This blog does not treat everything Stephen Elop does as Nokia CEO as inherently wrong. I have supported enthusiastically some of his early decisions when he came to Nokia. I have been critical when I see mistakes, and I have been open about when I think Elop (and/or Nokia) has made the right choices. I concluded last summer that Elop's tenure was so full of mistakes that he is unfit to run Nokia and must be fired. But even after that, I have noted whenever he has made good choices, such as reinstating some of Nokia's long-standing features and abilities on phones (like second cameras, removable batteries, microSD support, TV out etc) and on Nokia strategy when for example Elop reversed his stupid decision to go to purely numbered phone names. Now we have Ashas and Lumias and PureViews and no doubt more named phones coming up in the future.
If only Elop could start to manage Nokia intelligently, with some sense and responsibility, I could stop the occasional critical blog articles about Elop's bumbling. But once again, at MWC in Barcelona last week, Elop was up to his usual madness, promising moronic strategies for Nokia. I am referring to his interview to Tech Crunch, which you can see at this link - and there are written summaries of his major points if you don't want to watch a video interview of Nokia's CEO talking about Nokia's future.
FOUR NEW STRATEGIC BLUNDERS
So, last year Stephen Elop caused the costliest damage to any market-leading brand in any industry ever with a pair of idiotic communications from Nokia. He issued the Burning Platforms memo, so full of mistakes that he has since walked back a dozen of the major assumptions, statements and major errors in the memo - nonetheless, that memo caused billions of dollars of damage to Nokia. This was akin to the infamous Ratner Effect. And Elop compounded his memo mistake, with the crazy timing of his announcement of Microsoft as partner, when he had no smartphones to sell, and when Nokia was not even going to release smartphones on the then-current version of Microsoft's Windows Phone OS. This was similar to the devastating Osborne Effect. The collapse in Nokia retail sales added to Nokia's billions lost in revenues and profits. Highly profitable Nokia Corporation just before those two announcements went into the red by mid-year and is producing losses still today.
I was among many who called out Nokia immediately on the strategic blunder of those two communication errors. I have since called the combination by Elop of the Osborne Effect with the Ratner Effect as the costliest management blunder of all time, and it now has a name: the Elop Effect. Obviously Elop himself has admitted that the effects to Nokia were far more damaging than he had anticipated (this alone is reason he should be fired) and Nokia's 34% market share for all of 2010 - when Nokia sold more twice the number of smartphones as Apple's iPhone - is now down to 12% by Q4 when Apple is almost twice as big as Nokia. Nokia was growing unit sales, growing revenues, growing average prices and growing profits just four quarters ago, in Q4 of 2010, the first Quarter with Elop fully in charge. Since then Nokia has seen collapsing unit sales, crashing revenues, dropping average prices and Nokia has swapped growing profits for growing losses in its smartphone unit.
How will Elop fix this? He told the Tech Crunch interview that Nokia was expanding its product line in the Lumia series powered by Microsoft Windows Phone. I have been most critical of that strategy in the past, and I explained as recently as February why even with its upcoming flagship smarpthone the Lumia 900, the Nokia Lumia strategy is failing and will not save Nokia. So this was not news. I understand Elop has to 'believe' his strategy no matter how doomed it is, Elop has burned his platforms explicitly with Symbian so he cannot go back anymore. No matter how much Lumia will damage Nokia, Elop is now committed to it. And this blog is not a repeated criticism of Lumia and the doomed Microsoft strategy. I am addressing four new statements of Nokia direction that Elop made now last week in Barcelona.
Stephen Elop said that Nokia was investing in the Nokia Reader and did not reject the idea of a Nokia branded eBook reader like Amazon's Kindle. When asked about proper tablet PCs like the iPad, Elop said "This is something really interesting to us." Then when asked about the next big thing for Nokia after this camera on the 808 PureView, Elop said "A big part of our strategy going forward will be location-based services." And finally, about Nokia's product portfolio and comparing it to the single-device strategy by Apple's iPhone, Elop said "We will be a lot more pared down going into the future. Its not a single device strategy, but there will be paring down."
These are all utterly mad strategies for the market leading handset manufacturer that is the market-leadering mobile phone handset brand on five of the six inhabited continents, and intends to recover its market leader position also on the sixth (North America) where consumer and market needs differ considerably from the rest of the world (being less advanced and needing more simplistic less sophisticated handsets, and where the carriers/operators set very high demands for customization and where carriers/operators often demand that particular features and abilities are stripped from standard phones). But lets examine each of the four stated strategic missions for Nokia and why they are wrong.
eREADER IS CRAZY
Elop did not commit to producing an eReader device like the Kindle. But Elop did not deny that either. Why is the Kindle successful? It is manufactured and sold by the biggest bookseller on the planet, as a super-optimized ebook reader. What is Nokia's Reader? It is (initially Symbian based by the way) eReader software so that smartphones can be used to read ebooks. Is that smart? Yes, that is smart. Is it yet another sign that Symbian was not dead, that this came to Symbian before Windows Phone, obviously. Is it good for Nokia to expand the market for its smartphones, whether on Symbian or Windows Phone or MeeGo, to be used occasionally to read ebooks, yes. But would Nokia be smart to produce an eBook reader? It would be a moronic move. Amazon is able to sell the Kindle because we already go to Amazon to buy our books and our ebooks. The Nokia (ex Ovi) store is not known as a major bookstore. Nokia's mobile phones are sold through custom mobile phone stores, ie carrier/operator shops and specialized handset stores like Carphone Warehouse. These are not offering eBook readers. The customers are different, the services (content) is totally different, there is no synergy between Nokia's existing sales organization, and the actual physical distribution is totally different. Furthermore the market sizes are completely different. Smartphones alone sell more than all types of computers combined (including yes tablet PCs) - even if we toss in Kindle eBooks to the pile, smartphones outsell the lot. And Nokia sells basic featurephones 6 times more than Nokia branded smartphones. What Nokia needs to do, is to market its primary goods efficiently, smartphones and featurephones - and bring the smartphone unit back to profitability, not waste any R&D effort into designing a 'better eReader than the Kindle'.
TABLETS EVEN WORSE
And yes, lets be fair, Elop did not explicitly suggest he is planning an eReader. But when asked about Tablets, he said he was 'really interested' in them. Really? Nokia to try to out-Apple on the iPad? Ex-squeeze me? Now. If you are a PC maker, and you see that the future of portable computing is headed to smartphones and tablets, it makes a lot of sense for a PC maker (like Apple) to launch a tablet PC. Makes perfect sense. In fact, makes more sense to launch a tablet for any notebook/netbook maker, than to launch a smartphone, because a tablet PC is more similar in every way to laptops and netbooks, than smartphones are.
For any handset maker, to launch tablets is utter madness. Witness Motorola and RIM. Tablets are a tiny market niche compared to all portable PCs which are a part of all PCs which are a smaller market than smartphones. Smartphones are bought, used, sold, marketed in similar ways to other smartphones, but tablet PCs are bought, used, sold, marketed in totally different ways to smartphones - in similar ways to PCs. So with tablets, we don't buy them at handset stores (even though a few are typically offered). We tend to buy our tablets at PC stores. The king of the hill in tablets is Apple with about 75% market share with the iPad. The rivals who have tried to compete from the smartphone side like Blackberry, have failed miserably. The only rivals who have had some success have been like Samsung who were PC makers already and had that sales channel already.
Any Nokia branded tablet would fall into the aim of the iPad. Can it be as good, of course not. Nokia has tried for five years now to match the iPhone and while the N9 with MeeGo came close, no Nokia smartphone, not even the Lumia 900 has matched the iPhone. Why would Nokia's tablet be better than the iPad. Of course it would not be. And where are the Nokia stores to sell them? Nokia abandoned its retail flagship stores. Nokia does not have any relationship with the PC sales channel. Why on earth would it invest any R&D to try to sell a new electronic gadget where the market is tiny and utterly dominated by Apple? This is madness.
The right strategy, is to take the N9 and N950, running MeeGo, the most desirable most highly praised Nokia smartphones ever, on Nokia's best OS platform ever, that already are in production, and immediately expand their availability to every Nokia market. Remember the German magazine who loved the N9 and MeeGo so much, it instructed its readers to drive to Switzerland or Austria to get their hands on an N9 (rather than buy the disappointing Lumia handsets sold in Germany at the time). Or see how the Guardian reported on how disgusted it was with the Lumia 800, that it was returning the handset. Nokia problems are not that it cannot make a desirable product. Nokia problems are that the CEO pushes an undesirable product on its customers and refuses to give the desirable product. That is why Nokia is making a loss in its smartphone unit. As we calculated here, even with no Nokia marketing support and selling only in far-away bizarro markets, the N9 on MeeGo was outselling all Nokia Lumia smartphones in Q4 - the launch quarter for both platforms - and how much was MeeGo outselling Lumia? By 3 to 1. What idiot CEO talks about launching a costly tablet PC while he has a hit smartphone in his pocket and refuses to sell that?
And then what comes after the 808 PureView superphone? Elop said a big part of Nokia's strategy was going to be location-based services. What? AGAIN he is committing the same error he did time and again last year. Elop has fired all competence inside Nokia who had the legacy knowledge. He is now listening to Microsoft and West Coast based experts who may be good about the PC based legacy internet and know about things like steam engines and the fax and carrier pidgeons, rather than the Finland-based mobile experts who invented much of the mobile internet. The location-based market opportunity is not only an utter failure. It is only - get this - the worst-performing part of the mobile industry ever. The. Worst. Performing. Part. In this industry's history. Nokia knew this. Elop probably fired all the staff who know this. In the past decade, when the mobile industry grew customers by 500% and grew revenues by 250% - most mobile service concepts grew from zero to several billions of dollars in value. Location-based services? Gartner measured that only 2% of the planet's mobile subscribers were using any kind of location-based services ten years later. Abi Research found the total value of location-based services at a measily 560 million dollars globally in 2010. This is THE. WORST. PEFORMING. PART. In mobile. And here Elop wants to focus?
Mark my words, Nokia will fail miserably with this. Nokia's successes will come from other areas, not from location-based services. And Elop will have to eat those words too, like he did with so many from last year. This is sheer madness. Only a complete ignoramus would commit the company on this futile journey, wasting millions in that pursuit. Elop is once again acting like the ostrich. The facts are staring him in the face, he simply hides his head in the sand and refuses to see the truth. He is substituting his own imaginary world, in place of the truth. This is textbook delusion. It would not be so bad, if Nokia was a filthy-rich hugely profitable company, that it could indulge its CEO in some silliness, but Nokia cannot afford this. Nokia has to focus on areas where the industry is strongest (cameras, music, gaming, social networking, advertising, mobile money), not where it is weakest (location-based). Note - Nokia HAD strong initiatives in cameras, music, gaming, social networking, advertising and mobile money. If Elop had bothered to do what he was hired to do - help Nokia execute better - he'd have big successes out of those. But thats too much 'work' for Elop. He would rather throw all of Nokia's efforts away in the areas where it has invested in - and often has established a lead - and rather pursue some silliness. Oh, I remember, the Windows Phone cannot support the supercamera of the 808 PureView. Windows Phone doesn't support NFC that is needed on mobile money, etc etc etc.. So Elop is making decisions that are to Microsoft's best interest, even where it is damaging to Nokia's best interest. Whose CEO was he, again?
PARING DOWN PRODUCT LINE
And the last bit of madness is probably the most costly and permanent damage to Nokia profits. I wrote in January 2011, just before Elop announced his Burning Platforms memo and the Microsoft strategy, what was wrong with Nokia and how to fix it. Part of that blog are things Elop has now, with a lot of reluctance done - such as fixing mistakes in handset design philosphy (annoying existing customers and recognizing the needs of Nokia markets globally, like removable batteries, microSD support, close-up camera focus, etc). In that blog I argued vehemently that Nokia needed to re-establish its lead in camera (something Elop now did with the 808 PureView). And another point I made adamantly was that Nokia cannot pursue Apple towards a limited product offering. Ford and Toyota do not look at the highly desirable (and profitable) Porsche 911 and suddenly decide to go 'paring down' its product portfolio and focus only on a few sportscars. The exact opposite is happening in every leading and highly profitable company in every industry (except Apple with the iPhone, where Apple has clearly been leaving profit on the table, a frightening thought considering Apple is the most valuable company already on the planet). Porsche does not 'pare down' its products. It is still expanding. We have seen the launch of Porsche cars into SUVs and the formerly 2 door sports coupe maker now also makes the 4 door sporty Panamera. Aston Martin, you don't get more exclusive supercars than that. And Aston what have you done for me lately? They have gone from making V-12 supercars to also cheaper (still super-expensive) V-8 powered sportscars and have expanded to a 4-door model. I could go on.
An engineer will be tempted to think that he or she can design a perfect device. A marketer knows there is no such thing and that we humans have differing needs and wants, often even irrational needs and wants. The more you, the manufacturer, can support the variety of customers, the more you can make a profit selling a gadget to a segment of the market where there is no rival. That is exactly what Nokia did with the 808 PureView or what Samsung did with the Galaxy Beam (the smartphone with the pico-projector). Elop contradicts himself later when he says in the interview that Nokia needs to offer "different things for different people in different markets". That is NOT one size fits all. That is not Henry Ford's 'any color as long as its black' (NB he actually never said that).
Nokia is uniquely positioned to flood the market with the most broad product portfolio possible, in every form factor and color and feature set and price point. Nokia can use this competitive advantage to drive its competitors into loss-making! Nokia can win this way. But already before Elop, under Kallasvuo, Nokia moved away from this position - the one where Nokia holds a competitive advantage against all rivals. Now its Samsung which offers the broadest portfolio and who grew market share in 2011 and who lost? Who made a profit in handsets and who made a loss? Samsung has taken Nokia's winning strategy and now is gaining in size and growing profits. Elop has taken the losing strategy - so damaging that Nokia factories are now idling and some are being sold.
Look at the Lumia range. It now has 4 handsets. Not one QWERTY amongst the four. Always before when Nokia released flagships, one of the top phones had a QWERTY version - as 30% of smartphone buyers will not even consider a smartphone that doesn't offer a QWERTY option (according to Motorola). When Nokia released the N8, it offered the sister model E7 with QWERTY slider. When Nokia released the N9, it had the sister model N950 with QWERTY. But Elop prefers to anger existing Nokia customers and drive them to rivals. Even 'failing' RIM sold an increasing number of Blackberries in Q4 - powered by QWERTY. Where is the legacy of the E-Series? This is madness by Nokia, to even talk about 'paring down' the handset range.
The needs of teenagers are different from adults. Business/enterprise customers have differing needs from consumers. The needs of handset users in markets where they do not use the English language (or even the English alphabet) are different. The needs of handsets are different in markets where 3G has not launched yet. The needs are different in markets where most users do not have all-you-can-eat data plans. The needs are different in markets where there is no regular supply of electricity. Etc etc etc. Nokia was able to become the world's biggest handset maker - and the world's biggest smartphone maker - by offering the widest range of handsets through the largest delivery channel, being on most networks of any handset brand. That advantage was voluntarily abandoned by Kallasvuo before Elop took over. Now Elop looks at how Nokia is struggling and rather than use winning strategies, he decides to further pare down his portfolio. This is madness again.
I do not want to make this blog a regular series of hating Elop. But when he does something blatantly stupid, I have to call him out on it. And he is doing it again. Elop is actively destroying the company we used to love. We saw what Nokia is capable if Elop steps aside. The magnificent N9 on MeeGo. The exiled N950 also on MeeGo. Any sane CEO whose smartphone division is generating a loss, would immediately launch those two smartphones to every market. And the 808 PureView on that 'obsolete' Burning Platforms Symbian - so full of super-high tech that Windows Phone cannot even support. Yes, Nokia can come back, and could come roaring back, if the CEO stepped aside and just let Nokia be Nokia.
But Elop rather talks of eReaders and Tablet PCs. These are to the advantage of Microsoft but would be suicidal for Nokia. He talks of Location-Based services being now the next focus area for Nokia where for example Google says its number 2 priority is mobile money. Nokia already not only has Nokia Money but differing from Google, Nokia has already launched Nokia Money commercially in several countries starting with the second biggest mobile market of them all, India. What is wrong with Elop? And now continuing this madness about further paring down the Nokia product line. He is incompetent to run Nokia and is not acting in Nokia's best interest. Elop must be fired now.