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When John Sculley forced Steve Jobs out of Apple back in 1985, the former PepsiCo marketing executive very quickly produced dramatic improvements in Apple’s profitability.  Apple wasn’t losing money before, but Sculley improved the bottom line by about $200 million (a lot in those days) simply by cutting all of Steve Jobs’s pet projects that appeared to have poor prospects. Sculley raised profits by cutting expenses not by increasing sales. Expect the same thing at Nokia where, ignoring for the moment the “enormous payments” Microsoft will be making according to Nokia CEO Stephen Elop, the company can probably cut its software development budget to near-zero, saving $1 billion or more and increasing profits by that amount.

It’s one of those moments like when Cortez burned his ships to concentrate his conquistadores fully on their job of subjugating the Yucatan. Elop is burning his software development capability, betting on Microsoft. Sure, Symbian will be around for awhile in Nokia products, but two years from now it should be gone. And in that interim period, between lower development costs and Microsoft subsidies, Nokia will look better to investors even if its smart phone market share continues to fall.

That’s why Nokia did the deal with Microsoft, which will be assuming the burden of all that software development and paying Nokia for the privilege. It’s a short-term play that makes perfect sense in an industry where CEOs last an average of four years. Stephen Elop’s four years are now fairly certain, his golden parachute packed and ready.

Two years ago such a move would have been impossible in Europe simply because of employment laws making it very difficult to dump workers. But the current European financial crisis has changed that somewhat and Nokia’s obligations probably aren’t as onerous as they once would have been. Austerity is the thing these days in Northern Europe and almost everywhere else.

Now you might think I’d be against all this but I am not. Compared to Android and iOS, Symbian was, in a word, crap. We can have geeky arguments about it all day but the market has spoken loudly and I am right. Elop was right to make a platform change and righter still to do it this way, primarily at Microsoft’s expense. Nokia had to get out from under its bad software culture and this was by far the most elegant way to do it.

But having said that, I still don’t think it will work.

Trading Symbian for Windows Phone 7 with a $100 bill attached is still trading the worst smart phone platform for maybe the third best. With Blackberry retooling and coming up fast and HP’s WebOS as a dark horse backed by massive manufacturing capability, it isn’t at all clear that Nokia has selected a winner. Which is why I have some advice for Stephen Elop.

Nokia should put some of that Microsoft money into emulating Google’s Android development, where 25 programmers humbled the 1000+ working on Symbian. Hire a Bob Lee (or heck, hire Bob Lee), set up a small development office somewhere in the USA, and spend $5 million per year aiming at mobile life after Microsoft. By tying hardware and software as Apple has done with the iPhone and iPad (and Google, by definition, can’t do) Nokia can head Apple off at the pass with the equivalent of the iPhone 7, three years from now.

That’s what Nokia should do, but of course by then Elop will already by gone.

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Nokia today announced that the Finnish cellphone company is choosing Windows 7 Phone as the operating system for its future smart phones. It’s not a surprising move given that Nokia CEO Stephen Elop came from Microsoft and it’s not even that risky a move given that the alternative was a slow but certain death for Nokia smart phones running Symbian and Meego. Sure Nokia could have gone with Android, but Google has less at risk than Microsoft so Redmond had much more to offer. The only real question here is whether Nokia can make the new strategy a success?  I think they can, but there is only one way to do it — by rushing the net.

I’m no tennis player, but my understanding of this tactic (rushing the net) is that you hit deep into your opponent’s territory using a lot of topspin to make the ball harder to return then run right up to the net and attempt to slam his return shot into the forecourt while your opponent is still in the backcourt and unable to reach the ball. The Nokia version of this tactic would be to introduce the best-ever Windows 7 Phone (faster processor, better screen, expanded services, competitive price) then simultaneously introduce  another line of Windows 7 phones that have 80 percent of that capability for 20 percent of the price.

Nokia has already lost the elites but they have to make a credible showing toward the top of the market to stay in the game at all. This is one of those instances, though, where the company really can make it up in volume. They have to essentially cannibalize their own feature phone business to save the smart phone business.

Think about it. The life expectancy of a mobile phone is 18 months, meaning phone users are literally forced to change on a regular basis, often switching platforms in the process. Even buying another phone from the same vendor is a decision because the phones change so much in that time. That’s what makes the mobile handset business such a bloodbath where Motorola can be on top one minute with its Razr then a dog the next with the same phone. Phones are getting ever more powerful, too, thanks to Moore’s Law and the many cloud services coming online. So a Nokia decision to lean-into smart phones at the expense of feature phones is really just a decision to accelerate the inevitable.

Feature phones have one generation left to live. Three years from now every mobile phone will be a smart phone.

To embrace this, however, means going aggressively down-market. Apple has done this with the $49 iPhone 3GS. Nokia needs to do the same thing only even more aggressively. They need a $29 smart phone.

Here is the transition we are likely to see. Cheaper smart phones are coming. There was a story just this week about Apple announcing a cheaper smart phone this summer. I can see it now: at the WWDC in June Apple will announce the expected multi-core, 4G, international-ready, whiter-then-white, 1.2-GHz iPhone 5, but the “one more thing” will be a repackaged, smaller form-factor, $29 iPhone 3GS. Nokia has to not only have a response to this move by Apple, they must preempt it with an earlier announcement of their own.

Nokia (and Microsoft’s) survival in the phone market is dependent on staking out the lower end of the market where people buy on price as much as features and brand loyalty is less of an issue. Apple is heading there and Android is there already. Only by rushing the net — by following the time-honored Microsoft technique of throwing bodies and staggering amounts of money at a problem in a market-changing way — can these companies remain relevant in the mobile space.

But they have only one chance to make it work and they’ll have to take that chance before June.

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Near the eve of Apple’s tablet announcement, I’d like to turn my 2010 predictive eye again to the mobile space where, as my title suggests, there are only three software players that matter — Apple, Google, and RIM (Blackberry).

But wait a minute, isn’t Nokia the big Kahuna in this space and aren’t they right now suing the heck out of Apple? Yes, but that’s an act of desperation, a stalling tactic intended just to slow Apple down or, possibly, send some useful license revenue from Cupertino to Finland. It doesn’t change the inevitable.

So-called “feature phones” are going away, to be replaced within two product cycles (three years, tops) entirely by smart phones driven by mobile app stores and the need for carriers to generate additional revenue. It’s not like you’ll even be able to find a feature phone to buy.

The smart phone marketplace will consolidate around three operating systems — Android, Blackberry, and OS X. Though there will be some ups and down in the market and the complete transition will take longer to complete than my usual 12-month timeline, Symbian, Windows Phone, and every other smart phone OS that isn’t from Apple, Google, or RIM, are likely to die or be reduced to insignificance.

None of these platforms expect to die, but that’s the way it is with these things. You don’t expect to lose until you’ve lost, generally.

On some level Nokia even thinks it still has a chance to win the war, but it doesn’t.

Nokia has faith in its very popular cross-platform application development environment, Qt, which it acquired in 2008 with the $153 million acquisition of Norwegian company Trolltech, father of Qt. Nokia sees Qt as its secret sauce — a potent weapon against Apple.

Qt, like any of a number of 4GLs can write once and deploy a lot of places. Where Qt is different from the other 4GLs (in the mind of Nokia at least) is that it manages to do what it does without killing app performance, probably because Qt began as a mobile product and mobile apps have to be lean and fast.

So Qt is growing up at just the time applications and OSes are growing down, thanks to OS X and the iPhone. Qt has made notable progress supporting 3D apps and a huge variety of processors, chipsets, and GPUs. They showed at CES the same apps running from the same source on a ton of different hardware platforms from handsets to desktops to set top boxes. And now Nokia has reportedly done the unthinkable, which is to rewrite Maemo, its Linux, in Qt.

Meanwhile, Apple has been rolling forward with its PA Semi strategy, the first fruit of which we’ll apparently see announced next week. I sense that Apple is headed toward a family of devices from handhelds to servers all linked to a cloud and ostensibly running the same OS. Apple is mining the ARM ecosystem for this move in addition to its own PA Semi extensions.

Nokia thinks that, through either Qt or various legal moves (or both), it can slow Apple’s mobile juggernaut. They won’t, and here’s why.

Apple hires the meanest lawyers it can find, paying extra bucks for that “kick them for good measure” attitude. I know a company that had long legal battles with both Microsoft and Apple and they said Apple’s legal team was far worse than Microsoft’s, hands down. So while Nokia’s appeal to the World Trade Organization (WTO) to punish Apple, is an act of desperation, Apple’s similar response is just the way they do these things.

This legal situation is going to get uglier and uglier but in the end it will be settled with patent cross-licensing, no monetary damages or license fees, and Nokia feeling relieved to get out of the negotiating room alive.

This will happen, I believe, because Apple doesn’t really give a damn about Qt or Nokia. They care much more about Google and Microsoft.

Nokia is going to fail in using Qt and Symbian to compete with Android or iPhone application frameworks because Nokia just doesn’t understand software. Nokia is a hardware company that does software and hardware companies aren’t fighting this new war, they just build the weapons.

Remember Apple is a software company that sells its products in an expensive hardware box.

Ultimately (more than 12 months from now) there will be a shakeout and Nokia will drop Symbian and even Maemo in favor of Google’s Android and Nokia custom apps, UI, and hardware.

Meanwhile Microsoft will cut its rumored (and incredibly expensive) iPhone search deal with Apple, then it will introduce Windows Phone 7, which will fail to gain market traction for Redmond. Microsoft will ultimately align with Apple to avoid the embarrassment of working with Google, but this alignment will be solely for mobile.

That is unless Microsoft buys RIM and then doesn’t screw it up.