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« Picture Tells it Better - first in series of Nokia Strategy Analysis diagrams, how Nokia smartphone sales collapsed | Main | The Seven Biggest Collapses in Mobile Handset or Smartphone History - this is part 3 in the Nokia Disaster analysis series »

January 04, 2013

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Tomi T Ahonen

Hi all..

Many great comments and suggestions and 'requests' - thanks!

Don't worry, I have a 'series' of blogs already planned, several of the pictures for upcoming blog chapters to this saga are already drafted, and am working on some of the finer details to get it as right as possible. For example market share - is a different matter than losing to the competitors (today's blog) - but rest assured it is coming, as is the true cost of this debacle, as another blog, and many more - and even those of you who may have followed my Nokia 'policing' for the past two years, I hope to be able to surprise you too with a few new angles and aspects - and pictures.

vladkr - great comment on the cost adding the share price. So yes, remember the Edsel by Ford, considered one of the biggest management blunders ever - its total cost in modern money was only about 2 Billion dollars. Or the Exxon Valdez oil spil in Alaska? Under 5 Billion. Kinda puts Elop's 77 Billion dollar cost into a stark context, doesn't it.

Tomi Ahonen :-)

geektech

With all those phone models Nokia is comming with and not a single one sell, i think they should come with one Windows N8-mare!

foo

@ukd

We can't "prove" that Nokia wouldn't eventually fail; but we *know* Elop strategy failed from the moment it was announced.

Choosing Microsoft as a partner was risky. Going 100% Microsoft was a criminal mistake.

Even if Windows Phone reached 20% of market share, Nokia wouldn't get half of that. Because, remember, Elop was inviting competitors to join the "ecosystem"!

Let's make this clear: even in the best possible future scenario, where Microsoft would become the promissed third ecosystem, Nokia wouldn't have more than 10% of the overall market share!

And then it came the Elop effect.

And he killed all the alternatives -- Symbian, Megoo, etc -- so there wouldn't be a way to proceed without Microsoft.

"Plan B is that plan A must work".

Except it didn't.

vladkr

There is one point on which Elop "saved" money : how he fired people.

Like most European countries (actually even better than most EU countries), Finland has strong social protections ; it's quite hard/expensive to fire experienced workers.

But our Top Elop team managed to bypass this problem :
Nokia didn't fire employees, it "moved" them to another company Accenture, selling whole business units; no need for compensations.

So employees have changed employer, then they have a new work contract, and work experience reset to zero.

-> Even in Finland, it's not a problem (and costless) to fire a worker with zero experience)

This is a SCANDAL - at least as much as Nokia's dereliction, which to me, is not denounced enough (a single line in a YLE article).

It's maybe legal, but it's ugly for sure !

ExNokian

@ukd
If we want to follow market share, we should start from far enough. The (surprisingly steady) rapid decline of Symbian market share started from beginning of 2010. During 2010 Sony Ericsson and Samsung announced they will discontinue doing Symbian phones, which definitely speeded up the progress.
Nokia's (still 100% Symbian) market share started decline of 15% per quarter mid-2010. Q2 market share was 39%, Q3 was 33% and Q4 only 28.5%. Tomi reported it and said "This does not happen anywhere!" (plus called it unprecedented and said "I honestly do not remember any such instance in any industry where any major global brand lost a quarter of its total customer base in a period of only six months."
Ever since Nokia's unit sales collapsed, this has not been addressed since unit sales collapse matches to Elop Effect much better.

MikaA

Given the hostility around the net towards Microsoft, we could soon start counting next how quickly Microsoft is now going to go down the drain. Windows 8 doesn't seem to be a success either, and given their blunders with Nokia, there are quite a bit of people who are annoyed towards them (and Nokia as well). With the Surface release, Microsoft apparently managed to piss of their OEMs, and some companies (like Valve) have announced their intends to start delivering Linux based games.

In a way there seems to be a repeat of Nokia coming up soon; get too big, comfortable, and fail to react on the growing market demand and make several mistakes in the execution to piss off your long term partners. I suppose Microsoft needs to learn it in a hard way why this is not any more acceptable business ethics on this decade.

Disclaimer: I do use Microsoft stuff at work every day, but given their recent business moves, I fail to see how I could support them any longer unless they do a radical change of course. Their software empire has its good sides on standardization, but then the other half of that was based on long term trust that they do not intentionally break things, and what else are Office 2010, Windows 7 and 8 than breaking that what worked before - and knowingly so?

duke

Hey Tomi, this appears to be an interesting rewrite of Nokia history "Nokia CEO Stephen Elop, a former Microsoft employee, managed to slow Nokia’s rapid descent by simply admitting that the company had to change." Isn't that point what you have been debating lately on the blog.

http://www.investorguide.com/article/11473/nokia-nok-bounces-back-on-strong-windows-phone-8-lumia-sales/

This is an "investment advice" site? My guess is this is a Microsoft shill... or someone living in the past

duke

For all the Microsoft astroturfers trying to distract us with how wonderful the opportunity is with Apple (actually the goal for the trolls is to diminish Google and harm Android and Apple is just being used to that end) might want to take note that things are changing dramatically and their nonsense is ever more obvious as nonsense...

http://www.computerweekly.com/blogs/open-source-insider/2013/01/google-trends-android-more-popular-than-ipadiphone.html

Needless to say NO ONE WANTS A WINDOWS PHONE OR TABLET

Thomas

Here's an alternate history. Maybe some Nokians can comment?

1. The CEO before Elop fails in his mission, turns to channel stuffing (which hints at a big problem in itself), and gets fired when this is discovered.

2. In the meantime, Nokia is dithering or infighting about producing the next platform. This one is about software, not hardware, which is out of the comfort zone. But they're on top of the world, why force a decision?

3. New CEO needed with new software skillset. Elop is a software exec, great. Elop arrives, reviews and is briefed about what's going on, and, for better or worse (your call), comes to the conclusion that Maemo, MeeGo or whatever the name of the week was, is not ready for production. Everyone else already has a fresh new unix-style OS, Nokia is failing to produce one. What to do?

4. Look at the alternatives. Settle with the Symbian cash cow of last generation and dwindle? Become one more Android maker? Ballmer is waving this great big shiny lure and MS has to know software, right? Decide to go with Windows Phone.

5. Due to the infighting, Nokia internally needs to be brought to heel. Write burning platform memo. Doing something so drastic points at the internal problems being huge and Elop being relatively weak. Maybe the incumbents would have smothered the efforts to switch, Innovator's Dilemma style.

So where did Elop and the board, including the titan Ollila, go so wrong? Note that their projections obviously already showed the sales crash that Elop himself reported to the press right after the burning platform. During the fall planning, this should have been a big, bright, red flag to indicate that WP-only is NOT the correct strategy.

Louis

@Thomas: The history is right, but then you have to try and put it in context:

(1) Nokia is a large company with manufacturing capacity, but at this point not much soc/baseband control, and it needs scale.

(2) WinMo is dying and WP7 is totally unproven and about to be Osborned by WP8. (Nokia knew this, surely, even if nobody else did.)

(3) Android is gaining momentum, on the carriers' deck, and has access to the otherwise 100% proprietary Google app stack, which Nokia and MS are not close to being able to copy. (And Google/any other 3rd party developer won't put in the effort to do it themselves as they do on iOS.)

(4) There is a lot of hardware expertise on Android out there.

So, basically, going with EITHER WP or Meego is a large bet that an "other" platform will come out of nowhere with no 3rd party backing and challenge Apple. This seems basically speculative, which is why about 2/3 of the risk factors from Tomi's other post basically amount to "WP might not get scale."

Tester

@Thomas:

Elop ... comes to the conclusion that Maemo, MeeGo or whatever the name of the week was, is not ready for production.

Your theory fails right there. MeeGo was ready for production. In fact they were able to ship it long before the first Lumia. Behold the Nokia N9!

ExNokian

@Tomi
According to you, Nokia's closest rival in 2010 was RIM with 48M units shipped. Why do you exclude it from the graph?
(Your 2010 report is here):
http://communities-dominate.blogs.com/brands/2011/02/smartphone-bloodbath-2010-now-final-numbers-q4-and-full-year-2010-and-each-rival-awarded-their-final.html

Kenny

Thomas, what's wrong with Nokia being one more Android maker? It's better to have a small share of a huge pie than a huge share of a tiny pie. Nokia probably captured 75% of the WP market now. Yet it is still losing money and dying. What if Nokia has just 5% of the Android market? It would be selling many times more phones than it is doing now. Get it?

ukd

@Kenny

Competition with Android is not as easy as it is with WP.

The ASP for Android phones is just too low for someone like Nokia. There will be $50 Android phones this year. Nokia would be having very hard time trying to compete against Samsung in high end. When was the last quarter Nokia had a significant market share of high end phones? That is, something like over 30% from phones sold for over $300? With the $300 I mean the price Nokia is getting from a phone. Not the price a consumer is paying for it.

The problem is that selling the WP for consumers is not easy.

Tester

@ukd:

That 'cannot compete against Samsung' argument is not valid. Remember, when Nokia abandoned Symbian for Windows Phone it still had more than twice the marketshare of Samsung. It would have been a completely different situation for entering the market than now.

Many people have said, and I agree, that Lumia would sell like crazy if it ran on Android instead of WP. From a technical standpoint these are great phones. They only have one major problem: They run on an unpopular operating system.

Firecracker

I don't like this destruction! I mean Ballmer was hired by Apple to destroy MSFT and Elop is hired by MSFT to destroy Nokia when is all this destruction going to end?

ukd

@Tester

I didn't say it was not possible for Nokia to compete against Samsung. I said it would have been hard.

In early 2011 Nokia no longer had a big market share in expensive phones. It would have been hard to sell expensive Android phones like Android. Not impossible, but hard.

If Nokia decided to make Android phones in 2011, when would they have been able to sell those? At the same time they had those first Lumia phone? One month earlier?

How successful would Nokia have been with Android phones and why? This is one analysis we have not seen yet.

duke

This proves it:

http://9to5mac.com/2013/01/04/no-microsoft-products-were-reported-stolen/

NO ONE WANTS A WINDOWS PHONE OR TABLET ....OR ANYTHING FROM MICROSOFT

.....LOL LOL

Tester

@ukd:

>>If Nokia decided to make Android phones in 2011, when would they have been able to sell those? At the same time they had those first Lumia phone? One month earlier?

Let's just hypothesize a bit.
Yes, I think the phones would have been ready at the same time as the Windows Phones.
There would just have been one tiny difference: A switch to Android wouldn't have caused half the disruption of existing hardware sales as the WP switch did. It would have appeared as a logical evolution from previous offerings, not a total change of course. Yes, sure, Symbian would still have lost marketshare in 2011, that was inevitable, but let's not forget: People like Android - people do not like Windows Phone. The negative buzz surrounding Nokia would have been considerably less and therefore the damage of switching the operating system.

The switch to Windows sent one incredibly damaging signal to customers, i.e. they wouldn't need to bother with Nokia anymore if they wanted a decent new smartphone. This meant that instead of waiting a few months until Nokia could deliver something more modern they jumped ship immediately and bought a competitor's Android phone.

ukd

@Tester

While it's true that Android was more familiar, there would not have been a migration path from Symbian to Android. Qt for Android was not ready and running native code on Android is not very smart.

What would have happened if everything happened just like it did, but Nokia was selling Android phones? What would have happened? How many Android phones was Nokia going to sell in Q4 2012? I've not seen any estimations about that.

cycnus

@ukd

But user will feel more at home with android
Symbian and android were bro (at UI/UX)
both offer the same level of multitask
both offer the same level of homescreen/widget
both offer the easy access of filesystem through USB (no zune/itunes)
both offer the //same// level of openness

ukd

@cycnus

Look and feel doesn't make it same. For companies, it should be compatible with the legacy applications. WP is not, Android is not and even MeeGo is not compatible with most corporate legacy applications. Very few of Symbian's applications at the early 2011 were made with Qt. For corporations there was, for most of the time, really no real migration path for those applications they already had.

The iPhone is really admired phone. It doesn't look like Symbian, it doesn't feel like Symbian and it doesn't multitask like it. It's very good phone with extremely high ASP. The model it offers can't possibly be flawed because people want to have it.

Kenny

Nokia had a huge a huge and loyal user base in developing countries like India and China. Many of them would buy a phone just because it is a Nokia. There is no question that they will buy Nokia Android phones. Android is an upgrade to Symbian and it can be made in all price segments from budget to high end.

So what happened in India is that many loyal Nokia users bought Lumia and were bitterly disappointed. The OS is a downgrade from Symbian and missing many key features they were used to like bluetooth file transfer and mass storage. They have no use for file transfers using expensive data via SkyDrive. Lumia phones were unreliable and buggy unlike the Nokia quality they were used to.

In China Nokia's market share went over a cliff. If I remember correctly about 70% down in 1 year. Attempts to push WP on the China market failed miserably.

WP are expensive due to hardware specs and unsuitable for developing countries because it needs a PC with online data and 3G for the phone. The OS is a downgrade compared to Symbian. Instead of leveraging its brand name in developing countries Nokia is actively destroying its market there while gaining little in developed countries.

John Phamlore

The lesson that should be learned from the Nokia debacle but I am afraid is not being learned is that if one wants to be part of the future, one has to pay for creating the future.

Nokia's fate as I have detailed previously was sealed in 2008, well before Elop joined the company. Observe that in 2008 according to:

http://taskumuro.com/artikkelit/the-story-of-nokia-meego

"In October 2008 Texas Instruments announced that they would stop investing in smartphones’ baseband modems and that they were looking for someone to purchase the wireless department ... For Nokia this meant the end of the TI OMAP path for MeeGo, because the company had decided to buy the smartphone chipsets, that is the application processor and the baseband modem from the same vendor."

Okay, no Texas Instruments, what about ST-Ericsson to supply baseband chipsets? After all, supposedly the Jolla / Sailfish project will use their chips:

http://blog.stericsson.com/blog/2012/11/st-ericsson-general/st-ericsson-is-ready-to-support-jolla’s-sailfish-os/

By the way just as I have been saying, everyone is regarding China as the last hope of carving a niche:

http://www.stericsson.com/products/m7400-thor.jsp

Observe the TD-SCDMA capabilities. Only few Western companies are all that optimistic they can hit the jackpot in China, for according to the Wikipedia article:

http://en.wikipedia.org/wiki/NovaThor

"On December 20, 2012, Ericsson announced that they will not buy the remaining 50% stake that STMicroelectronics held. The future for the company therefore remains uncertain."

Nokia did not invest in the right wireless future backing WiMAX instead of LTE, a move I have argued was the true breaking point with the telecoms, for WiMAX was incredibly marketed as disintermediating the carriers leaving them as dumb pipes. Nokia could not have possibly picked a more dangerous and politically connected set of enemies than the United States major telecoms. And this at a time when Nokia knew their 15 year cross-licensing agreement with Qualcomm was about to expire.

When every other company trying to stay in the mobile business such as Intel and Nvidia were buying baseband chipset businesses or developing them such as Samsung and Huawei at tremendous cost, Nokia was dumping theirs before Elop came on board. Though an incredible series of blunders, by 2010 Nokia had left itself both without the internal capability to develop their own LTE baseband chipsets and without suitable partners as an alternative to those of their mortal rivals, Qualcomm.

There's a reason Nokia was a burning platform before Elop took over.


John Phamlore

If someone wants to see a scary example of people not learning from history, do a Google search for terms such as Intel, TV, content, partners, Nokia. One finds a never-ending series of stories over the past decade that repeat over and over again, only different. Of course the stories end is never close to what was speculated earlier, such as the latest:

http://online.wsj.com/article_email/SB10001424127887323635504578215692892912404-lMyQjAxMTAzMDAwMjEwNDIyWj.html

Let me summarize, Intel, without actually working with incumbents, instead proposes direct to consumer solutions that consumers never requested, angering the incumbents to fight Intel's solutions to the death, killing these solutions. We have seen the same story from WiMAX and other Intel-backed mobile technology angering the telecoms to Intel's unwanted solutions angering the content providers. What lunatic company would want to ally with a partner such as Intel who is busy collecting such powerful enemies?

Unfortunately that company was Nokia in the 2000s, repeatedly allying itself with Intel in one harebrained scheme after another, until Nokia made more enemies that it could handle including the major telecoms it needed to survive as a business. And why would Nokia ally itself with Intel, a company whose chips Nokia could not actually use in its mobile devices until possibly now? Because Nokia wanted to back an OS written by a Finn Linus Torvalds, who went to work for an Intel competitor Transmeta.

The crazy thinking in Finland was occurring way before Elop took over at Nokia.

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