I started last week with a long analysis series of the individual problems relating to the Nokia mess. Each article will deal only with one aspect of Nokia's current malaise and will include a picture to explain it. I am trying to keep the articles short and readable. If you want to read what Nokia itself identified as the risks to the new Windows strategy, the risks were all itemized in the official filing Nokia did to the USA Securities and Exchange Commission (SEC) and the New York Stock Exchange, using the form 20-F. I visited some of those risks and how much the nightmare scenario has in fact come true under Elop in the past two years. Then I started this series of short single-issue blogs. First I showed how Nokia growth had turned instantly into collapse in February 2011, and then I wrote about Nokia vs Competitors. But this is a blog about just one topic today. The world record in market collapse in the handset industry.
So I did the math for you, and collected the seven biggest collapses in the handset industry, so we can see how Nokia's smartphones now in 2010-2012 under Elop, compare to previous bankruptcy-resulting disasters that forced the company or unit to be sold - Motorola, Palm, Siemens - and the equivalent total failure of Windows Mobile (replaced with no migration path by Windows Phone). And the two that survived their big scares, LG (definitely survived) and RIM (the jury is still out, but currently most think the worst is over). Thats our context, the six worst market failures ever. I will compare all seven, including Nokia where the starting point is harmonized. This is the 'clean' version of the graphic. I will provide one detailed variant, same graph, but with the seven reasons why, at the end of this blog. Use whichever you like (or both) if you feel like writing or speaking about this set of notorious mobile industry collapses.
This graphic may be freely shared
First a few notes about the graph. The metric is market share. As the industry growth per year has fluctuated greatly from one year to another, as we faced two global economic crises in the past 12 years that faced zero growth (by some measures even slight market decline year-on-year) the best measure to compare collapses in different periods is the market share metric. Also the starting point is very different, Nokia started at 35%, Motorola at 21% compared to the collapse of Palm and LG which started at 9% and Siemens at 8%. So I have harmonized the starting point to year zero. At Year Zero, the starting point of Nokia at 35% market share in 2010, is harmonized to Siemens in 2001 having 8% or RIM in 2009 having 19%.
Then I have used the fall in market share points, converted to a standardized rate of annual decline - counting from starting point to ending point, by number of years. So when Siemens fall from 8% to 2% in a three-year period, that means Siemens market share collapsed by 3 out of 4 it had (ie 75% as a rate of total fall). In other words, Siemens fell in half in 18 months, and in half again, in the next 18 months. Its average rate of decline per year was thus 35%.
Or Windows Mobile which started at 12% in 2008 and after the period was down to also only one fourth the size it started with, ie 3%. But Microsoft's smartphone operating system achieved that fall of being cut in half, in 12 months, not 18 months, and again in the next 12 months. So WinMo also lost 3 out of 4 market share points it had - but did it only in two years, compared to Siemens who did the same damage in three years. So Microsoft's average annual rate of collapse was 50% per year.
Finally, note that these are not strictly apples-to-apples comparisons, this worst-of-handsets record holders notorious list includes pure smartphone makers RIM and Palm; full-feature handset makers in the time to shift to smartphones Motorola and LG; a full-feature handset maker Siemens when the smartphone market was in its infancy and of no significance to the fall; a pure smartphone OS provider Microsoft Windows Mobile; and of the Nokia fall, this is only of its smartphone unit, which when this fall started, had become Nokia's biggest revenue unit and obviously generated more revenues than its dumbphone unit. So please note, this is not a measure of 'all Nokia mobile phones' including dumbphones/featurephones. This is purely the smartpone unit where Nokia's future - and the future of the industry - lies.
With all that, lets examine each of the seven to see how they fell, when they did it, and why. Here are the Seven Worst Collapses in the history of mobile phone handsets, and their stories:
LG - 2008-2011 - FELL FROM 9% TO 4% IN 3 YEARS - AVERAGE FALL 24% PER YEAR: SURVIVED
(Was ranked number 3 in market of all mobile phone handsets)
Cause of collapse - Microsoft partnering
At number 7 we have LG with its ill-fated Microsoft misadventure. In 2008 LG was growing strong had grabbed 9% market share in mobile phones globally, was the number 3 bestselling phone in the USA, number 4 in Europe and seeing strong growth fuelled in part by its iconic LG Prada series of featurephones that in 2007 had outsold the similar-appearance 'original' Apple iPhones (what were later to be called iPhone 2G ie the featurephone before Apple turned the iPhone into a proper smartphone starting with iPhone 3) worldwide.
LG made the always-costly mistake of a deep partnership with Microsoft, and where most legacy handset-maker rivals used either Symbian or Android very successfully, to battle the rapidly growing iPhone and Blackberry at this time (2008), LG decided to rather partner deeply with Microsoft and believed the marketing BS that Windows Mobile would win over the iPhone (and Blackberry). The Windows market share went into deep dive the more Microsoft's product was obviously not competitive against iOS and Symbian (such as Nokia N-Series) in the consumer markets, Blackberry OS and Symbian (ie Nokia E-Series) in the enterprise markets. LG was then burned by Microsoft suddenly 'Osborning' the whole Windows Mobile line - announcing it will be terminated, and a new incompatible platform would be built on Windows Phone instead. This was soon after LG had joined as the strategic partner to Windows. LG lost a little over half its market share in all phones as the vital top-end flagship phones were utterly unsellable, and LG went from profits into deep losses. LG rapidly abandoned the doomed Microsoft path, and joined the Android family to great additional cost and delay, but LG survived the damage, and today is back to profits.
RIM - 2009-2012 - FELL FROM 19% to 5% IN 3 YEARS - AVERAGE FALL 34% PER YEAR: SURVIVES
(Was ranked number 2 in market of smartphones)
Cause of collapse - entering tablet market as pure handset maker
Blackberry-maker RIM saw promising profitable growth in 2008 as it battled the new iPhone (yes, thats true, RIM was not in any way damaged by the strong growth years of Apple, RIM was essentially immune, serving the most opposite distinct market: where the iPhone served affluent consumers interested in web surfing and later, apps; Blackberries served enteprise/business users and their emails and in consumer markets, the youth addicted to messaging). RIM management in Waterloo then embarked on the disasterous market exploration that all but destroyed the iconic Canadian smarpthone maker. They decided to try to do a tablet PC. I've explained on this blog many times, that a tablet PC makes perfect sense for any PC maker (like HP, Dell, Acer, or yes, Apple or Sony or Samsung) but it does not make any sense for a pure handset maker like Motorola or RIM (or as now rumors suggest, Nokia). The tablet market is vastly different, tablets are sold and priced differently than PCs. The tablet market is far smaller than smartphones, and dominated by Apple's iPad. An intelligent smartphone manufacturer CEO will resist the temptation just because superficially, on its appearance, a tablet looks like an enlarged smartphone. The smartphone market is fiercely competitive, regularly half of the big manufacturers report losses in the smartphone market even as the market grows at breakneck speeds usually more than 50% per year. The smart CEO focuses efforts to win and keep on winning in the far bigger smartphone market, and explores new smartphone opportunities but leaves the tablet PC market to the legacy PC makers who have to move there anyway as their own desktop PC market is stagnating.
Well, RIM obviously did not listen to my advice and right as they were stretched to the limit in supporting their global expansion marketing in smartphones - as Blackberries very bizarrely became the bestselling smartphones in unanticipated countries at the time like Thailand, Venezuela, South Africa, Nigeria etc - RIM actually admitted in public, the consumer love of the Blackberry took them by surprise and they didn't really know even fully why it was the bestselling smarpthone in such differing markets. Instead of learning why it is growing strongly in so many large emerging world markets, RIM took the eye off the ball, and launched an iPad competitor instead, now forcing most of its marketing effort to go into launching RIM into the PC market where it had never competed, on that distribution, sales, pricing etc market. The Blackberry tablet failed and drained massively RIM resources, forcing it to retrench globally from the growing consumer market, and into the receeding corporate market (where BYOD Bring Your Own Device policies were now allowing iPhones and Android smartphones to eat into RIM's traditionally 'safe' enterprise market).
Worst of all, the efforts into the launch of the Blackberry tablet drained precious software development skills needed for the next generation Blackberry OS, the one with full touch integration, that we now know as BB!0, that is scheduled for first handsets out this first calendar Quarter in 2013. The BB10 project was critical to keep Blackberry competitive, and any delays to BB10 would severely drain RIM's growth and market prospects. As RIM cut staff and costs fierecely in the Blackberry tablet launch disaster aftermath, the BB10 project got postponed and postponed again. However, RIM survived (or is surviving) but just barely. Last year saw a lot of rumors of RIM going bankrupt or being bought.
SIEMENS - 2001-2004 - FELL FROM 8% TO 2% IN THREE YEARS - AVERAGE FALL 35% PEAR YEAR: SOLD THE HANDSET UNIT
(Was ranked number 4 in market of mobile phone handsets)
Cause of death - market shirt from enterprise to consumer handsets (killed by Nokia)
Siemens was the first big casualty of a Top 5 manufacturer to die in digital age of consumer cellular phones. Siemens missed the big shift from enterprise oriented 'business phones' to the much larger consumer market. Siemens's phones tended to be quite technical and capable, but big and bulky and ugly and unfriendly to users. Where Nokia focused on consumer fashions and interests (replaceable colored covers, downloadable ringing tones) and made consumer services and features more easy to use (adding the clock and games, and making all Nokia phones very easy to use on SMS text messaging, adding a big phone number library capacity etc) Siemens missed those trends and found its high capacity in phones falling into loss-making and under-utilized. Siemens sold its handset unit to BenQ.
MOTOROLA - 2006-2009 - FELL FROM 21% TO 5% IN THREE YEARS - AVERAGE FALL 41% PER YEAR: BANKRUPTED AND SOLD
(Was ranked number 2 in market of mobile phone handsets)
Cause of death - iPhone and Nokia N-Series stole top end market of Razr
Motorola was enjoying the windfall gains of being Nokia's biggest rival, when the global carrier community decided to punish Nokia the last time for severe disgressions (These were the 2003 launch of the consumer-oriented smartphone Nokia N-Gage with its nasty concept of 'app store' that allowed apps to be sold and downloaded to N-Gage smartphones by 'sideloading' ie bypassing the carriers and their billing and traffic; plus the coincidentially timed Nokia push to the early version of Nokia's consumer marketing afforts around Club Nokia. The carrier community revolt caused Nokia to see global market share loss of a third in a two-year period).
This timing was very fortuitous for Motorola, timed with the launch of the Razr series, at the time the sleekest most sexy-looking featurephones on the market in 2004-2006. Powered by the Razr, the severely declining Motorola handset sales turned into strong growth over those two years (matched by almost exact decline in Nokia sales). After Nokia made peace with the carrier community in 2006 and withdrew the hated N-Gage and refocused Club Nokia to be delivered via the carrier networks - Nokia was able to recover completely. But why did Motorola now suddenly lose its share (and others did not for example Samsung etc).
Motorola's Razr was the first big scalp taken by the iPhone. In those markets where Apple was strong, mostly the USA and Europe - markets where Motorola also was usually strong - the slick sexy iPhone stole Motorola's lollipop and ran away with it. But in other markets, where Motorola also was strong but the iPhone was not to be seen, like China, Latin America and the Middle East (and parts of Europe too) - it was in fact Nokia's N-series, in particular the hugely popular Nokia N95 (a smartphone that vastly outsold the iPhone by the way) that destroyed Razr's markets. Motorola was then still in that typical USA-mindset thinking of smartphones as primarily enterprise-oriented ie business phones and made several smartphone design mistakes including ill-fated Windows based smartphones that failed to succeed right as the iPhone was proving to the USA market what Nokia had already years before proven to European and Asian markets - that the consumer market for smarpthones was far bigger. What focus Motorola did in 2008 and 2009 was into the wrong market segment (enterprise) and on the wrong platform (Windows). Motorola went from huge profits to massive losses in the collapse and then retrenched from markets, and tried to survive by shrinking such as selling its networking unit to Nokia. Motorola did not survive, went bankrupt, was split, and the handset unit was sold to Google.
PALM - 2005-2008 - FELL FROM 9% TO 2% IN THREE YEARS - AVERAGE FALL 42% PER YEAR - SOLD
(was ranked number 2 in market of smartphones)
Cause of death - iPhone
Palm was the second largest smartphone maker in the world behind Nokia, running also the second-most used smarpthone OS behind Symbian. Palm became purely a victim of the iPhone in 2007 and being in essentially the same markets where Apple is strong, especially the USA, and with poor carrier support even there, Palm died very fast. It did join the Windows ecosystem in an attempt to fight back, but that only drained further the funds Palm had and caused more headaches Palm didn't need, which meant its own radical and many felt possibly even iPhone-beating OS, WebOS, being severely delayed. Palm had focused on the enterprise market when the laggard US market finally followed the trends we had seen in Europe and advanced countries of Asia-Pacific to the consumer market, so Palm's response to the early iPhone was misunderstanding it and not reacting to it appropriately. Palm had never been strong in profits, was making ever bigger losses as its market share collapsed and lingered on for a while generating ever more losses in the 1% market share range before being bought by HP (and since, terminated, but possibly parts of what was Palm now might be resurrected via WebOS, as HP re-examines its interests in mobile)
WINDOWS MOBILE - 2008-2010 - FELL FROM 12% TO 3% IN ONLY TWO YEARS - AVERAGE FALL 50% PER YEAR - WAS TOTALLY REPLACED BY WINDOWS PHONE
(Was ranked number 2 in market of smartphone operating systems)
Cause of death - iPhone and Osborning of the Windows Mobile line
Microsoft's Windows is a kind of widow-maker in smarpthones. Its launch (Windows's ie Microsoft's launch I mean) itself resulted in killing the mother it was supposed to have, British smartphone maker Sendo. Microsoft plundered all the insights from Sendo, then went to another 'partner' it had, HTC, and instead launched Windows with HTC instead. Sendo claimed in the lawsuit (that it won) that Windows had been stealing Sendo intellectual property which it used to help HTC. Of the biggest failures on this list, most had decisive or contributing damage from attempting a Microsoft cure to their troubles. Windows is to winning in smartphones like water is to fire. LG, Motorola, Palm and Nokia on this list have felt damage from attempting a Microsoft cure. Note - nobody has ever used Windows to gain significant sustainable share in smartphones. Even HTC shifted away from Windows to Android the moment that became possible and HTC had at that time sold half of all Windows phones ever made.
Well, Microsoft did collect at one point six of the ten largest smartphone makers (Samsung, HTC, LG, SonyEricsson, Palm, Motorola) to support Windows but that didn't help. Every one of the major smartphone makers complained, some more openly than others, that Microsoft was always the worst partner they had seen in the smarpthone market, whether saying that explicitly, or indicating it via their emphasis by product portfolio, or complaining that consumers and carriers didn't prefer this platform. Every one of these makers had supported at least one other smartphone platform (Symbian, Android, Palm, LiMo) and those who ever attempted to prioritize Windows ahead of the others (LG, Motorola, Palm) had found the company immediately going from profits to losses, or the losses only becoming bigger, after Microsoft's Windows versions had been launched. HTC on the other hand, struggled with losses until it found profits out of Android..
The ultimate irony is, that after six years of pretty steady growth for Windows Mobile, it suddenly 'went over the cliff' and fell by a then-world-record fall in the handset industry, losing 50% per year on average, for two years, collapsing from 12% to 3% in yes, 24 months. Windows Mobile collapse was due almost exactly due to the iPhone, as WinMo's significant markets were almost exactly those where Apple's iPhone was growing strongly in 2008 and 2009. Whereas Windows Mobile had seemed reasonably competitive in 2006 against its then-rivals Symbian, Palm, Blackberry OS and Linux Mobile, once the iPhone appeared, Windows Mobile was instantly obsolete. It could not even take advantage of advanced features that Symbian supported, such as multiple screens, genuine multitasking, advanced cameras, advanced screen resolutions etc. Where Symbian (and Blackberry OS) did just fine during early iPhone market rise, Windows Mobile (and Palm OS) utterly collapsed.
Why Windows Mobile collapse turned so severe, 50% per year compared to its close compatriot Palm OS that only fell 42% per year - was the Osborning of Windows Mobile by Steve Ballmer. In a bizarre twist on history, compared to Microsoft under Bill Gates who provided a migration path from DOS to Windows on the PC side, that ensured Microsoft's giant market share edge on the basic text-based DOS personal computers would be held as the market transitioned to the modern mouse-input-based Windows environment; why didn't Microsoft do the same from Windows Mobile to Windows Phone? Windows Mobile was the smartphone equivalent of DOS, a mostly text-based input (or stylus) but after the iPhone, we've seen the touch-based input that Windows Phone epitomizes. If Steve Ballmer had offered a migration path from Windows Mobile to Windows Phone, rather than Osborning the whole Windows world, he might well have kept 10% or 8% of the Windows market for today (Windows Phone currently has about 2% market share).
Also just for those who don't know, the Osborne Effect is when a provider promises a new platform in the future, incompatible with the current ones, but does not have those new items to sell now. All current sales collapse as obsolete. This bankrupted the Osborne Computer company, and Ballmer Osborned his Windows Mobile platform which pushed the speed of collapse to a world record. Yes, in only 2 years, Microsoft's market share in smartphone operating systems fell from number 2 to number 6, his market share collapsed from 12% to 3% and this was the world record collapse in the mobile handset industry. Windows Mobile did not survive this transition, it was completely replaced (by a new OS, Windows Phone that is such a poor replacement that it has not peaked above 3% in any single quarter since its release in 2010)
NOKIA - 2010-2012 - FELL FROM 35% to 5% in TWO YEARS - AVERAGE FALL 62% PER YEAR - IS CURRENTLY ENDANGERED SPECIES AS FALL CONTINUES
(Was ranked number 1 in market of smartphones)
Cause of death - Elop Effect ie Osborne Effect combined with Ratner Effect - resulted in instant carrier boycott and retail boycott against Nokia, these furher damaged by another Osborne Effect by Elop and yet another by Ballmer, and the purchase of Skype by Microsoft causing a Microsoft-targeted sales boycott
Nokia invented the smarpthone so it started with 100% market share. It is predictable that Nokia would see market share erosion, gradually, over time, as the market drew new competitors, as happens with any new market. The Nokia average rate of market share decline had been historically be about 4% or 5% per annum, and guess what it was in 2010? Exactly to form, in year 2010, Nokia market share (annually) fell from 39% to 35% ie a fall of 4% in market share points (incidentially, there was some shenanigans with that, Nokia's previous CEO was caught buying market share ie boosting it by artificial prices that cut profits severely, an unsustainable problem which was part of why he was fired in the summer of 2010). Obviously Nokia's annual market share erosion was so mild, it would not register in this Top 7, in fact nowhere near the Top 10 biggest falls in handsets.
This quite gradual and modest decline in market share was suddenly boosted in 2011. To say boosted is an understatement. The floor fell off. Nokia set a world record by suddenly collapsing smartphone sales by 62% per year, for two years running. Note, this has nothing to do with the iPhone. The iPhone grew its market in the early years of the iPhone from 2007 to 2009 at a time when Nokia's smartphone sales grew more than Apple's. Since then, the iPhone sales stabilized and grew barely faster than the industry on a whole. Nokia's fall didn't start until after the iPhone's growth period had ended.
Something very drastic happened in the first quarter of 2011 that turned a strongly growing Nokia smartphone sales into the world-record biggest fall. I explained this pattern in the blog earlier in this series. (Note, I was not talking about market share there, I was talking about absolute unit sales. While Nokia's market share was eroding very gradually, as more and more new rivals were entering the hottest tech space, smartphones, Nokia's total smartphone sales grew 53% in year 2010 - and grew more than Apple iPhone or Samsung smartphone or any other smarpthone maker sales that year). Then suddenly, in Q1 of 2011, there is a massive drop in sales, and then a continuing collapse that continues to today.
NOKIA FALL IN MARKET SHARE ANNUALLY 2009-2012
YEAR 2009 - 39%
YEAR 2010 - 35%
YEAR 2011 - 16%
YEAR 2012 - 5%
Sources: Nokia quarterly data, industry analyst consensus, and TomiAhonen Consulting 2013
This table may be freely shared
NOKIA FALL IN MARKET SHARE QUARTERLY 2011-2012
Q1 2011 - 24%
Q2 2011 - 15%
Q3 2011 - 14%
Q4 2011 - 12%
Q1 2012 - 8%
Q2 2012 - 6%
Q3 2012 - 4%
Q4 2012 - 3% (est)
Sources: Nokia quarterly data, industry analyst consensus, and TomiAhonen Consulting 2013
This table may be freely shared
That is a world record, folks. A world record in market share fall in the mobile phone industry. A world record in failure. And how ironic, that Nokia would take this record, from previous record-holder Microsoft, by switching to a Microsoft-based strategy, and hiring a Microsoft guy as CEO. Yeah if you really want to fail spectacularly in mobile, you kind of need that Microsoft Windows power to really ruin your life, as we learn from such mobile industry failures as Sendo and Kin, who never even had the chance to get into the big time, or the falls of LG, Motorola and Palm, which all were fuelled partly or completely by Microsoft.
So what happened in Q1? There was no fire at a Nokia factory or a strike by employees or sudden collapse of some critical Nokia component supplier. There was no Tsunami causing evacuation, no nuclear power plant disaster causing electricity shortages and no volcanic cloud causing delivery distruption. There was no catastrophic component disaster like Sony had with exploding laptop batteries or Apple had with 'antennagate' (you are not holding your phone correctly). There was no sudden emergence of a rival phone that changed the market economics like the iPhone in 2007 killed Motorola's Razr and Palm and Windows Mobile. In fact, in 2011, Apple's iPhone 4 was delayed at launch, from June to September, so Nokia had even more room to succceed, not less.
At the end of 2010, Nokia had released its most successful handset - the N8 - and most successful Symbian operating system upgrade, S^3 ever seen, with 4 million N8 sales powering a total of 5 million of the new Symbian S^3 device sales in Q4 of 2010. This hot new flagship phone with its 12 megapixel camera and full touch screen was winning awards globally and still two years later is on the charts as one of today's best smartphones. Yes, running 'obsolete' Symbian. The uptake of N8 was so strong, it set a Nokia-record for biggest jump in Nokia smartphone sales, Nokia smarpthone average sales prices, Nokia smartphone profits, and Nokia profitability! And that N8, was about to see its 'sister phone' the E7 with the QWERTY keyboard slider and even larger screen (at the time, a giant 3.9 inches, far bigger than the iPhone of the time) to be launched in January 2011 (to huge initial success and accolades, especially from China, the world's largest smartphone market).
Anyone who says Nokia was 'losing' the war to Apple and RIM and Samsung and HTC simply is living in the lala-land of fantasy. In 2010, Nokia was more than twice the size of its nearest rivals and grew more in year 2010 than any of its rivals, so the gap to Nokia and the pack chasing it was not closing, it was growing. It so dominated the global smartphone market, Nokia was increasing the gap between it and the rest of the challengers. This is a fact. So, then, why the sudden comprehensive collapse of this massive success? Something happened in Q1 of 2011.
ELOP EFFECT FEBRUARY 2011
Yes, it was the Elop Effect, the costliest management error of all time. We already heard of the Osborne Effect. Before that, lets talk briefly about the Ratner Effect. Ratners was a successful discount jewelry store chain in Britain. Its CEO was asked why do they sell so much jewelry, to which he replied they sold so much because it was crap. He badmouthed his own products. This caused an instant collapse of Ratner jewelry sales, the company went to the brink of bankruptcy and the CEO was fired and the whole retail store chain totally rebranded. Imagine rebranding a retail chain like Ikea or H&M or Walmart or 7-Eleven... Ratners had to invent a new identity and fire the CEO just to survive. Thats the Ratner Effect.
That happened in year 1990. No CEO had since been as foolish to try this suicidal trick to ruining your market, until a certain Stephen Elop, new CEO of Nokia, who decided to pen his infamous Burning Platforms memo - in which he did, yes, call his own products rubbish to the degree they were in his words uncompetitive in the market and in his words had fallen behind such rivals as the iPhone. So this was as if to celebrate the 20 year anniversary of the Ratner Effect, Stephen Elop's 'homage' to that corporate suicide attempt by repeating it. Except that Elop decided to be even more Ratnerish, than Mr Ratner himself. Ratner was telling the truth, when he said his jewelry was cheap because it was crap (it was, a very poor low-grade quality of gold mixture, etc).
Elop called Nokia's products uncompetitive - when they were beating the competition globally. Yes, I know what you think and what you may have read at some very misguided 'tech' press. But we deal in the real world and real numbers here on this blog. Nokia was not losing, far from it. Nokia not only was winning, Nokia was dominating the smartphone market more than Toyota or GM has ever had the luxury of dominating the car market! Just in the world's largest market for smartphones, China - Nokia had over 70% market share! In Africa (a Billion people, thats three USAs) or in the Middle East (another USA by population, but partially overlapping Africa, obviously) Nokia's smartphones had 80% market share. In India, the worlds' second largest mobile handset market even as smartphones were not yet highly sold, Nokia had over 70% market share in all phones.
Nokia was not losing to Apple's iPhone and other rivals, Nokia was more than twice as big as the iPhone in smartphones (thats excluding the real race, where Nokia was 8 times bigger in all types of phones, which is how Nokia's CEO also should have looked at the race, not by Apple's SteveJobs-colored glasses of conveniently excluding 80% of the handset market in 2010). And yes, Nokia's gap to its nearest rivals was INCREASING in 2010, not decreasing. Nokia was beating the rivals like a rented mule. Who looks at the iPad today, in tablets, and says Apple is 'losing' the tablets war? Come on. Nokia sold 103.6 million smartphones in 2010, as per the final revised numbers reported by Nokia in its Quarterly numbers. And Apple sold 47.5 million iPhones. Who was winning? (keeping in mind, both companies did this profitably, and both companies were growing in a healthy way, and both companies had said in 2010 that smartphones were the strategic future of the company's total product portfolio).
Elop took the Ratner Effect, where Ratner honestly called his products rubbish - which collapsed his sales. Elop looked at his winning smartphone products that were increasing the gap to rivals in 2010, and decided to destroy that sales growth, by 'doing the Ratner' - he Ratnererd Nokia's reputation. With the Burning Platforms memo. And don't say it was an internal memo that was leaked, of course it was leaked, Elop released to all staff and when it was leaked, Elop instantly jumped on the media to claim ownership of the memo. He intended it to be released. He was very proud of it back then. (He has since expressed regret and retracted many of the dumbest statements in the memo, and admitted to the Nokia shareholders' conference in April 2012, that yes, the Burning Platforms memo had hurt Nokia smartphone sales - something he now seems to suggest, he had not anticipated at the time?)
Add to that the Osborne Effect. Elop also decided in February to demolish Nokia current strong smartphone sales growth by Osborning the whole line. Note, this has NOTHING to do with the 'decision' to shift away from Symbian - that decision was made long ago before Elop. This was the sudden change, that the new operating system for Nokia's smartphones would not be one made by Nokia, ie Symbian and MeeGo, the new operating system only months from launch, but rather, Nokia would abandon its own operating systems altogether and join the Microsoft family supporting Windows Phone. What was wrong in the Elop Effect is the timing. Elop announced his end of Symbian in February, when the first Lumia smartphones using Windows Phone would not be available until November 2011 (in tiny numbers, in volume starting January 2012). This is the classic Osborne Effect. Announcing a new, incompatible platform that instantly makes current products obsolete. It is what destroyed the Osborne Computer Company. It is what previously helped set the world record in market share collapse in handsets, by Windows Mobile in the immediate previous two years. Before the Elop Effect, Nokia had a market share of 35% in 2010. After the Osborning of his products, up until Windows Phone based Lumia smartphones were available broadly and in volume, ie at Q4 of 2011, Nokia's market share had fallen to 12% !!!! (yes, it was obviouly both the Ratner Effect and the Obsorne Effect, but still..).
CARRIER BOYCOTT AND RETAIL BOYCOTT
Stephen Elop totally voluntarily, with no reason whatsoever, caused the Ratner Effect by spreading lies and falsehoods about how bad Nokia products are. That caused an instant collapse of Nokia retail sales. I was on this blog immediately reporting it, and since Nokia CEO himself has admitted to the Nokia shareholders meeting in April 2012, that Nokia retail is often refusing to sell Nokia branded handsets, even when they have them in stock in the store. Nokia never had this problem before, Nokia was proud of the world's best retail and distribution network in the industry. Immediately after the Elop Effect, Nokia's retail revolted and put Nokia into what I call here a 'retail boycott'. It is not explicitly all stores or all store staff, it is far more random, where given sales reps simply refuse to show or sell (and increasingly store managers even refusing to stock) Nokia phones. Not just smartphones - all Nokia phone sales fell in early 2011 at a Nokia record speed. So the Ratner Effect side of the Elop Effect was clearly a self-inflicted wound. It was like an Olympic biathalon skiier (the ones who ski and shoot) deliberately taking his rifle, and shooting himself in the foot while competing.
Stephen Elop also voluntarily and unnecessarily caused the Osborne Effect in February 2011 by announcing the Microsoft Windows partnership at a time when he had no phones to sell or even to show. This was a timing disaster. Nothing would have prevented Elop from waiting until September to make the announcement, the usual timing Nokia has for a new phone to be launched, about two months before. Then the stores would have been able to sell old stock at some discounts, and used the news of the new phones as big buzz to increase interest in Nokia. The Osborne Effect hit the carrier community more than the retail stores. The carrier handset bosses who make strategic decisions about which handsets to support (and in many Industrialized World countries where handset subsidies are still common - also which of the handsets to subsidise and by how much). When the carriers/operators and their strategic leadership learned in February 2011, that the Symbian line is dead, and that Nokia has suddenly shifted away from MeeGo (even as Nokia had China Mobile as a carrier-partner supporting MeeGo and Nokia had prepared a new MeeGo based smartphone for Verizon - called SeaRay, what Elop later would cannibalize to create the first Lumia phone, the Lumia 800, etc) - they of course instructed the handset buying execs to discontinue supporting Symbian.
That makes 100% sense, if the Nokia CEO announces a change in his strategy, that Symbian is suddenly killed and its replacement, the much-promised MeeGo is also killed, then yes, the carriers will abandon Symbian immediately. It does NOT mean that the carriers will be taking Windows Phone instead, that would remain to be seen. For example Android was already growing strongly at this time and most of the Windows partners had shifted completely or partially from Windows to Android already at this time. The carrier reaction to the Osborne Effect was predictable and obivous, for example Horace Dediu ie Asymco was up on his blog instantly announcing that the Windows decision would collapse Nokia sales.
Note, that the Osborne Effect side of the Elop Effect hit essentially only the smartphone side of Nokia. So it collapsed Symbian sales by Nokia, not really impacting the dumbphone/featurephones sales (which were hit by the Ratner effect). And also Elop's Osborne Effect caused the ending of NTT DoCoMo's loyal support of Symbian in Japan, instantly also collapsing the Japanese Symbian sales overnight. NTT DoCoMo shifted to Android and is now in the process of bringing MeeGo's successor, Tizen based smartphones to Japan in 2013. Elop has since bitterly complained, time and again that the carriers are not supporting his strategy. Before the Elop Effect, Nokia had the largest carrier relations of any handset manufacturer and the carrier relations were the pride of the company, a clear competitive advantage second to none (now that is obviously with Samsung who stole all those contracts and deals and is forging new success replacing Nokia at every turn, such as with Tizen replacing MeeGo)
But yes, there was no need whatsoever for Nokia to make the Microsoft announcement in February, when the first phones weren't due until November. This was a self-induced wound. Its like the skiier in the biathalon now taking his rifle, deciding that the pain in one leg is not enough, and shoots himself in the other leg as well, to really damage his chances of winning this race.
THINGS GOT WORSE WITH SKYPE
The Nokia fall was already bad, then came Skype. This is not about which phone has or does not have Skype. We've had Skype on mobile phones since the middle of hte last decade. Today most smarpthones can have Skype installed and we can bypass the carriers completely if we use WiFi for example. This is not about having Skype on a phone (the early Nokia Lumia phones did not have Skype even). No. This is about who owns and bankrolls Skype. In other words, who keeps Skype alive, to threaten the carriers. Skype is the biggest existential threat to the mobile operators/carriers. Yes, Whatsapp or Blackberry Messenger or iMessage or Facebook are threats too, as what are commonly called OTT providers. Skype is the biggest. Skype has passed 1 Billion registered users (not all using it obviously) and through the Microsoft purchase of Skype in June 2011, Skype is now being expanded to cover all 1.2 Billion desktop/laptop/tablet/smartphone users of Windows and possibly even Xbox and beyond. For context, the world's largest mobile carrier/operator only has about 800 million users. Skype is a gargantuan threat to the carrier community.
Skype is not only messaging or only voice, it is voice, messaging and videocalls. Skype is particularly used in the most lucrative part of mobile operator business, cannibalizing international voice minutes and roaming revenues. Voice calls form 60% of mobile operator/carrier revenues and 50% of profits. SMS text messaging forms 20% of operator/carrier revenues and 45% of profits. So in total, Skype threatens about 80% of revenues and 95% of profits of the carrier community! If voice and messaging traffic disappears to Skype, or the revenues of it fall drastically, meaning the profits in it collapse totally, the operator/carrier business goes bankrupt. No two ways around it. Skype is an existential threat to carriers. For Microsoft to suggest to carriers, let me put Skype on your smarpthones via Windows Phone, is like labeling a bottle of poison as 'tastest great' and asking carriers to drink it all. That is not about to happen.
Stephen Elop testified to the Nokia shareholders meeting on April 2012, that its not that Skype exists which is killing Nokia sales. It is because Microsoft bought Skype - that the very ownership of Skype is what causes the carriers to reject any Windows based smartphones by any manufacturer. Before the Skype purchase, Microsoft had SonyEricsson, Samsung, LG, HTC, Huawei, ZTE and Dell supplying Windows based smartphones. After the Skype purchase, SonyEricsson, Dell and LG quit Windows completely - while HTC reduced its Windows portfolio shifting more to Android - Samsung announced the Tizen OS project - Huawei and ZTE decided not to roll out Windows Phone 8 based smartphones ie the next generation. All who have commented, either officially or indirectly, have said that the carrier demand for Windows ended with Skype. Nobody in the carrier community wants Microsoft anymore. The only reason they say nice things sometimes, and let Microsoft and Nokia occasionally launch a phone model or two is because Microsoft and Nokia are throwing quite literally billions of dollars into the marketing spend. The moment the money stops, the carriers say, sorry, it wasn't that popular after all. This is exactly the pattern we saw in Britain, in Germany, in America, and we will soon see in China too.
Not my words! So testified Nokia CEO Stephen Elop to the Nokia shareholders meeting in April, that the carriers dislike it that Microsoft owns Skype, adding 'of course' as it is so well known in the industry. And he added in a long reply that there are carriers who are refusing to sell any Windows based smartphones and that a year of negotiations with carriers involving Elop himself, and Microsoft, have not convinced any carriers to take the suicide pact of drinking the Skype poison and becoming Microsoft's bitch, sorry I should say slave.
OSBORNED MEEGO TOO
And then Elop himself was not satisfied in the damage done to Nokia smarpthone sales. He had his new smarpthones coming out running MeeGo, the wonderful new OS powering the N9, that has been winning praise the world over, many reviewers actually calling it better than the iPhone - no smartphone had ever gotten that kind of review, certainly none by Nokia before or since; nor of any Microsoft Windows platform either (by any honest tech review, I am ignoring the Microsoft-planted propaganda stories such as their inflated Amazon ratings by the ghost reviewers who were caught being paid to write positive reviews of Windows Phone smartphones). MeeGo had three handsets and a tablet ready to launch in 2011 and many more to come. Nokia actually produced only two, the N9 and N950, both highly beloved by those who have used them. The Nokia N9 won the design award of the year in 2012 by the D&AD awards, considered the Nobel Prizes or Oscar Awards of the design industry (beating Apple among others). This was a high-price flagship superphone that in every side-by-side review beat all contemporaries from the iPhone to the Samsung Galaxy to the Nokia Lumia. If you liked the original Lumia 800, recognize that phone model, originally as the SeaRay was the little sister to the N9, when both were designed to run on MeeGo. After Elop force-migrated the SeaRay to become his first Lumia Windows smartphone, it had lots of its abilities sacrificed, making it a bastard child nobody could love.
So back to the N9. If you manufacture such a highly desirable and excellent device, you roll it out everywhere and let its sales fly (even more, if your smartphone unit is seeing currently dramatically declining sales, your factories run idle and your are bleeding cash). Can you imagine Apple, if it releases a new device that suddenly wins all awards and is called the best in field, by every analysts at the time? Apple would roll it out everywhere and ramp up production. Elop refused to let the N9 be sold in major markets, would not release the N950 for sale anywhere, and to really make sure he nailed every nail into the coffin of the Nokia-owned and developed MeeGo world, he announced one day after the N9 was revealed, that Nokia will not support any further MeeGo devices! He Osborned his own product one day after it was born. Natural born killer, that is what Elop is. He is Dr Kervorkian-Elop, the Suicide Doctor of the mobile industry.
BALLMER THEN OSBORNED LUMIA 1.0
So Nokia had released four Lumia based smartphones by June of 2011 and had deals with AT&T and T-Mobile in the USA, and even the first deal in China with China Unicom. When Steve Ballmer did what he knows best, f*cking his partners. Ballmer announced that Microsoft will not provide a migration path for any first generation Windows Phone prodcuts (on WP 6 and WP 7 versions) into the new Windows 8 ecosystem, where a new Windows Phone 8 OS would be introduced instead. Ballmer looked at his struggling partner Nokia, and all others still left in the Windows ecosystem, and decided to screw them royally. No migration path. Even after the disasterous results of the 'no migration path' decision with WIndows Mobile two years before. That caused the 2012 sales of Lumia of the first generation, what I call Lumia 1.0 to collapse. Nokia Lumia sales had just started to catch some success, and actually doubled from Q1 to Q2. But the Osborne Effect is immediate and dramatic. Nokia's very next quarter that strong growth was traded for instant call. The Lumia sales fell by 28% from Q2 to Q3. This even as Nokia was offering Lumia at fire sale price cuts, literally in some cases sold in the one penny basket (with contract).
So while Nokia's collapse started with the Elop Effect, that damage might have ended during 2011, and with the new Windows Phone smartphones on Lumia and the hot MeeGo based N9 and N950, Nokia could have recovered at least some of the losses, or at the very least, stopped the decline, if Elop was a competent CEO. Instead, after the Elop Effect, we had the Microsoft Skype purchase, that caused carriers to institute a global boycott of all Windows phones by any manufacturers (and many Microsoft partners exited at this point). Then Elop caused yet another Osborning of the MeeGo system. And finally Ballmer Osborned what little success Nokia was trying to build with Lumia 1.0. Now we start, once again, from zero, with Lumia 2.0, running Windows Phone 8, not from a strong Nokia market position of 35% global market. Not even from the far weakened position when Lumia 1.0 was launched, when Nokia held 14% of the market. No, now the Lumia 2.0 is being introduced on an OS platform that still has a global carrier-boycott against Skype against it, with Nokia bringing in 3% market share to support that transition. How is this going to play out?
I am expecting Nokia will not survive and am expecting some rivals to come in, buy Nokia not for the smartphone competence or the factories or carrier relations or distribution or brand strength - but because Nokia has the world's largest patents portfolio in the mobile industry and that alone is worth more than the roughly 10 Billion dollars that is Nokia's market cap value today.
SAME PICTURE WITH SUMMARIES
I promised a variation to the simple picture in the above. Here is the same graphic, but adding the small boxes to describe the main reasons why these seven mobile handsets failed. You may use either graphic or both if you want to report on this story
This graphic may be freely shared
So yes, please do feel free to share this or any other stories, statistics, graphics and quotations in your stories about mobile and tech. And any journalists out there - look at this graphic. Look at Nokia. If this was Apple iPhone or Toyota or Boeing or Coca Cola, setting the world record collapse of its industry (and arguably a world record of any industry) - isn't that a HUGE story to tell? If you are a journalist or blogger, please do your story on this, and report on it. This is the biggest story in tech and some journalist who writes the Nokia Elop story will be winning the Pulitzer. And this story will become a case study at Harvard and all MBA schools, so if you are inclined to write a book - the Elop Effect and Nokia's collapse is a true case study in stupidity and ineptitude. Please do consider researching and writing your story about it.
WORLD RECORD FALL
So thats the story in Balamory. We had seen six incredible collapses in the handset industry. LG lost almost a quarter of its market per year for three years running, but recovered and is now healthy again. RIM and Siemens lost a third of the market per year for three years. RIM was on the ropes but now looks like it will survive. Siemens in mobile phones did not. Motorola and Palm lost four out of ten customers they had, per year, for three years in a row and went bust. And Windows Mobile set the world record for market failure losing literally half its customers per year, on average, for two years in a row, until the system was shut down and totally replaced.
Now we have Nokia under Elop. He looked at Ratner and Osborne, saw how they destroyed their respective companies, and decided he can do better. He combined the two, introduced us to the Elop Effect, that started Nokia's fall. Then partly through Elop's own idiotic decisions and partly due to Microsoft's actions, the problems at Nokia smartphones got only worse. Nokia's market presence has been falling 62% per year and rumors are increasing that Nokia will go bankrupt, or be sold, or both. Elop has acted in desperation moves from selling some of his smartphone factories (where the future of the industry is, that tells you how little Elop believes his strategy can succeed) to selling whole units, to selling some patents to selling Nokia's HQ building in Finland. This has been - and by a huge margin - the biggest fall in the history of the handset industry. Elop has taken growth and shot his company in the foot - twice - and even more since. He has snatched defeat from the jaws of victory. He had the win in his grasp but he voluntarily let it slip away. No, he actually flung it away. Elop has precided over the biggest market share collapse in the handset industry and is definitely the worst CEO of anyone in the mobile industry, ever. I will return with more analysis to this series, to illustrate, Elop is not just the worst CEO in telecoms, he is the worst CEO in any industry, of all time. But yes, keep your eyes on Nokia, we are witnessing a world record being made - a world record in failure. Elop is synonymous with total comprehensive failure.
Elop should do the right thing and resign. But as he is clearly not honorable enough to do that, he should be fired by Nokia Board immediately. You cannot hold onto a CEO who has just made Nokia a laughing stock and produced a world record failure for Nokia's illustrious history.
PS ELOP OPENED DOOR TO ANDROID TODAY
And perfectly on que, today Elop admits what many analysts have been saying that must be considered as Nokia's Plan B - when Gizmodo asked Elop (on their Spanish site) is Android possible in Nokia's future, the shock response, "anything is posssible". What happened to Microsoft forever? What happened to Elop and Ballmer being BFF's Best Friends Forever? Was it last April when Elop broke the friendship by admitting that carriers hate Skype and won't support Windows Phone handsets by anyone? After that point it seems the two have gone to war. Microsoft announced its tablets and talks now openly of its own smartphones. Ballmer announced Nokia's Lumia phones can't be upgraded to Windows Phone 8. Microsoft suddenly wants to have huge retail space in a massive global series of stores to sell Microsoft products similar to Apple stores. Nokia tries to claim it is still in a special relationship with Microsoft, but Ballmer now shows HTC smartphones and others, no longer Lumias. Earlier we heard Nokia was hiring Android staff, supposedly just to do some mapping app port, but who knows how much Android staff they actually hired worldwide with that pretense. Elop has been getting the Android question for 23 months, literally, 23 months now, ever since he first announced Microsoft. He's always up to now said there is no plan B, Nokia will only go Microsoft. Now, today, Elop suddenly drops the bombshell that yeah, Android is open possibility in the future.
What if Nokia decided last summer that Windows WAS dead, what Elop heard from all carriers and the other handset makers departing the Microsoft ecosystem or giving it only lip service? If Elop and Nokia's Board decided last summer ie 2012, that Windows is dead, and they now need a new Plan B, and Elop had just finished destroying Symbian, MeeGo and Meltemi, and if last summer they decided to quietly shirt to Android, then when might we see the first Nokia Android smartphones? About Christmas 2013. The development cycle in this industry is 18 months from clean table to first handset sold... So having done his share of Osborning, maybe Elop does know that Android phones are coming to Nokia, and now wants to start the buzz and speculation, so that he could then announce them around September or October of this year, to sell for Christmas.. At this moment pure speculation but lets start to monitor the rumor space.
Lessons from this blog? Its almost exactly parallel to LG. The massively costly misadventure to Microsoft, replaced by the rescue Plan B via Android back to profitability. And the irony? Elop himself sunk Nokia's own Linux based smartphone OS platform, MeeGo and he also sunk the low-cost handset OS running Linux, Meltemi, now to replace Nokia's OS with Linux-based Android, where Nokia is not in any way in control... And irony upon irony, MeeGo legacy living on via Tizen on Samsung and Huawei, as well as via Sailfish used by handset-maker start-up Jolla of Finland.
This was part 3 in the series of Nokia strategy mistakes illustrated by one picture each
The series started with the long blog re-visiting Nokia's SEC filing that identified risks in the Windows strategy (And how bizarrely almost every risk is turning out to actually have happened)
Then in Part 1 of the single-issue blogs, I showed how Nokia unit sales turned from record growth to sudden collapse timed exactly at Elop Effect February 2011
Then in Part 2 I compared Nokia market performance to the two other big smarpthone makers of the past three years, Apple and Samsung.
More stories coming in this series, each one with one picture to showcase one management failure by the world's worst CEO, Stephen Elop of Nokia.