The Nokia Challenge

With all the grandeur surrounding the new Nokia Lumia 900 Series with AT&T, it is an exciting time for both Nokia and its primary partner Microsoft.  Apple co-founder Steve Wozniak even bought one and has posted some glowing comments about the phone.  He said the UI is very beautiful and then followed with the comment that they must have hired some Apple folks to design the UI.  Not sure that is a compliment but we will leave it be. But despite all the positive reviews I find myself seeing also signs of distress.  The lack of applications is bit distressing.  It was a primary reason Walt Mossberg shot down the Windows phone.  He also had some performance issues.  But to be honest almost of the issues can be overcome with a sustained long-term approach.  My biggest issue is really with Nokia.  And to be more specific with their CEO and former Microsoft Exec, Stephen Elop or so I thought until I saw some of the data.

I was at Microsoft when they hired Mr. Elop and during his short tenure there he proved to be an effective and engaging leader of the Microsoft Business Productivity division which is just Microsoft corporate code for Office.  He was only at Microsoft for a little over two years.  He then took the job as CEO of Nokia,  Shortly after starting he wrote the eloquent but brutal “burning platform” memo.  Anyone who has followed Nokia knows well they have fallen from grace as the mobile leader to losing market share on a regular basis.  They were committed to Symbian as their OS of choice even as the world was moving to iOS and Android.  The memo has been lauded as fantastic, much-needed, brutally honest etc..I would agree but my one issue is if you are going to release a memo like that to both your employees and the world you had best have a plan of how you are going to get out of it and right the ship.   To be fair Symbian market share in the mobile OS world was diving fast, having been over 50% in Q2 of 2009 to under 12% in Q4 2011.

By February 2011 Nokia announced its partnership with Microsoft to use Windows Phone as the default OS for Nokia.  Though they claimed they had already made significant progress on a Windows Phone it would be nearly a year before the fruits of this partnership would come forward.  In the meantime anyone with a Nokia mobile phone needed to get a new phone, ideally a smartphone and they then went elsewhere.   It goes back to some fundamentals which is don’t state a problem without a solution.  It reminds me of when Novell said they were selling WordPerfect.  The problem was they did not have a buyer   Therefore they ended up selling at a bargain basement price.  That may be a good analogy, Nokia the WordPerfect of the mobile industry.  Back in the day and it still exists today, Microsoft could delay the market with a Windows upgrade.  It was the default leader with not a lot of other options for the leader.  Even at its peak Nokia could not do that.  The mobile industry was never “owned” by anyone.  Delays in the mobile market mean consumers have time to go somewhere else.  Nokia’s was not so much a delay as they just needed to build their own Windows Phone, but it took a year and that was plenty time for consumers to go elsewhere.  Today’s consumer is not used to waiting.

If Elop has one flaw it is that he is what I call a very functional leader, so he understands the process of technology and how to run a tech company, but he came at a time when Nokia needed a visionary leader Elop did not fit the bill.  I do not envy what he inherited.  When I started writing this piece I thought I was going to skewer Mr Elop, but as I researched the data I quickly understood the desperate situation he inherited.  Though Nokia had sold smartphone’s since the beginning on Symbian and had tried various music services, app developer programs, and created the cool phone, they were never in the same league as Apple, in fact they were not even close.  The biggest threat any market leader has is when the playing field changes.  That is why Microsoft is desperately trying to keep the PC at the center of the universe, otherwise their world will crumble.  By the time Elop took over the reigns at Nokia the train had long left the station and he saw global market share creeping towards single digits.

You also have the issue of Finnish national pride.  It was a great ride for Finland this past twenty years.  Their native son Linus Torvalds created the Linux OS and really more than anyone introduced the world to open source software development. Second an old company that got its start in the lumber industry revolutionizes the world with its mobile phones and accessories.  Now you have someone come and say “You guys have really screwed up”.  A harsh truism.  Though I have not been to Finland I have spent a significant amount of time in Scandinavia.  One thing about the Nordics is when they have success they are extremely proud of it as all Nordic countries have rather small populations and not a lot of global industries.  They rely a lot on their creativity (given the high tax rates they have to..a joke with a lot of truth’s)..  With the move away from Symbian a lot of talent is leaving.  Where as most of the Symbian work was done internally most of the Windows Phone work will be done in Redmond.

As of this latest writing Windows Phone market share has managed a little over 3% global market share but with Android Ice Cream Sandwich on deck and a new iPhone release sometime in the summer Nokia could be facing a challenge of just trying to keep their head above water.  Apple to its credit does not need to say a lot to generate a lot of industry buzz.  Simply look at the success of the iPhone 4s.  Google has done well to create a huge ecosystem that can compete with Apple as well as have a very strong partner in Samsung.  The other challenges Nokia is losing money and market share and the stock is dropping.  How long before Nokia shareholders lose faith in the current strategy and call for Mr. Elop’s ouster?  Which beckons the question of how strong would a Microsoft-Nokia partnership be post Elop?

Good Night and Good Luck

Hans Henrik Hoffmann May 8, 2012

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