Despite a poorly planned N97 and the continued explosion of the iPhone user base, the loss report is still a shock. A 66% earnings loss is more than just recession-grade economics, though the global economy certainly amplified things. Nokia also reported a sales decline of some 25% and a shipment decline of 15%. The company also recanted their goal to gain market share this year.

Nokia’s CEO, Olli-Pekka Kallasvuo, said his company “put in a solid performance in what was another tough quarter.” I’m not sure how tumbling earnings look “solid,” even in a bad market. And how long can they continue to make that same, solid performance? As mentioned above, some analysts are saying Apple, of all companies, will catch Nokia as early as 2011 with a 33% market share. By 2013 these same market research types believe Nokia’s share will have dropped to half their current, from 40% to a meager 20%.

I doubt things are quite that bad, but they’re getting close. Make no mistake, Nokia is bleeding – slowly for now – and if they don’t revise their product strategy and start delivering decent phones for every market (yes that includes the US) it’s just a matter of time. Meanwhile, nothing can sate Apple’s hunger, and when the iPhone finally breaks from AT&T exclusivity, the stateside smartphone market is going to be a mess.

What could help Nokia win back some much-needed market share? Do they need a touchscreen, or just a smarter-than-iPhone smartphone with a decent app catalog? Sound off in the comments.

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Then the iPhone came out and sold millions, spurring competitors to make their own touchscreen wonderphone. We’ve now got the Blackberry Storm, the HTC G1, the Palm Pre, the Nokia N97, and the Samsung Jet, all running on a different operating system. While the manufacturers tout the hardware features that make their phone the best (physical keyboards, a screen that clicks, a camera with a flash), consumers are starting to look to the software that runs the phone, and the applications they’re finally able to install, to make a decision.

Apple has been most successful with third party application sales and support due to their App Store, which opened in mid-July, 2008. Since release, the App Store has seen more than a billion application downloads and now showcases more than 50,000 third party applications. From games to translators, finance tools to ereaders, the Apple App Store has an app for almost anything, leaving its competitors lagging far behind.

It’s taken nearly a year for competitors to get their mobile application stores up and running, time during which Apple has continued to lure consumers with the promise of a robust app catalog. As Business Insider points out, consumers aren’t just investing in a phone, they’re investing in a platform, with application quality and quantity as a major component of that investment. In a similar article, BI adds that time users spend with applications is replacing time spent on the web. Apps like Yelp allow users quick access to restaurant reviews, where before they would have been using Google.

This isn’t just good news for Apple, it’s an important statistic for developers. As more and more users turn to applications, developers are making decisions about which platforms to support, and which to ignore. Though there’s no direct competitor to Apple’s App Store, other platforms have made a decent start. Google’s Android, for instance, has nearly 5,000 applications, which puts them at a 5:1 advantage over their closest competitors, Nokia and RIM’s Blackberry. Palm, which launched the Pre in early June, has a meager 30.

As I mentioned earlier, though, it’s not just quantity that counts, so Palm may not be out of the race. Application stores are continually adding features, like the ability to recommend apps to friends. The best apps are sure to see increased traffic as it gets easier to share your favorites.

There’s also ease of development to consider. Developer support for the iPhone has been mostly good, though the application approval process can be a bit unclear, which could frustrate some developers away from the platform. WebOS, which runs the Palm Pre, is based on web technologies like Java and HTML, meaning developers already know how to write for the phone. They just need access to the SDK.

Lastly, developers have to think about upgrade paths. While WebOS may offer a familiar development language, what will the upgrade path look like in 3 years? Will the next WebOS break current applications? Will WebOS still be around? I would love to say yes, but it’s hard to bank on something like that when WebOS is a first-of-its-kind OS from Palm. They may reverse their thinking on the platform come their next major hardware release.

However young, the application marketplace is extremely volatile, and it will have an ever greater effect on consumer choice as store offerings grow. Can the Palm App Catalog keep the Pre alive and well? Is Windows Marketplace a mistake? Is Android the way of the future? I’ll be following all the latest developments here, so be sure to check back often.

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The N97 comes in at a whopping $700. Of course, that’s outside contract, which serves to explain the price. Plenty of cells, including this year’s big launches, would sell for that amount if purchased without a contract. The problem, for Nokia at least, is that American consumers are so conditioned to contract subsidized pricing that $700 is going to feel like a swift kick to the groin.

Feature by feature, the N97 closely matches the Palm Pre and the iPhone 3GS. It’s got 32GB of internal memory, a multi-touch touchscreen, and a slide out QWERTY keyboard. Nokia has said on several occasions that they would like to be more competitive in the U.S. market. How they hope to do that with phones at more than double the major carriers’ premium prices is beyond me.

You know what they say, though; freedom isn’t free, but aside from the folks who really despise contracts, I doubt you’ll see many N95s in hand this summer.

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