Over the past two months or so, I have been chronicling the Nokia disaster of the past two years, in short blogs, of one topic, one picture. Today we do the Misery Graph. But yes, before that, brief summary of this series. So far we've done 8 pictures so far - the Nokia smartphone sales collapse due to Elop Effect, the competitive picture of Nokia vs Apple and Samsung, Nokia market failure in context of other handset collapses, the failure of the migration from Symbian to Windows Phone, the disasterous Lumia sales pattern with Windows Phone, the Revenue Collapse in Nokia's handset business, the CEO delusions: When was Nokia truly burning, and when was it safe from any platform fire? and the Extent of the Failure in Elop Strategy Promise vs Delivery
That was the first 8 pictures. Today we do number 9 in the series, and today's is perhaps the single most important picture of them all. This is the ultimate test for Nokia, how Nokia will be remembered decades into history. When people look back at Nokia of this time, this is the one decisive factor, the one picture, the one measure. It is what I call the Misery Graph.
Nokia faces a 'paradigm shift' in the technology space. The total market of what we now call 'dumbphones' or Nokia sells as 'featurephones' will be shifting to something else, called a 'smartphone' Sometimes industries see total such shifts, as we saw for example in televisions from black-and-white TV sets to color TV, and then again, from picture-tube based CRT TVs to flat screen televisions of today. These are total industry shfits, if you do not capture the shift, you die. Like the world's biggest TV makers RCA and Philips back in the days of black-and-white TVs and color TVs, who are gone from making TVs today, replaced by Sony and Samsung. Other technology evolutions, while revolutionary, are not 'paradigm shifts' because they do not shift the whole industry. Diesel engines in cars, jet engines in airplanes, did not end other engine types like gasoline engines in cars, propeller-driven planes, even as their proportion has kept growing. So you can safely survive as a car maker not offering diesel engines, or being an airplane maker without jet engines. Maybe your market is not as big, but that is viable. Trying to sell black-and-white TV sets is not.
The handset industry saw its first paradigm shift already, going from analog to digital phones. Motorola was the giant handset maker in the analog days, Nokia came and grew strong with digital phones, and Motorola fell from the top by not capitalizing fast enough on the new digital phones and their new non-voice capabilities such as SMS text messaging and rudimentary mobile internet services. Motorola withered and died and was bought by Google.
Now the handset industry faces its second such total paradigm shift, from dumbphones to smartphones. Right now, latest data from Q4 of 2012, has the world transition having reached 46%. It will pass the 50% level - meaning half of all new phones sold will be smartphones - soon this year, 2013. Eventually all phones will be what we now call 'smartphones' and the dumbphone market will vanish. So how is Nokia doing in this transition?
Nokia was doing just fine. Nokia in fact invented the smartphone. Nokia was punishing its rivals, the other dumbphone makers like Motorola, LG, SonyEricsson, Siemens, Panasonic, Sharp and Samsung - pushing them into loss-making or quitting the handset business while Nokia made a profit every single quarter of every single year, in its smartphone unit. Nokia invented the smartphone, and Nokia kept safely ahead of the industry migration rate - not too far ahead, but about 4%-5% ahead of the industry migration rate, as Nokia helped its customers transition from using dumbphones to smartphones, while safely holding onto its massive global lead in handset sales.
Nokia was such a master at this transition - that differing from every other rival dumbphone maker attempting this transition - only Nokia was able to GAIN market share while migrating customers from dumbphones to smartphones. Yes. Nokia's massive global market lead in total handsets, fuelled at the time by dumbphone sales, was actually improved when shifting customers to smartphones. And yes - Nokia's smartphone unit was profitable doing this!
By every textbook measure, this was the very definition of success in a technology migration. Nokia not only saw the transition coming, Nokia invented it, and then dominated the whole transition process, where Nokia, the world's largest handset maker, actually had a bigger lead in its smartphone - future handset business - than the massive lead it had in the dumbphone business. This, done profitably, is what success looks like. This is what Nokia will be measured upon, and Nokia was doing it brilliantly. Spanking such global tech giants as Sony, Samsung, Motorola and LG in the process. Wow.
Then came a clueless new CEO who decided to snatch defeat from the jaws of victory. This is what happened.
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Nokia's global sales did not disappear. Nokia customers keep coming back. Its the transition that suddenly failed. What were highly desirable, well-selling, well-designed 'world phones' that Nokia sold, at a wide price range, in vast array of functionality and features, from world's best cameraphones to QWERTY sliders to advanced operating systems like Maemo and MeeGo, Nokia was the ONLY dumbphone maker in 2010, whose loyalty was so high, most who owned a Nokia wanted another. Only Apple and RIM/Blackberry - both pure smartphone makers - had better loyalty at the time. Nokia was winning the transition.
Then new CEO Stephen Elop decided to badmouth his own smartphones as uncompetitive (the notorious Burning Platforms memo, the costliest management memo of all time) that caused what is called the Ratner Effect. When a CEO says his own products are bad, he is believed, and sales collapse overnight.
And the new CEO Elop also decided to utilize another corporate-suicide trick, the Osborne Effect by madly announcing his new Microsoft partnership in February of 2011, when he had no Windows based smartphones to sell until November. This of course collapsed existing sales, just like with the Osborne computer company and Nokia smartphone sales set a world record in sales crash in one year. These two effects, when combined (they happened within 3 days of each other in early February 2011 is what I coined as the Elop Effect and increasingly that is seen as the dumbest management communication attempt of all time, causing the single worst destruction of any Fortune 500 sized company business, in human economic history. Yes, this is far worse damage to the company, than what Coca Cola did with New Coke or the Ford with the Edsel or the BP Oil Spill or the brakes disaster at Toyota.
So Nokia was strongly leading the transition to smartphones. Now under Elop Nokia is regressing and fast. The industry transition for the year 2012 was 39% to smartphones, Nokia was down to 10%. If you think it was getting better at the end of the year, no it was not. By Q4 the world transition level was at 46% and Nokia's migration rate to smartphones was down to 8%. Nokia is truly going in the suicidal direction of this industry.
How can I put it in clear terms. Imagine if Philips or RCA saw the new color TV's taking off, selling well, and suddenly deciding, no, thats not the future of televisions, we shut down our color TV production and do only black-and-white TVs.
Or more recently, if Samsung or Sony looked at their TV sales shifting from the bulky CRT based TV-tube type of television sets, and saw customers preferring flat screen TVs and then they shut down their flat screen production and pushed bulky picture-tube TV sets instead? How mad would that be?
Or what if Panasonic and Sony and other video cassette recorder makers, had seen the success of DVD players, and then - as DVD sales are exploding, suddenly decide to shut down their existing DVD player production, and shift their business to VCRs intead?
I could go on. Rotary dial phones? Analog cameras? Wrist watches that you wind manually to make them run? Dot matrix printers?
There are already operators/carriers like Safaricom in Kenya who say they will stop selling featurephones altogether. They will only sell smartphones. Yes, the world will pass this year, 2013, the half-way-point, where half of all new phones sold are smartphones. Nokia was far ahead on this transition. Now they are literally selling or shutting down smartphone factories, and Elop is introducing ultra-low-cost phones that cost 15 Euros/20 dollars to sell the superdupercheap phones. Dumbphones. This will be the classic case study in how to abandon a sure victory, how to snatch defeat from the jaws of victory, how to set up a certain road to the future, and then gift that to competitors and refuse to take that road yourself. This graphm the Misery Graph is not just what Elop will be known for in all eternity as the biggest Business Failure in history, but also how Nokia will be known. How they voluntarily abandoned certain victory.
In the long run for Nokia survival and success, nothing matters more than this one picture. The whole handset business will transition away from dumbphones and 100% to smartphones. This is now no longer under any argument or disagreement. The price points of smartphones are coming down and squeezing the dumbphones out of the market, it is only now a matter of time. Nokia's only measure ten years from now, like we look at Motorola in the digital transition, is will Nokia be able to win in the transition to smartphones - as it was winning - or will the story be, that Samsung came and took Nokia's candy while the CEO madly pursued low-cost featurephones and missed the transition to smartphones. The only thing that matters for Nokia's history is whether this transition was successful or not. It does not matter what awards some Lumia phone won or lost, what carriers it attracted or not, was the Windows ecosystem the third or fifth or whatever, what profits Nokia pretended to earn in a quarter by selling its HQ building or its Salo campus, etc. The only thing Nokia will be remembered for, ten years from now, is did they win or lose the transition to smartphones. In 2010 Nokia was safely a full 5 points of migration rate ahead of the industry, Nokia had migrated 23% of its phones to smartphones, while the industry was only at 18%. Now at Q4, the world has gone to 46% and Nokia is down to 8%. This is how Nokia will be remembered, it lost the transition. The clown in charge was the management fool named Elop, worst CEO of all time. Because Elop lost that race, he has to be fired for that reason alone (not to mention all his other madness)
Why is Elop allowed to remain in control of Nokia? Why is Nokia's Board allowed to remain in control?
And there is still more to this Nokia disaster, more pictures and stories to come.. This is so sad, seeing Europe's biggest tech giant destroyed by a delusional Canadian madman who wants to shift the inventor of the smartphone, Nokia, back to the 1990s.