The Wall Street Journal reports that Microsoft is set to pay Nokia “more than US$1 billion” to create Windows Phone 7 devices, as part of an alliance announced by the companies early in February 2011. It was said that while Nokia will pay Microsoft a per-handset fee for the use of WP7 in its smartphones, it will receive cash from Microsoft in order to subsidise its research and development activities, over a period of “more than five years.” The cash will be useful for Nokia to reduce the up-front costs associated with bringing a new product to market, and shift some of the risk for the strategy to Microsoft. In addition, it was reported that the deal will see Microsoft gain access to Nokia’s patent portfolio, and gain access to Nokia’s Navteq mapping properties, for use in localised advertising services. Nokia is likely to gain a share of the revenue from these activities. According to the newspaper, the final contract between the two has not yet been signed, and the companies will share further details on the alliance when this takes place.

According to research firm comScore, despite the launch of its Windows Phone 7 platform late in 2010, Microsoft saw its US smartphone market share fall by 1.7 points to 8 percent at the end of January 2011, compared with its position at the end of October 2010. The OS lagged well behind Android (31.2 percent share), BlackBerry (30.4 percent) and Apple (24.7 percent). Significantly, the period covered included the first availability of WP7 handsets in the US market and the lucrative Christmas holiday sales period, meaning that Microsoft was not able to capitalise on early momentum for the OS. Nokia’s adoption of Windows Phone 7 has not been welcomed unconditionally: its share price has fallen by around a quarter since the Microsoft announcement, and is still on a downward trend.