Like the Bourne Trilogy we have in the books and film (the Bourne Identity, the Bourne Supremacy and the Bourne Ultimatum) we now have the Elop Trilogy. First came the Elop Stupidity (alternatively titled in some markets as the Elop Effect). Then came the Elop Lunacy (aka Lumia vs MeeGo). And now we have the ultimate Elop: The Elop Catastrophy (destroying the vital carrier relationships).
The Financial Times is now reporting that Nokia is now pursuing a new strategy with its operator/carrier partners - to try to do exclusive deals. This is what Apple had once, when it launched the iPhone and very soon abandoned. The opposite strategy helped Nokia grow to be not just the world's biggest smartphone maker but also the world's biggest dumbphone maker that Nokia still was when Elop took the reigns about 2 years ago. The opposite strategy, attempting to be supported by as many carriers as possible, is what drove Samsung past Apple in smartphones, and past Nokia in dumbphones.
Now Elop is attempting this? After already setting the world record collapse of any Fortune 500 sized company that led its industry? He now is not satisfied with how fast Nokia is crashing, he wants to accelerate Nokia's destruction? This is very VERY simple. If you want to be big in mobile you need the following: A large and diverse porfolio across wide prices, a large global footprint, very strong and wide retail support, and most of all, strong and wide carrier relationships. Incidentially, Nokia was the global leader on ALL four of these metrics, just 18 months ago!
CUTS PRODUCT PORTFOLIO
You need a large portfolio of handsets, at various price points. This is what Nokia had. This is not what Apple has. This is what Samsung has. Even as Apple is seen as a company with 'only one phone' model, in reality Apple sells 3 separate iPhones today (iPhone 4S, iPhone 4, iPhone 3GS) and also the iPod Touch and the iPad, which in some ways are close cousins and technically viable alternatives for some considering an iPhone. So even Apple has expanded from 2007, when it truly sold only one iPhone in only one color, to now at least 3 clearly distinct iPhones, in several technical configurations too, and then two closely related devices, so Apple has grown its portfolio, not shrunk it. Meanwhile Samsung is continuously expanding its product range. But Elop has shrunk the Nokia smartphone portfolio. That may - may - help profitability but it definitely will reduce overall unit sales. And when Elop took over, profitability was not a problem at the smartphones unit - it in fact set a Nokia record for profit growth in one quarter.
RETREATING FROM MARKETS
Next we have global reach. Nokia had by a wide, wide margin, the world's largest global reach of any handset maker. Samsung, LG and Motorola were distant, distant rivals. The only handset brand you would find in literally every county on the planet, was Nokia. Apple has been fighting to increase its global reach, announcing proudly when it added countries like Japan, China etc to those where the iPhone is supported. Nokia was the king of the hill. This was a massive global competitive advantage that all other rivals envied, from Samsung to HTC to RIM to ZTE. And what did we hear when Elop told us of his global precense? That he is cutting it down. He wants Nokia to 'focus' on some key markets. And while he did not say so, immediately all analysts pointed out, if Nokia focuses on some markets, it comes at a cost to other markets. This is exactly how Siemens died in mobile. This is exactly how Motorola died, this is how Ericsson died in handsets.. twice. Once when you start cutting your global sales footprint, your costs will almost instantly be out of whack with your ability to sustain sales. This is elementary sales stuff. And what did we just hear in the past week or so? That Nokia is cutting its sales offices in China by half. China! The world's biggest smartphone market, also the market currently growing fastest. Plus also the world's largest dumbphone market. All of Nokia's successful rivals are increasing their global footprint. Elop cuts. This may help him cut some costs, it certainly will not help him grow sales - in fact, EVERY marketing textbook says this is how your sales will diminish.
Then there are the retail channels. The more you have retail presence, the more you can sell in volume. This is so basic marketing, I am not going to be reciting case studies. Let me use one brand only: Coca Cola.
What has Elop done? As he has started wars with his retail channel, he has been replacing Nokia's top sales people with a Microsoft Mafia, and has terminated many of Nokia's long-standing retail relationships and now we find many more simply abandoning Nokia as their product. On both sides of the aisle, the retail problem is so inflamed, that Nokia is losing retail support. And every single time Elop talks about Nokia's problems, he now recites the same story - he has a retail problem (duh! I could have 'told you so' a year ago - wait? I did tell you a year ago haha). The way to sell broadly is through wide distribution. When you cut distribution, your sales will shrink. This is truly basic marketing 101. Elop has not just seen his distribution cut, he is actively cutting distribution some more!
NOW CUTS CARRIER OFFERING
And as Nokia is struggling to sell Lumia - Nokia achieved 4 million new Symbian version OS sales in less than one quarter, when Elop took over, in Q4 of 2010. The Nokia N8 and its siblings were marketed 'the old-fashioned way' with a diverse product portfolio across many price points, with global market launch, with massive retail support and of course, across the world's best carrier relationships. So the 'obsolete' Symbian on its S^3 edition achieved 4 million sales in under 3 months. But Elop, using 'the wonderful' Windows Phone, by throwing 3x more money at its marketing, literally by Nokia's money alone by far the biggest handset launch marketing spend of all time - then supplemented by carrier marketing budgets that have been massive - and then that enormous total added to, by Microsoft's money and things like Xbox 360 game consoles given for free to buyers of Lumia smartphones. Meanwhile the market size for smartphones has grown by 65%. And how long did it take Elop to achieve 4 million quarterly sales? 8 months! Mathematically, since the market is so much bigger today, he should have done it in 2 months to be 'on par' with the 'burning platforms' and 'obsolete' Symbian !!!
So, we have seen how poorly the Lumia sold in the past 8 months. Before Elop mentioned Windows Phone and any whispers of a Microsoft partnership, Nokia had 29% market share in smartphones. Today three quarters in, the Lumia series has produced 2.5% market share for Nokia, and when we add all Symbian and MeeGo based smartphones to the total, Nokia's market share has already crashed to 6%. From 29% to 6% means, you have managed to scare away 4 out of every 5 customers you had - loyal Nokia customers who often had bought Nokia for years and years and years. Suddenly frightened away by Elop and his Windows strategy. So if you sell across many carriers and achieve 6% market share, what does Mr 'Call Me The General' Stephen Elop - who quotes strategy authors like Sun Tzu - want to do now, to help Nokia recover?
..HE PLANS TO CUT HIS CARRIER SUPPORT TOO..
This is THE maddest, the ABSOLUTELY dumbest move any handset maker CEO could possibly contemplate. To take existing carrier relationships - which take literally decades to build, and you deliberately, pro-actively, abandon them. This so you can 'be like Apple'? When even Apple moved away from this strategy as soon as it could. Where even Apple says this was only an entry strategy and does not yield the scale that Apple wants - and Apple is not even attempting to become a mass market leader - this strategy is so bad in handsets, that even if you are a luxury niche product company, like Apple, with the highest profits, but only high-end products, sold mostly only in the affluent 'Industrialized World' countries. Even Apple says for its needs, its the wrong strategy - why - because it won't give Apple the scale it needs.
Nokia needs FAR FAR - FAR - more scale than Apple! Nokia is a mass market company!
I am telling you, my readers, this act of desperation by Elop is the dumbest thing yet, by the man who already established the world record for destruction of a global leader - the fastest collapse of the business of any company ever, that was Fortune 500 sized, that led its market. And he is not happy to have achieved this notorious claim - and his name evermore assigned the association with the Elop Effect, the costliest management mistake of all time! He has already delivered so bad management for Nokia that it is not just me calling him the worst CEO of any business that has ever lived - this is increasingly the evaluation Elop is getting in the business press. He now wants to make things worse for Nokia.
He took over a company that was profitable, growing, towered over its rivals. A company which had weathered the biggest economic crisis of our lifetimes so well, that its handset unit never once even reported a loss in any one quarter. Yes, the previous CEO had made execution mistakes and Nokia the corporation was bloated with businesses it shouldn't run or keep - like NokiaSiemens Networks for example - but in its core business, handsets - and especially in the smartphones - the future of handsets - Nokia was doing well. It was hugely profitable, it was growing - not shrinking, growing - smartphone sales and it truly towered over its rivals - Nokia was bigger than its two nearest rivals COMBINED. Ask Toyota or GM or Renault or Nissan or Volkswagen would they love that? And while you are at it, see if they have EVER been as big as their two nearest rivals put together (No. None of them has. The last company to see that in the automobile industry was.. Ford, and we have to go back nearly 100 years to find when that last happened). Nokia's profits in its smartphone unit were of course not the size of Apple - but thats hardly fair, no other company makes as big profits as Apple nowadays. Nokia's CEO should have been proud that his smartphone unit had just established a Nokia record both in absolute profits made - and get this - the growth rate of the profits in its smartphone unit!
Nokia's credit rating agencies were so impressed by Elop's early first 5 months of leadership, Nokia's shares were rated by all three ratings agencies one notch below perfect. Remember, this is at a time when half of Nokia's main competitors - remember, most of Nokia's business come from dumbphones, not smarpthones - were unprofitable in their handset businesses. And Nokia's shareholders were so pleased with Elop's early stewardship, replacing the unloved Olli-Pekka Kallasvuo - that Nokia's share price had grown 11% in only 5 months of Elop in charge. What more can you want? You have the dominating product, it is not just profitable business, but it is GROWING its profits. Your company is rated nearly perfect and your share price is growing strongly.
That was destroyed by Stephen Elop, in a series of costly management mistakes that started with the Elop Effect. I chronicled recently the strategic blunders he has made (19 of them, 4 were so severe, that all by themselves, those four have killed other companies all alone). 19 strategic blunders in a period of 20 months. No wonder Nokia has been regularly downgraded in its ratings. The smartphone unit went instantly from profits to losses - and those losses have only grown now that the Lumia series has been launched. The ratings agencies, all three of them, now rate Nokia as junk. Nokia's share price? It has lost 83% of its value in only 15 months. Previous CEO Kallasvuo saw Nokia's share price fall 55% in a period of 3 years, and was fired for it. Elop has done far bigger damage, in less than half the time. Why is he allowed to remain in charge?
We have seen the establishment of a world record in destruction of a giant company. Destroyed from the inside, by hideously inept management. We have seen truly the 'case study' of management failure, by the worst CEO of all time. And every single piece of evidence proves that to be the case. Now, my readers, I warn you - this latest 'idea' by Elop - to now cut Nokia carrier relationships, and attempt that strategy that even Apple immediately moved away from - to try to do an exclusive carrier deal, it will not save Nokia. It will doom Nokia - exactly like it doomed Palm.
Please please PLEASE any journalists and bloggers out there, please write about the sheer madness of this 'strategy' by Elop. Please don't take my word for it. Please see how 'exclusive carrier deals' have been detrimental for any market share gains or global sales efforts. They can work for a pure niche player, but exclusive in carrier relationships means only one thing - reduced sales. Nokia has set a world record last year in how much it fell. With this strategy only ATTEMPTED, Elop has guaranteed he will achieve an even worse result now - because even Nokia's most loyal and friendly remaining carriers will hate this direction. And they will distrust Nokia even more, they will support Nokia even less, and they will actively work to torpedo and sabotage anything Nokia and Microsoft (and potentially one rival carrier group) will do.
Nokia grew to become the biggest not with the best phones (although often they did that too). Read all the studies of how Nokia grew. It grew with sales and marketing. Nokia had more products, for more segments, in more countries, at more price points, even in more colors, than any rivals. Nokia sold in more countries than anyone else. Nokia had better retail and distribution than anyone. And most importantly for smartphone global sales - where the carrier support is absolutely vital - Nokia had by far the worlds' best carrier relationships.
Those have become poisoned during Elop's short tenure. But they are not all destroyed (yet). Now Elop is telling the carrier world that no, Nokia will no longer be friends with everybody. They will play the divisive game, with exclusivity. And who do they partner with attempting this? With the company once known only as the Evil Empire, Microsoft, but which now is the most despised company - by carriers - that has ever existed, because Microsoft bought Skype. Not because you can't have Skype on your phones - we all can do that - its because carriers hate Skype for threatening the very survival of the carrier business. And Microsoft is now the sugar daddy who funds Skype the pest. This carrier exclusive deal, if it were to materialize, even with the second biggest carrier group in the world (China Mobile is the biggest, but they have already clearly said they will never take Lumia to their market, they insisted Nokia issue a clone phone with Symbian instead of the Lumia 800, and Nokia gave China Mobile the 801T yes, running Symbian, incidentially one of the bestselling smartphones of China, and a major reason why smartphone sales in China for Nokia grew by 28% in the past 3 months!)
(..Sorry, I got carried away with my thoughts, but yes) even if you got the second biggest carrier/operator group to become your 'exclusive' partner, you know how much that gives for you? Vodafone Group has the second largest number of mobile phone subscribers and thus phone handset customers in the world. They account for.. 7% of the phones on the planet. And there is no way - guaranteed for sure no way, that any carrier, would say No to the iPhone, instead of Lumia. Or say no to Samsung for that matter too. So Nokia would have to fight for a small fraction of that 7%. And then Nokia would have to abandon the rest of the world - 93%. So if things went perfectly with this plan and Nokia somehow managed to take half of those smartphones - its 3.5%. Nokia currently sells 6% of the world's smartphones !!!
This plan - over time - cannot achive more than half of what Nokia is already doing now! What is wrong with the brain of Stephen Elop, CEO of Nokia. This is total madness! But wait, its not Vodafone that is even in these discussions. The FT reports its Orange. How much can Orange Group globally deliver of the handset market? Just over half that of Vodafone. Now we are starting at under 4% and the absolute top possible ceiling of what Nokia might achieve with this, over many years of building - is 2%. And Nokia had 29% when Elop took over? Even Microsoft, without Nokia, when this partnership was announced, did double that! Yes, even Microsoft had 4% (using a strategy of multiple models, multiple manufacturers, large global country presence, wide retail reach and as many carriers as they could sign up).
I am telling you, my readers, this is the dumbest idea in mobile telecoms ever. This is 100% guaranteed to shrink Nokia even further, and whatever sales would be achieved, would be with far lower profit margins than without this strategy (as we learned from Apple! and from Palm!) so the huge losses that Nokia now announced and promised may get worse in Q3 - Elop is not satisfied destroying his company so totally, he wants the decline in sales to - ACCELERATE - and for the loss-making to get EVEN WORSE.
Again, so we are VERY clear. Nokia had asked, begged, and even bribed the carriers to support Lumia. Few were willing to take the whole Lumia set, some said outright no - like China Mobile & Verizon for example - others took only one handset like China Telecom and AT&T for example. But now that the Lumia series has failed IN EVERY MARKET it tried - including the USA, where even AT&T's might could not sell more than 340,000 in the past quarter - when the carriers are pleading with Nokia to stop with the Windows madness and give them real phones on real modern smarpthone systems like say Symbian (don't laugh - China Mobile INSISTED on the 801T and this time last year still NTT DoCoMo in Japan sold superphones you can only dream of, that ran on .. Symbian!) or MeeGo (rated 'better than the iPhone - who wins design awards ahead of Apple? And what clown refuses to sell that magnificent a product?) or even, gosh, Android! (the most used smarpthone OS today - we just learned over the weekend that the Nokia N9 with MeeGo OS, has an Android port, on 4.1 Jellybean version no less! YES !
If you bought yourself the best phone Nokia ever made, the N9 (ie were lucky enough to live in some of the obscure countries where Elop allowed it to be sold, like say New Zealand or Kazakhstan or Nigeria) - you could now use all Android apps if you wanted, just install the Android 4.1 Jellybean OS and voila! Nokia's best handset using the smartphone OS that is most used on the planet (and has most of the best apps too).
So yes, if the CEO allowed it, Nokia could be selling three Android powered Nokia branded phones, next month. Literally, next month! While rather, the CEO tells the investors in Q2 results, that Nokia is writing off over 200 million Euros worth of parts they pre-ordered and paid for the unwanted Lumia series (which are not compatible with Nokia regular standard smarpthones) - and while the traditional Nokia suppliers who would provide parts suitable for the N9 - are running at half-capacity or worse!
Nokia asked its carriers to trust Nokia, and help with the Lumia experiment. Some said no. Some said, we'll try a little bit. Others said, ok, Nokia, we will do this for you. Now that it has clearly failed - and Microsoft no less, has Osborned the whole Lumia line - Elop tells the Q2 Conference Call that Nokia intends to sell this obsolete Lumia line well into the future, even as Windows Phone 8 based smartphones are made! What sheer madness! And now, that Elop has been told, in no unclear terms - that the Lumia project is no longer alive - T-Mobile the largest carrier of Europe's largest country, said it so plainly, they cancelled their Lumia 900 launch! And what does Elop do? Does he listen to his customers? Does he want to play nice and give the world what it wants? No. He wants to do what Ballmer wants. It doesn't matter how much this destroys Nokia, if we can get one carrier onto this deal, it prolongs Microsoft's life in mobile (which would have died last year were it not for the Nokia sudden infusion of energy and sales support. The non-Nokia Windows partners sold less than 0.5% of all of the world's smartphones on that platform by Q4 of last year when Nokia started, and remember, these Windows partners had once had 12% global market share for Microsoft in smartphones). Palm died before it fell to 0.5%.
Carriers took big risks with Lumia and the whole experiment is a colossal flop and failure, that will haunt many of them for months, even years to come, as angry customers come back demanding refunds or replacements. Now, rather than listen & learn from his carrier partners, Elop spits in their faces and says, no, I will now start to play rough. No thanks to any carriers who supported Nokia in the past, I will cut off most, to give an exclusive deal to one. Is that the way to play to win? No. It is a certain road to ruin.
Why the hell is he let out of his room? Why is Elop allowed into Nokia's buildings? Why is he allowed to carry a business card with Nokia's logo. Why is Nokia's Board asleep at the wheel? Are they in collusion? If so, they are also at fault and must also be fired - and investigated..
The only reason a madman CEO, whose company troubles today are the result of collapsing sales (forcing mass layoffs and all other such costs and damage) - would now make actions that CERTAINLY results in further fall in sales (and necessitate further layoffs etc) - is if he has something to gain out of this. Elop wants Nokia's market share to shrink? He wants Nokia's share price to fall further? So, is Elop shorting Nokia stocks? Has he bought a forward contract where he promises to get Nokia's share price under 1 dollar so he can sell that contract for a huge profit personally, while ruining the company? Nokia's share price was well above 10 US dollars when he started, it fell under 2 dollars with these latest troubles and is at $1.67 today (and down again in morning trading in Helsinki). The ONLY reason Nokia's CEO would now talk about deliberate actions that CAN ONLY RESULT IN FURTHER REDUCTION IN SALES - is if he personally stands to gain from a falling Nokia share price. This action CANNOT, under ANY analysis, be seen as positive for Nokia today. This is a CEO who is hell-bent on destroying what is left of Nokia. He cannot be doing it out of a genuine fiduciary interest to Nokia, he must be doing it out of some financial gain to himself from this permanent, irreversable, long-term destruction in Nokia value.
Trust me, this is the biggest mistake Elop has made. Not even to achieve it, but just to suggest this, informs EVERY one of Nokia's current carriers/operators, that Nokia intendes to make it worse. Most will simply walk away from those talks, disgusted. Some may pretend to play along with Nokia. But this strategy can not save Nokia, it can only do one thing. It can make Nokia's situation worse. And honestly, I did not think that possible at this stage.
Follow-up 6 hours later. Yes, when I heard the news and rushed to Twitter to scream and shout, then came here to have my Hippy-hippy Shake and do the Peppermint Twist, yes, I was angry and stunned. The blog here is clearly a rant. Some may dismiss the main points, because of my emotion in the article. So now its 6 hours later. I have just re-read this blog and can see the raw emotion in it. So I went and posted a short follow up. If you, the reader here now, feel that Tomi is 100% correct, good for you. If you, the reader feel that Tomi is exaggerating or doesn't see the other side to this issue or whatever, then I have a short follow-up blog. I collected every ratings agency downgrade press release and took the biggest reason given for each of Nokia's 10 separate ratings agency downgrades over the past year and a half (two of those were downgrades of two notches at once, so it totals 12 downgrades). Go read what the agencies said - the exact quotes are here, why Nokia was downgraded so severely from one notch below perfect, to truly junk in little over a year under Elop. What did those ratings agencies, whose sole job is to evaluate the management direction of a company and advise its owners - the shareholders. What did they give as the most severe dire warnings they can, when they downgrade. Here are the facts. And is Tomi crazy for posting this blog? You be the judge - what did Ratings Agencies tell Nokia was reason for the 10 downgrades.