seen the kind of competition we can provide them now.
Research in Motion's BlackBerry created the market for mobile e-mail, and its dominant position in the corporate sector, especially in North America, has protected it from Nokia's attempts to crack the market in recent years.
RIM should be reasonably safe in the near-term because Nokia's presence in the U.S. is relatively small, said Neil Mawston from research firm Strategy Analytics. Partnering more closely with Microsoft will help to raise Nokia's profile in the U.S.
The alliance also aims to counter Google Inc's recent move into free online software, targeted at Microsoft's business customers, and the growing popularity of Apple Inc's iPhone device.
It's clear that Nokia and Microsoft are both facing competitive challenges, most notably from Google, said John Jackson, an analyst at wireless research firm CCS Insight. It makes sense for these two companies to work together to see if they can pool their competitive strengths to try and counter some of this pressure.
The alliance means Microsoft's new Office suite of applications could be available to a much wider audience than the users of Windows Mobile phones, which make up 9 percent of the smartphone market.
We see this as a great opportunity to deliver Office Mobile to 200 million Nokia smartphone customers, said Takeshi Numoto, an executive at Microsoft's Office business.
Analysts said Microsoft is clearly looking at the largest possible audience with the Nokia deal.
The deal is a good win for Microsoft and it will surely now be hoping to upsell the Microsoft suite of operating systems into Nokia's possible portfolios of smartphones, mobile Internet devices and netbooks over the next couple of years, said Strategy Analytics' Mawston.
The two companies stressed that the new venture will not affect the future of Microsoft's Windows Mobile and Nokia's Symbian operating systems for smartphones. Executives said Nokia has no plans to make a Windows Mobile device.
We are extremely committed to Symbian, said Andersson. This is very clear. This is a multi-year collaboration building on Symbian. We are as committed as before, if not more, he said.
Microsoft shares rose 2.1 percent to $23.62 on Nasdaq while Nokia rose less than 1 percent to 9.30 euros in Helsinki. Shares in RIM were 0.5 percent lower in Toronto.
(Reporting by Bill Rigby in Seattle and Tarmo Virki in Helsinki, editing by Gerald E. McCormick and Robert MacMillan) Keywords: MICROSOFT/NOKIA