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The Problem With Nokia

I was only half right. In a March 2009 article, I warned that {complink 3847|Nokia Corp.} was “vulnerable to a maturing mobile market” and that “rapid technological change is increasing the sophistication of consumers worldwide,” meaning Nokia needed to respond quickly to competition from high-end smartphone makers and low-end suppliers in China.

As it turned out, Nokia is indeed extremely vulnerable, but not because the mobile phone market is maturing (that's where I was wrong) but essentially because the company had failed to respond quickly to a rapidly changing landscape. I got that one right. Nokia needed to transform quickly to become a “total connectivity solutions provider,” I wrote.

In other words, like {complink 379|Apple Inc.}, it must develop a vibrant ecosystem that can help it become a stronger player in its market. Nokia failed to do that and now faces an uncertain future, according to CEO Stephen Elop in an internal memo that was leaked to the press.

It bears repeating. The mobile handset market is far from maturing. In fact, it has gained a new lease on life courtesy of Apple, which has surged from zero market share to now rank as the No. 3 vendor of mobile phones and the fastest-growing player in that high-end market. In 2010, mobile handset shipment for the first time eclipsed PC sales, according to {complink 7014|IDC}. Nokia, meanwhile, is losing ground to new and old players at all levels of the market. It has a leading but fast-eroding market share; offers no truly compelling product worthy of drooling over; and still churns out clunky devices encased in an operating system worthy of the Stone Age.

If you think I am being harsh on Nokia, then you haven't read what Elop had to say about the company. Before we dive into that, though, consider what the equity market — the arbiter on competitiveness and profitability — has to say about the company. Today, Nokia's market value of $41.4 billion is a fraction of Apple's $331 billion. The two companies' sales are also heading in different directions. In fiscal 2007, Apple's revenues of $24.6 billion were less than half of Nokia's $69 billion (current exchange rate).

As of the end of their last fiscal years, Apple had surpassed Nokia in sales. The Cupertino, Calif., company recorded sales of $65.2 billion for the fiscal year ended September 25, 2010, compared with Nokia's $57.8 billion for the calendar year. Granted, these are not directly comparable periods, but the trend is obvious: One company is moving on up while the other is foundering, trying to reclaim old glory.

CEO Elop in his memo to Nokia's employees starkly detailed the challenges facing the company, what he believes it had done wrong, and the way forward. That memo will go down in high-tech history as the “burning platform” missive. Elop said the company had been on a burning oil platform rig and must jump into the frigid water below. That analogy is painful, but it reflects the unfortunate reality facing Nokia. Will it survive the plunge?

Elop will on Friday, February 11, lay out his plans for rescuing Nokia. We will dissect his vision here. In the meantime, here are excerpts from his memo.

    I have learned that we are standing on a burning platform. And, we have more than one explosion — we have multiple points of scorching heat that are fuelling a blazing fire around us. For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

    While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind. The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

    We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market. At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

    At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us. And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

    The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

    This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time. Consumer preference for Nokia declined worldwide. How did we get to this point? Why did we fall behind when the world around us evolved?

    I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.

    We are working on a path forward – a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But I believe that together, we can face the challenges ahead of us.

To read the full transcript on the Financial Times Website, you may click here (registration required).

22 comments on “The Problem With Nokia

  1. eemom
    February 10, 2011

    Business 101 dictates that a leading manufacturer needs to continue innovation and be wary of competitors that are looking to overtake the market.  Nokia did not let that happen once but twice, first with the iPhone then with the Android market.  I am glad that the company is looking to find a come back strategy, however, my question is: Where have they been? 

    Everyone knows that once you get on top, you have to work harder than before to stay on top.  Is Nokia's move too little too late?  Companies like Apple are not going to stand still and let Nokia catch up.  Nokia has to leapfrog Apple and other leading manufacturers to re-establish itself.  With the internal problems the CEO outlines, I am not particularly hopeful but I do wish them success.  I look forward to further “dissection” of this.

  2. Anand
    February 10, 2011

    Its true that NOKIA lost heavity to APPLE but i feel this problem is the self creation of NOKIA. Till last year NOKIA was in very firm position both in smartphone market and low end market. But the biggest mistake that NOKIA did was sticking to symbian OS. I think this was one decision which has hit the company very badly. Other smartphones like Samsung Galaxy which adopted Android as OS did very well in the market. I am not sure if NOKIA has still got time to rectify its decision to stick with symbian, only time will tell.

  3. bolaji ojo
    February 10, 2011

    CEO Stephen Elop's comment while directed to the employees is a major indictment of Nokia's previous management. They saw the train wreck coming and were unable to avoid the disaster now unfolding. I fully expect he will announce a strategic shift at the company's event on Friday.

    Nokia, though still leading the market, is now at the same point Motorola Inc. was about five years ago when it failed to respond nimbly to the changes taking place in its market. It was clear Motorola was cruising on its past performance and needed to radically change its strategy. It didn't and the company paid dearly for the error.

    Nokia may still avoid the same fate but as you noted, the momentum may be against the company. If you poll consumers for the most innovative companies in the mobile handset and wireless tablet market, Nokia is unlikely to be one of the top mentions. This, despite the fact it spends more on research and development than many of its rivals. If my company supplies components to Nokia today, I would be very worried.

  4. Barbara Jorgensen
    February 10, 2011

    Spot on comparison with Motorola. If anything, Nokia will have to move faster than Moto–I don't think it has five years to right the ship. Like Motorola, though, Nokia has a reputation for quality that it may be able to revitalize, assuming it revitalizes its product portfolio.

  5. jbond
    February 10, 2011

    Nokia has limited time to right the ship. The previous management sat by while Apple and Droid phones took over. Nokia needs to look two steps ahead of Apple. The Iphone 5 is due out later this year already. In the ever growing market of smart phones, the minute you buy something new it's replacement is already being developed.

    For Nokia to not go the route of Motorola, they need to introduce something bold and innovative and take the leap of faith that they are going down the right path.

     

  6. DataCrunch
    February 10, 2011

    It is refreshing to hear a CEO be direct about its company’s problems.  Nokia will have to move beyond Symbian and perhaps utilize other OS platforms, such as Android and Windows Mobile.  From a software developer perspective, programming on the Symbian platform is much more complicated than the competitive mobile OS platforms.  On a positive note, Nokia still has a very large worldwide market share, although it may be declining.    I agree momentum is against the company at the moment, but you can say the same thing about Apple years ago too.   It’s Nokia’s market share to lose at this point.

  7. itguyphil
    February 10, 2011

    I think they're beginning to head in the right direction. The letter to employees from the new chief is motivating and shows that his 90-day plan is probably the start of some BIG changes that absolutely need to be made.

  8. Parser
    February 10, 2011

    I really liked Nokia cell phone, which I was my first one I had owned many years ago. Then came RAZR by Motorola and I could not resist the Apple iPhone even the first model. Looks like over the years large companies acquire corporate inertia to innovation. Is it because previous success blinds management to do any changes? There could be some other reasons. It is sad but one can be extrapolated that Apple is due to this phenomena. I am wondering if they figure out how to avoid it? 

  9. Mydesign
    February 11, 2011

       It seems Nokia had understood their fault in marketing strategy and where they are now. As a part of capture or retain the market segment CEO comes up with a road map. Good. Initially users have only limited options like either Nokia or alternate models from (LG/Motorola/Samsung etc). So majority preferred nokia and hence they gain a huge market share in the basic mobile phone segment. Later when mobiles become a multipurpose device (Video, net, camera, PDA, FM, Music etc) or needed for 3G/4G service, competitor came with advance mobile device having all this features.

       In that case, I think nokia had delayed a little bit for their entry in to the advance segment. When users searched for a device having all these features and compactable for 3G/4G operation, selection from nokia is limited and hence preferred for other brands. That is competitors like (RIM/LG/AT&T, T mobile etc) provide new devices having advance features than nokia. At the same time, new comers in basic mobile segment having Chinese links, provides devices with lower cost and more features like dual sim, camera, fm etc. So in contrast nokia failed to retain their basic segment market share and to build up a portion in the advance segment.

       Hope the road map of CEO will help NOKIA to retain its market share. Meantime they can also have some innovative changes in their designs, OS and features, in order to make the device more attractive and user friendly.

  10. elctrnx_lyf
    February 11, 2011

    It is very clear that Nokia didn't see what was coming in terms of the complete eco system for mobiles. They always concentrated on new models and many models. How the new Nokia CEO is going to handle this? Will he actually going to develop entirely from scratch to develop the complete software for the ecosystem or will he go out and buy a few companies to launch some thing with the software services support in next two quarters. If nothing is done then probably it is again a fall like what we’ve seen with Motorola. This simply shows the electronics is not that powerful without good software applications.

  11. DataCrunch
    February 11, 2011

    Nokia and Microsoft announced today a strategic alliance, in which Nokia will use Microsoft’s Windows Phone operating system on their smartphones.  This move is an obvious attempt by both Nokia and Microsoft to regain market share in the mobile space, specifically from the iPhone and Android market.

    This is a bold move for Nokia, which has based its devices on the Symbian OS in the past.  This partnership seems to be a smart move for Nokia and an overall shift in strategy, and perhaps an even smarter move by Microsoft, which now will have a huge market opportunity to have devices running it mobile OS.     

  12. Hawk
    February 11, 2011

    Dave, I would like to be as positive about the changes Nokia has made as you are but I can't help but feel this move is going to confuse a lot of people. This represents a major shift at Nokia and it will impact the company internally and its external support teams, partners, suppliers and independent developers. If you were working on an application for Symbian until this morning you would have to junk it and start on Windows OS for Nokia even if the uncertainty surrounding the platform complicates your plan.

  13. itguyphil
    February 12, 2011

    Check out this analysis:

    http://www.infoworld.com/t/mobile-platforms/nokia-jumps-the-windows-phone-abyss-250?source=IFWNLE_nlt_wrapup_2011-02-11

    They seem to think this shif tin strategy will be a no-win situation for Nokia. I am a little skeptical but I'll wait and see what happens in the next few months.

  14. DataCrunch
    February 12, 2011

    Hi Hawk, Symbian is a cumbersome platform to develop in and I would believe adopting a more common platform like the Windows Phone OS would provide Nokia with a ready-made application market for both enterprise and consumer users.  Also, from what I have read and heard, porting iPhone apps to Windows mobile OS is a pretty smooth process.  Microsoft should not be discounted just yet as a serious player in the mobile space.       

  15. saranyatil
    February 13, 2011

    I agree with you electronics will be better functional only when we add good software which goes on like software forms the backbone for electronics. i definitely don't think the new CEO will start of from the scratch it will pull down the sales of Nokia.

  16. seel225
    February 13, 2011

    Nokia's move to use microsoft Os for their smart phones is a good intiative. In coming futrue, nokia's plan and strategy may increase the sales across the globe. Nokia's ceo message 'burning platform' indicates some sort of new plans and transformations in the design of smartphones.

  17. Mr. Roques
    February 13, 2011

    I'm not sure the Microsoft + Nokia partnership is the right thing for Nokia. Microsoft is the clear winner by adding the biggest mobile manufacturer but what's in it for Nokia?

    They are trying to go double or nothing… for me, they should have partnered with Google who is the clear Apple competitor. But they want to bring Google and Apple down, both – crazy!

    Maybe I'm wrong and they couldn't partner with Google but, seemed logical to me.

  18. bolaji ojo
    February 14, 2011

    Dave, Microsoft's hands have been strengthened with the Nokia deal. They are the clear winner here, if any. Until now, they were lagging other mobile OS vendors but Nokia will help them leapfrog perhaps even Apple. Microsoft's CEO Steve Ballmer is happy with the deal. Why won't he? Last year, Nokia sold 100 million smartphones. When they get this deal rolling and products out, most of Nokia's new smartphone sales will feature Windows OS. Developers, naturally, will rush to support these new products. Microsoft scored big but, I insist, how will Samsung, HTC and other vendors who had products using Windows OS react? That's a major unknown but the answer will come soon.

  19. t.alex
    February 17, 2011

    Is it really true porting fro iPhone to windows is a smooth process? I believe the OS is different and so are the APIs.

  20. bolaji ojo
    February 17, 2011

    t.Alex. No. Moving apps from Apple iOS to Windows 7 won't be a cakewalk. I bet most developers would rather begin the process anew than try to modify apps headed for iPads/iPhones for Windows 7 devices

  21. t.alex
    February 26, 2011

    Yep. That's the main reason why Apple maintain its own OS for so long and Microsoft share in the OS market is staggeringly low.

  22. hwong
    February 26, 2011

    It seems Microsoft is so happy that they gain a significant market share in the traditional cell phone business and Nokia is also happy that they find the traditional cell phone platform. It just seems to me Microsoft's phone 7 is not any better than Nokia's Symbian and Nokia's smartphone hardware quality is just below average. Any one can see how two ordinary components can become extraordinary product that is going to come out late and compete?

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