JUST A FEW short years ago, Nokia was top of the mobile pile. Its Symbian-based handsets were popular across a range of customer profiles, from teenagers to business users. Emerging markets were opting for user friendly Nokia handsets, and though domination of the US market may have eluded the Finnish firm, in general, Nokia was riding high.

What a difference a couple of years makes. Nokia may still be shifting millions of units a year, but the focus has changed. The launch of Apple’s iPhone in 2007 saw a surge in the popularity of touchscreen smartphones, and since then, Google’s Android system has powered into the smartphone sector.

The figures speak for themselves. Nokia is still top of phone shipments according to figures from research firm Gartner, but its market share is being quickly eroded. While the mobile market increased at a rate of 31.8 per cent, Nokia’s market share dropped to almost 29 per cent from 36.4 the previous year.

More than 1.6 billion phones were shipped last year, with the smartphone sector growing by 72 per cent. And according to tech analytics firm Canalys, Android took over as the world’s leading smartphone software in the final three months of 2010, leaving Symbian slightly bewildered in its wake.

Nokia has seen much of its growth move to developing markets, instead of the higher margin smartphone market – and it knows it missed out. A leaked memo earlier this year from chief executive Stephen Elop, the former Microsoft executive appointed last year, acknowledged the challenges the company has faced. “We fell behind, we missed big trends and we lost time,” he said.

It was only a short time later, ahead of February’s Mobile World Congress exhibition in Barcelona in February, that Nokia announced it was to sign a deal with Microsoft to use its Windows Phone software as its main smartphone system. The move relegated Symbian to a franchise, although Nokia said it still plans to ship more than 150 million Symbian-powered devices in the next few years. And Meego, Nokia’s open-source collaboration with Intel, appears no longer to be a priority.

The reaction has varied. Some developers have criticised the lack of Qt support – an open source cross-platform framework for apps – in Windows Phone and accused the company of “punishing” its developers. Nokia’s developer forum was abuzz in the wake of the announcement. “A sad day for Nokia. Hindsight will show how bad this decision really is,” one wrote. Others accused Nokia and Elop of appealing to the “blind masses”, and there were predictions of the death of Nokia.

The loss of Meego was another blow to the developer community, although Nokia has said it intends to build a Meego device as a “learning experience”.

However, some have been more positive about the move. “I really think it’s the best possible outcome. Windows Phone is a terrific OS, entirely unique and non-derivative,” said developer Steven Troughton-Smith, who works on a variety of platforms and has been developing for Nokia since 2002.

“Nokia has been renowned for its hardware, and this move really allows them work on incredible devices without having to push all their resources into OS development. Nokia has never been a software company, but in the last few years as handsets evolved into thin sheets of metal and glass, the software has become the most important factor.

“Nokia has been struggling to catch up, never mind compete. I think Windows Phone allows Nokia to differentiate from the sea of Android competitors in a really meaningful way. There’s no doubt it will accelerate Windows Phone adoption and innovation.”

But why hasn’t Nokia been able to keep up with the market demands with Symbian handsets? In September last year, Nokia made a new push to regain ground in the mobile market. At its Nokia World event, the company claimed it was still king of smartphones despite increased competition, and was determined to reinforce that position.

However, although it boasted an impressive spec, with a 12MB camera, HDMI output and near field communications, its new N8 was not as well received as Nokia had hoped. The device was criticised for frustrating, clunky user interface. The majority of the criticism appear to have stemmed from the software rather than the hardware.

Which is where the new deal could help. The agreement will allow Nokia to do what it does best – make hardware – while the development of software and accompanying expense will fall to Microsoft.

And Symbian has been seen as an operating system in decline for some time now. Despite Nokia’s support of its Ovi application store, the company has failed to stem the onward march of rivals Apple and Google. The attempt to create a third force in the mobile world will not only give Nokia the support it clearly needs, but could also provide an entry point into the US market.

“Symbian is on its last legs, and even though it has finally entered the touchscreen/appstore era, in an industry as fast-paced as mobile, a wasted year or two can be devastating,” said Troughton-Smith.

The deal is expected to be a positive one for Microsoft too, with some analysts describing it as a “coup” for the company which has struggled to make make its mark in the smartphone market. There is a risk that, despite opening up new markets for its developers with the adoption of Windows phone, Nokia’s handsets will simply blend in with the rest of the Windows Phone manufacturers. With Micorsoft imposing a minimum hardware spec formats handsets, Nokia’s “iconic hardware” Elop continually referred to at Mobile World Congress could end up lost in the crowd.

“It’s ironic that the sole purpose of Symbian was to stop Microsoft from repeating their domination of the PC market in handsets,” said Ovum’s Adam Leach.

“However, there remains a danger that Nokia could end up as merely a vehicle for Microsoft and services should it fail to differentiate from other Windows Phone 7 makers such as HTC, Samsung and LG.”

The result of the partnership will not be seen until Nokia unveils its first Windows phone, which will be the end of this year at the earliest. For now, Nokia – and the rest of us – will have to wait and see.