Ok, the truth is seeping out, and this is smelly shit. I apologize for the language. We have news about Elop and his incentives. Yes, Elop had a contract that would pay him 25 million dollars if he managed to sell Nokia's handset unit to Microsoft. This is a blatant conflict of interest, and one that incentivizes Elop for destructive behavior against Nokia. I had been trying to think of a good analogy, I finally thought of one. Its like a town hires a new police chief. The new police chief is paid a salary to reduce crime. But he is then promised a bonus if he can stop the people complaining about crime. The new police chief starts systematically to kill all residents who complain about crime - including complaining about him, the police chief killing citizens. Soon the complaints end and the police chief earns his bonus. This is so silly, its like from a Monty Python sketch, except its true. Elop, just like the imaginary police chief, is now being paid a massive 25 million dollar bonus for destroying Nokia's profit engine and very healthy handset business unit. So lets dig in. What on earth has been happening? Lets start, as we usually do, with the facts:
In 2010 Nokia dominated smartphone sales globally. Dominated smartphones more than Toyota, GM or Volkswagen ever dominated in cars, Nokia dominated smartphones more than HP, Dell or IBM ever did in personal computers. Nokia was more than twice as big as its nearest rival, held better than 70% market share in the world's largest handset market - China (which today accounts for 40% of all smartphones sold) and Nokia was doing all this profitably. Not just profitably, the smartphone unit generated the largest slice of Nokia's profits and the smartphone unit reported record profits by year-end, with brand new highly popular handsets shipping.
You say Apple? Yes, Apple was killing weak rivals like Palm and Motorola but Nokia grew more smartphone sales in 2010 than Apple did its iPhones. Check the numbers. Nokia added 35.8 million new smartphone unit sales during 2010 from 2009, compared to Apple which added 22.4 million new iPhone sales. I know you and I keep reading in the press that Apple was winning - but if the leader adds 36 million new sales, and you, Apple in third place, only add 22 million more - the fact is, you, Apple are not gaining on the leader. The fact is, Nokia, the leader was pulling away from Apple in 2010!!! And this blog deals with the facts, the numbers don't lie. Here is the picture of Nokia vs Apple iPhone vs Samsung up to Q4 of 2010:
(The dotted purple line here is when Elop is hired to Nokia)
When you understand that all three of those smartphone makers were reporting profits in their smartphone business (or handset unit in the case of Samsung), and the top line is Nokia, under no possible circumstance is the guy on the top 'in desperate trouble' in 2010.
Nokia dominated so much over the smartphone industry, that any CEO of Coca Cola or Airbus or Canon or Timex would have loved to have such a strong position - more than twice as big as your nearest competitor and growing more than any of the rivals, meaning the gap between you and your chasers is growing, not shrinking. This is the dream job of any CEO.
No, Nokia was not perfect in 2010, far from it. Nokia had just reported its first loss-making quarter in more than a decade. Previous CEO Kallasvuo had seen the Nokia share price fall by 55% in four years since he took office. But the problems Nokia had, Nokia corporation that is, were not in the smartphone unit, which generated one third of Nokia revenues in 2010 and 40% of Nokia profits by Q4 - no, the problems were in the networking unit (NokiaSiemens Networks) and Navteq the mapping unit, and throughout the Nokia organization, in 'execution' - Nokia products were increasingly delivered with massive delays (like the N8) or delivered with faults (N97). The previous CEO was fired, Stephen Elop was hired from Microsoft to come and fix Nokia's 'execution' problems, to bring the company to good health overall. The one part of Nokia which was not broken, in 2010, was the handset unit and its smartphone unit in particular was incredibly strong (in overall handsets, Nokia was 50% bigger than number 2, Samsung, in smartphones yes, Nokia was more than 100% bigger than number 2, RIM ie Blackberry at the time).
I have been on this blog reporting on management blunders, massive, strategic, catastrophic errors by Nokia's new CEO, Stephen Elop, not from the beginning, but five months into his tenure. I have chronicled the problems, and pointed out, that they are clear, clear, mistakes, often 'consensus' mistakes where essentially all of management and marketing theory say it is a mistake. Yet Elop has proceeded making such decisions. There were Microsoft and Nokia defenders who would swarm this blog to complain that Tomi is not 'loyal' to Nokia, and that I should shut up. And that Elop was a good manager and the decisions he made would turn out well. (incidentially - long blog warning. This is another 10,000 word blog - thats easily a full chapter in one of my hardcover books. Get yourself a cup of coffee before you start. But this is the facts and analysis blog of what happened - where we now see the motivating agent. It all makes perfect sense now)
The facts are undeniable.
In Q4 of 2010, the last quarter before Elop started to wreck Nokia's smartphone unit, Nokia sold 28.6 million smartphones (Nokia official number, updated by Nokia). That was up 37.5% from Q4 of 2009. So Nokia smartphone unit was growing at an annual rate of almost 38% at the end of 2010. Then Elop started to destroy the smartphone unit. The smartphone sales collapsed instantly from February 2011 (I will get to that in a moment, lets just take the numbers). Nokia smartphone sales fell from 28.6 million per quarter just before February 2011, to 19.6 million by Q4 of 2011 - a world record crash in the handset industry, of 32%. Nokia lost literally almost one in three customers it had, in only a 12 month period. This from every single year reporting massive growth including 37% growth in 2010, suddenly a 32% collapse. This was not because the world economy was in trouble, no, the global smartphone industry jumped 58% in the same 12 month period. Something happened in February 2011. Oh, I should point out, the Nokia profit engine, the smartphone unit, that generated 40% of Nokia's total corporate profits when Elop took over? The moment he announced his new strategies, that smartphone unit was plunged into loss-making. The unit that had never reported a loss before Stephen Elop, has not reported one quarter of profits since the fateful changes announced by Elop in February 2011.
Did the new CEO fix what was broken? Lets see what the numbers tell us. Again comparing Q4 2012 to Q4 of 2011, the global smartphone market grew another 37% in the next 12 months. How did Elop fix Nokia's smartphone problems? He launched the new Lumia smartphones that used Windows Phone then, in Q4 of 2011, so we now can see a year of 'performance' after that. This is the 'execution' that Elop was supposed to deliver to Nokia. What happened? By Q4 of 2012 Nokia smartphone sales had collapsed 64% - yes, Elop set the world record in failure in his first full year of his new strategy. Then he managed to double that disaster in his second year! And to this day, the Nokia smartphone unit has not recovered to produce a profit. Here is that same picture I showed you, of Nokia vs Apple and Samsung, but updated to Q2 of 2013.
(the dotted blue line here is the last moment before the Elop Effect, ie the end of Q4 of 2010)
This is the perfect picture of casting victory away. The previous picture - and this picture up to the dotted line and Elop Effect, shows clearly, how Nokia was dominating the smartphone market. Immediately after the Elop Effect Nokia's share collapses and Nokia is plunged immediately into loss-making. While the industry continues its strong growth, and both Samsung and Apple pass Nokia to now tower over Nokia.
Something happened in February 2011 that caused Nokia's dominating position to collapse. Something so incredibly destructive, it is literally the world record collapse in handsets. Yes, Nokia collapsed from Febraury 2011 faster than any other handset collapse we've ever seen, Motorola, Palm, Siemens, Blackberry etc. Nokia had problems in 2010 yes, but those problems were not in the smartphone unit, they were elsewhere in Nokia Corporation. Nokia still grew - faster than its competitors - in 2010. And Nokia smartphone unit did this with record-setting profits. ANY company in ANY competitive market would love to be where Elop found Nokia's smarpthone unit in 2010. Apple! Apple today would love to be twice as big as Samsung in smartphones, while generating a company-record profit.
The profits of the Nokia smarpthone unit alone - at the levels they were in Q4 of 2010, if annualized, would have qualified the smartphone unit alone as one of the 200 largest profits in global Fortune 500 sized companies in 2010. Nokia share price had grown 11% since Elop took over, the Nokia shareholders loved the new CEO and his first five months in office. The Nokia ratings agencies all were very optimistic about Nokia's future, they all rated the Nokia debt at one notch below perfect by January 2011.
So. What happened then? We can see the facts, the smartphone sales collapsed. The question then becomes: why did they collapse? Was there a magnificent new technology in February 2011 which wiped out the smartphone business like propeller-driven airliners killed the Zeppelin dirigible air transport business (combined with a few big air disasters). No. No new pocket gadgets with teleportation were announced in February 2011, or January or March, or even during Q4 of 2010 or Q2 of 2011. Nothing. Even Apple's iPhone was delayed and the then-current iPhone had its 'antennagate' issues. And the facts? Smartphone sales have grown from 297 million units sold annually in 2010, to 1 Billion smartphones sold this year (growth rate of 236%).
Did a competitor come with a fantastic new device that wiped out the Nokia product line as obsolete? No, no fancy new Samsung Galaxy Time Travel editions were launched, nor Blackberry Mind Reader editions either. Again, the time of Q1 of 2011 was particularly lame in smartphones, as Blackberry itself was announcing delays to its new Q10 operating system.
Did Nokia face a huge supply shortage? There was the tsunami and earthquake in Japan that caused the Fukushima nuclear disaster yes, a month earlier, but what Nokia suppliers reported regularly ever since February 2011, was a collapse in Nokia orders - Nokia itself was ordering less parts, it was not a shortage of parts being available in the market. Nokia regular suppliers like Texas Instruments and STM reported ever worsening shipments because their major customer - Nokia was reducing purchases. No, it was not supply problems.
So, it wasn't the industry demolished. It wasn't the competitors doing anything radical. It wasn't the supply chain. What of Nokia's own products? Did we find that Nokia batteries were exploding like Sony's laptop batteries a little bit earlier, or maybe it emerged that using a Nokia branded smartphone caused cancer in pretty little pussycats? No, nothing like that. In fact, Nokia's new handsets, the N8 and E7 won strong praise and various awards in particular the N8 with its advanced (for the time) 12mp camera and lots of cool related camera tech.
Every single analyst of the mobile handset industry, that issued a forecast for the industry during 2010, had confidently predicted that Nokia would remain the world's largest smartphone maker easily into 2012 and 2013. TOTAL CONSENSUS. Understand that Nokia smartphone sales is not same as Symbian sales. Nokia sold smartphones that were not on Symbian, and many handset manufacturers were still in the Symbian partnership in addition to Nokia at the time. While Nokia's Symbian smartphone operating system would see erosion yes and most (including me) expected it to lose its leadership position eventually to Android - as so many of the earlier Nokia handset partners in Symbian had now been bought out by Nokia (yes, Nokia paid them to depart Symbian) and were now adopting Android. But Nokia was not alone in Symbian, lots of major handset makers were still fully committed to Symbian still in January 2011, including Japanese giants Fujitsu, Panasonic and Sharp. Oh, and Symbian had as official partner a telecoms operator, none other than NTT DoCoMo, Japan's largest telco, at the time the world's most profitable telco and the one that just .. invented the whole mobile industry over three decades before, and had invented almost every major advance to the mobile industry including the first mobile internet, the first WiFi phones, the first 3G networks, the first app store, the first NFC mobile payment phones, the first mobile wallet, etc etc etc.
The point is, that yes, its true that Symbian's market share was not growing - of course - it was declining simply because the past Symbian partners were now departing to join Android. But Nokia smartphone sales were growing strongly! And inspite of that, Symbian was the world's largest OS by sales in 2010 and had by far the world's largest installed base of users - the relevant metric if you are arguing 'ecosystems'. Nokia's Ovi store, was in fact the world's second best-selling app store at the time, and yes, closing in on Apple's iPhone App Store. If Nokia's CEO had not meddled in the success, Ovi would have passed Apple quite easily in the next year or so, because Ovi supported over 60 languages and had carrier billing on over 120 networks - meaning single click purchases without credit cards (in most countries of the world, the majority of phone users do not have credit cards, even in such advanced countries as Germany, Americans are often surprised by this fact).
You can argue that Apple was winning and defeating its rivals. That argument has lots of merit when considering the fate of say Palm or HTC. It had no merit whatsoever when considering Nokia smartphone in 2010. It is a myth that Nokia was falling victim to Apple in 2010. What amount of iPhones Apple was able to sell in all of 2010, Nokia did in mere 5 months. And Apple only sold smartphones, Nokia also sold 'dumbphones' - four times more of those than Nokia smartphones, so Nokia had a huge reserve to also convert into smartphone sales into the future.
You can argue that the future of smartphones is apps and the ecosystem, but by that argument, Nokia had by far - BY FAR - the world's largest ecosystem by just about any measure that matters. Nokia had the largest installed base of customers using Nokia branded smartphones, plus even more of smarpthones by other brands using Symbian. Nokia had even more for app developers because of the Nokia development environment called Qt, which allowed development also to Nokia's featurephones, and to Blackberries, Android smartphones and Nokia's future platform, MeeGo. Nokia installed base of active smartphone users in 2010 was 6 times bigger than Apple's. Nokia new sales was 2.2 times more than Apple's. Nokia countries covererd by Ovi store was more than twice that of Apple's. Nokia languages covered was 5 times more than Apple's. The only measure - the only measure by which Apple led Nokia was in 'number of downloads', yes Apple had more downloads - most of those were free apps, the proportion of paid apps downloaded on Ovi was far higher - but yes, even by that measure, the number of downloads, Nokia was second largest and catching up on Apple, Apple was not pulling away. If you think Nokia had 'lost it' in 2010, because it was 'only' second in app downloads, then you must believe also that Android, Windows, Palm, Blackberry etc were all dead at the time, being far smaller than Ovi store in downloads.
So we have the facts. We don't have to argue myths here, we deal with the facts. Now lets see what happened.
RATNER EFFECT IS HALF OF ELOP EFFECT
So, what did Elop do? We now know, for a fact, confirmed by Nokia, that Elop was given a CEO contract, that included a personal bonus of 25 million US dollars, if Elop was able to sell the handset unit to Microsoft. Wow. What a bizarre bonus. And what a massively distorting incentive for a CEO. I would argue, that incentive is illegal and causes an inherent conflict of interest, by which the CEO cannot remain impartial to Nokia's best interests. It creates an incentive for the Nokia CEO to destroy successful profitable business that Nokia was engaged in, without informing the Nokia shareholders that he woudl be doing so. This is clearly against any fiduciary responsibility of the CEO and just that the Board accepted this contract, raises all sorts of questions of competence or collusion. So. We know its a fact, its already been confirmed by Nokia. Now lets examine, what did Elop do?
He looked at his massively profitable, high growth rate smartphone unit, and decided to demolish it. He studied what is the worst damage you can do as CEO to your existing product line. He found the lesson, from the Ratner Effect. I reported here, on this blog, that for the CEO of any company to issue the statements he made in that infamous 'Burning Platforms' memo was going to ruin Nokia. No sane CEO could utter those words. If that memo would turn out to be true, I argued on this blog, the CEO would have to be a "delusional psycopath". As we soon found out, yes Elop wrote that memo and yes, we've since seen, the memo wiped out $13 Billion US dollars of annual revenues and worse, it obliterated $4 Billion dollars of annual profits, in only 12 months. It is quite literally the costliest management memo of all time.
The Ratner Effect comes from Ratners Jewellers in the UK, where Ratners CEO called his own products bad. When the CEO calls his own products crap, he is believed. This is not some wild theory of Tomi's here on a Nokia conspiracy blog haha, this is genuine management theory, the Ratner Effect is taught in modern MBA classes as the 'do not ever make this mistake' kind of lesson. Ratners went to the brink of bankruptcy, and was only saved by firing the CEO and rebranding the long-standing Ratners jewelry retail company as Signet.
Elop made ridiculous claims in his Burning Platforms memo. He said for example that Nokia had 'fallen behind' Apple, when in fact as we see from the above, if you have this kind of 'falling behind' when you are 2.2 times bigger than Apple, and you grew more than Apple, and you made record profits in that business unit of smartphones, then yes, you can ask if BP would like this kind of 'falling behind'. Or if Pepsi would like to 'fall behind' Coca Cola just like how Nokia was supposedly falling behind Apple. Would Hennes & Mauritz want to fall this much behind Zara? Or would American Airlines like to fall this much behind United Airlines, etc. Elop made a dozen major claims of where Nokia is weak in that notorious and error-laden memo. The errors were so blatant, that Elop himself had corrected himself on several of them within a few months from the memo being released. And yes, Elop admitted finally, to the Nokia shareholders' meeting in April 2012, that yes, his memo did damage Nokia smartphone sales. Why did Elop release that radioactive memo? This was textbook damage to your own company. Now we know why. 25 million reasons why. Elop wanted to crash Nokia handset unit sales so he can sell the handset unit to Microsoft, and pocket 25 million buckaroos in the process. Sweet.
That is EXACTLY why Elop made so many maddening statements, that I have chronicled here on this blog. About why in February 2011, when Nokia handsets had been growing by 37% annually and making record profits and growing more than any competitor - Nokia CEO called Nokia's situation so desperate, it could not be fixed and total abandoning was the only solution. He said Nokia was on a burning oil platform and had to jump off. But then, exactly a year later, when Elop was asked in South Africa by the press, at the anniversary of Burning Platforms, when the smarpthone unit had lost 32% of sales, was generating a loss, and had fallen behind behind not just Apple but also Samsung in smartphones - at that point of honest despair, when Nokia smarpthone sales were falling 31% in just one quarter with those new Lumia smartphones being introduced - at that point CEO Elop said 'no, we are no longer in a burning platforms condition at Nokia' - and he added he wasn't losing sleep over Samsung, when just that very same quarter, Samsung would pass Nokia as the world's largest handset maker, in addition to already being the world's largest smartphone maker. I was furious on this blog, calling Nokia's CEO delusional. That he cannot see the truth. Well, now we know. Elop wasn't interested in 'success' by any normal CEO measurement of revenue, profit, market share or customer loyalty growth no. Elop's definition of 'success' was on his path to 25-M, he needed to demolish the handset unit to get his cash.
OSBORNE EFFECT - IS SECOND HALF OF ELOP EFFECT
So then we have the Windows Phone announcement. I am not arguing that the choice of Windows Phone in February 2011 was definitely a mistake. Yes it was a risk and with hindsight now, its clear that Windows Phone was a total flop and failure. But at the time, in February 2011, it was not obviously a certain failure. It was a risk. We know that Elop had evaluated Android, had tried to contact RIM to licence Blackberry OS (they said no) and Elop had evaluated the in-house Nokia developed platform, MeeGo. Elop decided to switch Nokia to Windows Phone. It was definitely a risky move.
But did the CEO make an honest evaluation, if his incentive was worth 25 million beavertails to convince the Board to pick any partner, as long as its Microsoft. If you want to sell the Nokia handset unit to Microsoft, then you do want to prepare the unit, by killing its own operating systems (Symbian, Maemo and MeeGo) and not select the rival to Microsoft, ie Google's Android. Was Elop negotiating in good faith in late 2010? We will never know, but he certainly had 25 million reasons to bet on the side of Microsoft, in any close call situation. Was this in Nokia's best interest? Definitely not. Was it in Nokia Board members' best interests? Maybe they gain from this sale to Microsoft.. I think they should be investigated.
Incidentially, if Elop was sincerely looking after Nokia's best interest in late 2010, when evaluating Nokia's operating system options, with the contract he had, he would have recused himself from the process. That is what any CEO with any integrity would have done. Have hired someone from the outside with strong Nokia insights, like previous President of Nokia, Pekka Ala-Pietila, on a project consultancy basis, to evaluate the operating systems and make a recommendation to the Nokia Board - where Elop would also not have voted, obviously. That would have been 'acting with no conflict of interest'. Instead we know that Elop was personally 'evaluating' MeeGo while he was destroying its budgets, schedules, staff and cancelling first phones. Yes, this was 'fair' in the same way as medieval witch-hunts were fair - lets tie rocks to her legs and toss her off the bridge. If she floats, she is a witch (and then we'll burn her). If she sinks, well, then she was not a witch (but dies). Ok, lets see what Elop did next.
Once the Microsoft decision was made, there were of course no phones to sell on this new platform. The first smartphones to run Windows Phone, could not be sold in mass volumes until early 2012, but small volume shipments could be done in late 2011, especially if Nokia went to third-party suppliers who already made smartphones using Windows as the operating system. If you are about to announce a change in your platform, and your new phones start to sell in November of that year, the right time to think of announcing that shift is October or maybe late September. You don't want a lot of time between the announcement and your shipment, because this is a known management mistake, called Osborne Effect, which happens if you wait too long. The Osborne computer company is the classic MBA business case study of how to bankrupt your company, by announcing a new, incompatible platform/system, that will replace current models, and doing that announcement too soon. Osborne found that when he announced his new system, all current sales collapsed and his company did not survive till the new computers were available.
The Osborne Effect is a management mistake of timing. We can argue whether Elop should have selected Android instead of Windows, or stayed with MeeGo and Symbian, but this is not about selecting Windows. Yes, selecting Windows was a risk - I have argued on this blog that it was a huge risk - but nonetheless, any such change is a risk. The Osborne Effect is not about making the right or wrong choice. The Osborne Effect is a devastating management error, about timing. Elop should have waited until October, or at least September, before he announced the Windows partnership, when he would have only been weeks from the first phones shipping. Then the remaining inventory could be sold at discount, and the retail channel given just enough time to prepare for marketing and selling the new Lumia smarpthones running Windows.
Why did Elop announce Microsoft and Windows Phone in February? The Osborne Effect is very widely known. Even I studied it in my MBA studies which were after all, 25 years ago, and Elop is younger than me. Elop knew what he was doing. He wanted to cause a collapse in Nokia smartphone sales, and he knew that Osborning the Nokia smartphone juggernaut, on that fateful day, February 11, 2011, Elop could ensure that Nokia sales would fall.
So I named the phenomenon the Elop Effect, when you combine the suicidal management communication mistake of the Ratner Effect, simultaneously with the suicidal management communication mistake of the Osborne Effect. The Elop Effect is what caused Nokia smartphone sales to collapse and prices to crash and loyalty to disapper and retail to reject sales and Nokia's high profits turn into deep losses.
Please note, that they are concurrent damaging effects but impacting different parts of Nokia and a different period. The Ratner Effect (Burning Platforms memo) impacted not just the smartphone unit, but also the dumbphone 'featurephones' unit of Nokia which saw a fall of a quarter of its sales. The Ratner effect would run until the new smartphones were shipping in mass quantities (Q1 of 2012). So the Burning Platforms memo hit Nokia for about 12 months. The Osborne Effect only impacted the smartphone unit, not the dumbphones 'featurephones' side of Nokia handsets. And even on Nokia smartphone sales it only damaged the Symbian OS based smartphone sales, so it didn't hit the MeeGo system that was soon-to-be-released. The Osborne Effect would end when first new smartphones using Windows Phone would ship, ie Q4 of 2011. Thus the Obsorne Effect (February 11, Windows/Microsoft partnership announcement) was shorter in duration, and impacted only explicitly the Symbian based smartphone sales of Nokia, not the other smartphone sales nor the other dumbphone sales.
But the Elop Effect would totally end by about Q1 of 2012. Nokia had released new Lumia handsets running Windows Phone, and also had highly praised MeeGo based smarpthones like the N9 and N950 shipping, plus Nokia even managed an award-winning cameraphone - arguably superphone, the 808 Pureview, still on Symbian. Nokia should have been past the full Elop Effect by the Spring of 2012, and should have been 'on the mend' since then. But we saw from the facts, that while Nokia established a world record collapse of any handset brand in the first 12 months since the Elop Effect, falling 32% and going from profits to losses - in the next 12 months, Nokia did not stabilize. Not at all. Nokia's smarpthone unit, now with the new devices and systems, actually fell another 64% and Nokia broke its own world record in annual collapse. Yes Elop has twice set the world record in management failure, first in 2011, and then again in 2012! Nokia's smartphone unit was so poisonous during this time, at its peak it was 'selling' smartphones at a 51% loss per handset! The smartphone sales were falling 64% and that, was with Nokia essentially giving them away, pricing Nokia's newest Lumia smartphones HALF under what it cost to make them!!!
HOW IS THIS POSSIBLE - WHAT AFTER ELOP EFFECT
Remember now, that Elop has as his incentive the personal gain of 25 million Americano dineros to crash Nokia's handset business so totally, that he can sell it to Microsoft. So after he saw that his Blackadderish 'cunning plan' was hatching indeed, in March and April and May and June of 2011 - Nokia reported two profit warnings, and all kinds of alarm bells were going off - Elop then looked for other ways to damage Nokia handset sales.
The next step was the war with retail and poisoning of Nokia's carrier relations. Nokia testified in submitting the Form 20-F to the New York Stock Exchange and the SEC, that one of Nokia's strongest competitive advantages against its rival handset makers, was its unparalleled carrier relations and retail relationships. This is how Nokia testified to Nokia investors in its filing of Form 20-F in April 2011:
We have a number of competitive strengths that have historically contributed significantly to our sales and profitability. These include... the industry’s largest distribution network and our strong relationships with our mobile operator and distributor customers. ...Several of (the) risks and uncertainties (of the proposed Microsoft partnership) relate to whether our mobile operator and distributor customers and consumers will be satisfied with our new strategy and proposed partnership with Microsoft. ...The erosion of those strengths would impair our competitiveness in the mobile products market and our ability to execute successfully our new strategy.
(emphasis is mine)
This is not a figment of my imagination. This is something the whole industry knew. This is what regularly the industry analysts listed as part of Nokia's power and dominance. It is what Nokia itself testified in submitting Form 20-F, that it saw as 'risks' to the new Microsoft strategy, that Nokia's traditional strengths in retail and carrier relations, might be threatened.
So that was a risk. Elop knew that this was a strength. And he knew that even lousy Nokia products - come on, like the Nokia N97 - would sell in large quantities because Nokia retail and carrier relations were the strongest in the industry. Elop did not want the Nokia sales teams, and Nokia retailers, and carriers, to snatch victory, from the jaws of defeat that Elop had so meticulously concocted.
From the Elop Effect, I have been chronicling again and again, Elop's battle against retail and damaging his carrier relationships. He for example terminated a hard-won carrier contract with AT&T, to launch a Symbian based smartphone - after years of AT&T refusing to do so. Nokia's sales teams in America were heroic. They had the signed contract. Elop cancelled the deal. That will help ruin carrier relations. Then Elop fired some of the most successful sales bosses at Nokia. Others resigned 'for personal reasons'. Elop brought in, not the best Nokia experts with decades of sales experience, but rather he brought in total novices from... the evil empire, Microsoft, a company that always was viewed with mistrust by the carrier community, ever since Microsoft crushed several handset makers starting with Sendo.
Elop would regularly list the problems with retail and/or carrier refusal to sell his products, especially after Lumia series was relased. This was what Elop said at each of the profit warnings. It was what he said almost every time with disappointing or underperforming smartphone sales. It was never a problem of bad handsets or lacking apps in the Windows app store etc, no, by Elop's own words, Nokia's handset problems were with retail and lack of carrier support. Not my words, words of Elop himsel, at the investor phone calls related to Nokia quarterly results and sometimes written into the results and profit warnings themselves. The words were often muted, such as 'mixed results' in sales support, which obviously signalled that some were not supporting Nokia where before Nokia had the best retail and carrier support of the industry. Elop had managed to do something here. So what did he do? Again, its a lot of little things, but he broke Nokia promises - NTT DoCoMo the Symbian partner was offended by how Elop destroyed Symbian with the Elop Effect, so DoCoMo almost immediately announced it would end Symbian and go Android instead. Just in January of 2011, NTT DoCoMo had issued a statement of long-term commitment to Symbian. Elop didn't care. Same for China and China Mobile, the world's largest telco, with over 800 million subscribers. One in 12 humans on the planet who has a mobile phone, has a China Mobile account. Nokia was China Mobile's favorite, so much so, that Nokia built the world's largest handset factory into Beijing, just to serve China Mobile's needs, and China Mobile was a carrier-partner in MeeGo, Nokia's new operating system.
Nokia had over 70% market share of smartphones in China at the time, and massive customer loyalty too. Today, Nokia isn't in the top 5 of Chinese smartphone brands. China Mobile was so pissed off by Nokia's switch to Windows, that the first Lumia smartphone, the Lumia 800, China Mobile insisted Nokia provide a same-spec smartphone but running Symbian instead, sold in China as the 801T. Yes, running Symbian, and having a ton of the goodies that China Mobile had been expecting, such as NFC that the early Lumia could not support.
Elop cancelled Nokia's long-standing distributors, including one in the UK, another into Africa, replacing them with distributors not known for handset sales, but PC sales. Why would this be? It damaged Nokia sales. Those distributors were part of the world's largest and most powerful sales organization, that knew Nokia products, and Nokia markets, and Nokia customers. Moving away from them would damage Nokia sales, obviously. Even more these reliable strong sales channels would be needed, when Nokia was going through changes in its product line. You want everything else to remain stable at such a dangerous time. Unless you have 25 million good little dollar-denominated reasons to wish for the opposite. Which is also why Elop would terminate long-standing Nokia marketing contracts and ad agency partnerships, and meddle with Nokia branding and unbranding and rebranding, all to further complicate and mess up the sales and marketing processes (and then fire the lady in charge of Nokia marketing, just to add insult to injury)
But to switch to the guys who don't know handsets but know PCs? This decision is in Microsoft's best interest - and definitely not in Nokia's best interest. Yes, that decision to switch to distributors familiar with Microsoft helped prepare Nokia handset unit for sale to Microsoft. Elop wanted Microsoft to buy Nokia, so that Elop could buy an island somewhere on the Caribbean. 25 million dollars would get you your own island, one with your own little airfield, with enough cash left over for your own airplane to get there - Elop has a private pilot's licence and likes to fly...
During the past 2 and a half years, Elop has launched a 'war' against his retailers, teaching Nokia retail support to wage yes, war, against his retailers. I am not making this up. His sales support materials were all written in war-terminology. The enemy was not Samsung or Apple or Blackberry - the enemy in that war - was Nokia's retailers. Elop tried to force European carriers to take large minimum-order amounts of early Lumia smartphones, so much that some carriers refused. You don't bully sales, you sweet-talk them. Elop cancelled Nokia retail outlet deals including the largest handset retailer in Russia, who of course switched immediately to sell Samsung instead. Everywhere that Elop fumbled the Nokia business, Samsung was there to catch the falling ball and score a touch-down. In December 2010, Nokia total global handset sales were 50% bigger than number 2, Samsung. Today, after two and a half years of Elop meddling in the retail and distribution, Samsung has grown to be 50% bigger than Nokia. I don't mean just smartphones, I mean all phones. Oops? If it weren't for the even worse mess Elop made of the smartphone side of Nokia, the collapse of Nokia handsets overall, would be headline news of a world-record collapse of any market leader, of any industry, ever.
Elop messed with retailers and carriers with broken promises on the ecosystem, Ovi store, the rebranding and naming-numbering-naming decisions and so forth. And Elop would march into delicate carrier relationship meetings - bring in the world's biggest bully of the tech space - outgoing Microsoft CEO Steve Ballmer, to try to bully the carriers into accepting Elop's terms. Again, this is what Elop told Nokia shareholders meeting in April 2012, that yes, he and Ballmer had been sitting in those carrier meetings, and he reported that not one carrier had taken the new deal offered by Elop and Ballmer. That is one way to measure 'success' if your goal is to poison the best carrier relations in the world and your aim targets 25 million reasons.
I reported on this blog, that the carrier relations had been nuked by Elop so badly, that Nokia was dying. I was not wrong, clearly that was the reality which I did witness, and I faithfully reported on this blog. What I did not see - could not see, could not even imagine was actually contractually offered to Elop, was that Elop was indeed doing this deliberately, for his personal purpose, because he had a personal incentive to ruin Nokia handset sales globally. And what better way to do that, than to use his first 5 months to find where Nokia had its strongest competitive advantages, and torpedo those. To start to feud with the carrier relationships and the retail channel.
So, what is the verdict here? The three ratings agencies, Moody's, Standard & Poor's and Fitch, all felt Nokia was a solid, reliable, profitable company in January of 2011. All rated Nokia one notch below perfect. Remember, Nokia had just 3 quarters earlier reported a quarterly loss - yet the ratings agencies felt Nokia was such a safe company that all rated Nokia debt as AA+ or whatever is their second-highest rating. Then came Elop and his battle with retail and the carriers. The ratings agencies have in the next two years listed nothing but downgrades to Nokia debt. Downgrade after downgrade after downgrade. At worst, Nokia was downgraded two notches at a time! This happened several times. Downgraded two notches on one day. By 2012, all three agencies listed Nokia as junk!
Heres' the scary part. EVERY single downgrade by Moody's, Fitch and S&P, every single one of the dowgrnades, lists the problems Nokia has with retail or carrier relations as a reason for the downgrade! Often the first problem, or even the only problem why they downgraded Nokia further! Before February 2011, Nokia's carrier relations were the best in the industry, the retail channel the strongest in the world. Since that time, they have become the primary cause of repeated Nokia downgrades. The problems with Nokia retail started with the Elop Efffect but Elop has continuously made those problems worse, in the next two and a half years. Not my words - so say Fitch, S&P and Moody's - EVERY SINGLE TIME they have downgraded Nokia. It was not because Nokia's factories are old, or its products weak or its ecosystem not competitive. No, they downgraded Nokia because of Nokia's retail and carrier problem. What Nokia testified in April 2011, is a competitive strength, something its rivals do not have, the world's best carrier relations and retail - now is so noxious that it is the only reason why each of the three ratings agencies has pushed Nokia all the way down to junk status.
Elop was successful in destroying Nokia's true strengths. He did that in pursuit of his 25 million greenbacks. How effective was he? In China we learned that by late 2011, there were official Nokia stores selling rival branded smartphones! Can you imagine going to the Apple store and the sales clerk won't sell you an iPhone but offers you a Samsung Galaxy instead? At an official Apple store? Or going to McDonalds and when you ask for a Big Mac, they sales guy says the Whopper by Burger King is actually better - and yes, the guy in the McDonalds' gown sells you a Whopper in the BK wrapping...
THEN KILLLING THE BABIES
We saw what a magnificent phone the N9 was, running Nokia's new OS, called MeeGo. The smartphone that spawned the look that Lumia is known for - yes that look and user interface etc was invented by Nokia but not for Lumia, it was invented for the N9 and MeeGo. The colors that Apple so cheerfully now celebrates for the iPhone 5C - Nokia mocked Apple about those with the colors in almost identical Nokia ads from a year earlier with the Lumia series, but where did those colorful handset designs come from, that even Apple now copies - from the N9. The first Lumia handset, the Lumia 800, was originally a MeeGo handset, intended to be the lower-priced model where the N9 was the flagship. Elop killed that project and switched the smartphone to run Windows Phone instead (at severe compromises and to very poor market reaction).
So we can see from the N9 and its sister the N950, that the MeeGo operating system was indeed a viable and powerful platform. I calculated here on this blog, that for the first few months when they were sold side-by-side, the sole sold MeeGo handset, the N9, outsold the cheaper set of Lumia smartphones, even as the Lumia set was sold in Nokia's biggest markets and the N9 only in mostly Nokia's tiniest markets. True to form, while Elop would proudly pronounce the Lumia Windows Phone sales numbers, he would never give out the N9 and MeeGo numbers. The N9 had a higher profit margin, was manufactured in Nokia factories using traditional Nokia components for which Nokia had bulk discounts, and had an operating system for which Nokia did not have to pay a licence. The Lumia series were produced at emergency rush jobs at Compal in Taiwan, using non-standard Nokia parts, and having to pay a licence for every handset sold, to Microsoft. The N9 sold at higher prices, and held its prices while the Lumia series sold at significantly lower prices and saw immediate price erosion. Yeah, any true CEO of Nokia would have wanted to celebrate N9 sales and promote it and help boost Nokia handset division profifts with it. But Elop didn't want the handset unit to be profitable. He wanted the handset unit to report a loss and for Nokia to suffer, so he could sell the handset unit to Microsoft - and pocket 25 million clams.
This blog is the source of the term often given to the iPhone as the Jesusphone. I should point out, I didn't actually use that term, I only described the soon-to-be-released first iPhone as one that would change our industry and we would mark time in smartphones, of the dark ages before the iPhone, and the modern era after the iPhone (and I was right, obviously). Someone else, commented on my blog, saying that Tomi is calling the soon-to-be-sold Apple device the Jesusphone. I then got a lot of hateful comments from various religious readers who thought that was blaspheming, while I had never uttered that word, 'Jesusphone'. It was mistakenly identified pointing to this blog. But the term stuck.
So was there ever a smarpthone called better than the iPhone? Sometimes a given Samsung Galaxy or Sony Xperia may get a slightly better review, side-by-side, but nobody has been arguing there is something inherently better than the iPhone - except the Nokia N9. The N9 is the only smartphone - by any manufacturer - and MeeGo the only OS - that was regularly rated as good as the contemporary iPhone and often rated better. This has never happend with Blackberry or Motorola or Sony or Samsung or LG or Huawei. But Nokia had it - once. The N9. So good, some analysts actually called it the Godphone, in contrast to the Jesusphone. MeeGo, a Linux-based OS, was seen as the first ever OS better than what Apple had in the (then-current) iPhone. Had never happened before - note, this has NEVER happened with the Macintosh - never has Windows been rated better than the Mac OS. It has never happened with the iPod and iTunes music either. But Nokia - the hardware company - managed to build an operating system - software - that was rated better than the iPhone OS. Wow. And don't write claiming that Nokia was unable to write excellent code and create a competitive software system. Read what reviewers wrote about MeeGo (ok, some of those reviews are in languages not everyone understands like Norwegian or Finnish or Ukrainian, because Elop didn't let the N9 be sold in major markets)
But seriously. The global 'Oscars' or 'Nobel prizes' for design, are the D&AD Design Awards. The N9 won the D&AD award for 2011 - beating out not only the contemporary smartphones like Nokia's own Lumia devices, but even beating the brand new iPad 2. Who beats Apple at design? If you are CEO of LG and your new smartphone wins the world's design awards ahead of Apple, the CEO will smile very broadly at every tech magazine holding THAT phone and proudly showing the world how great your phone design ability is. What did Elop do? Not one word. Not one case of pride in what his company had just done. If Microsoft's Zune had beaten a global design award against the iPod, or the Surface had beaten Apple's iPad, you KNOW that not only Steve Ballmer but even Bill Gates would be smiling broadly in all the press, showing how great Microsoft's design team is. But not Elop at Nokia. Elop had written in his Burning Platforms memo that Nokia had fallen years behind Apple, but when his team then proves - winning a global design award - not a handset award, a design award - for the N9 - Elop hides from it.
That makes no sense if Elop is seen as the CEO of Nokia. That is sheer stupidity. But it does make sense, if you can count. Count to 25 million.
And what of the German newsmagazine Der Stern? This is not a tech magazine, its a weekly newsmagazine, like Time is in the USA. Der Stern reviewed the N9 and concluded that it recommended German readers should fly to another country like Austria or Switzerland - to go get their N9, it is that good. And yes, you read it correctly - Germany, Europe's largest smartphone market, where Nokia held 33% market share when Elop took over - but yes, Elop refused to let the N9 be sold in Germany! Even after Germany's' biggest weekly magazine gives it an 'Apple-esque' glowing review - so good is this phone, you should fly to another country to buy one for yourself. Come on! But Elop didn't want to be seen anywhere near that darned N9 and its accolades.
Elop so hated MeeGo and the N9 - seeing that this one smartphone alone, not to mention its sisters, like the N950 and the Lumia 800 in the MeeGo variant - could easily reverse Nokia's declines and return Nokia to strong profits. When the N9 was shown to the public for the first time in Singapore, Nokia's share price that had fallen 55% in four months, took a sudden jump of nearly 10%. So what does the CEO do, when the stock market so loves your new product that your share price jumps? Any sane CEO would book every available moment of TV time in every big market - especially America - to show and talk about this magnificent new N9 and MeeGo. Not Elop. He came to Helsingin Sanomat, Finland's biggest newspaper and announced that no matter how well the N9 sells, Elop will not authorize any more devices using MeeGo - ever.
What a fucking moron! (pardon my French) Imagine Samsung CEO saying that about their brand-new Galaxy Gear smartwatch that they just announced? Or imagine Google CEO saying that about Google Glass. Or Apple saying that about the next iGadget. Really? Honestly? A CEO says this about his brand new product that is getting unprecedentedly hot reviews around the world. No matter how well it sells, we will never make more of those. The CEO has just Osborned the whole MeeGo product line. This is how you destroy a company, from the inside. It makes zero sense if you are truly the CEO of Nokia, when the smarpthone unit is reporting Nokia-record losses, and this new 'godphone' is such a superphone, it wins against Apple's iPhone in side-by-side tests and gets glorious reviews everywhere. But it makes 25 million times sense, if you are not measured by returning Nokia handsets to profits, but your mission is to ruin the handset unit to sell it to Microsoft.
Meltemi is the same story. Meltemi was Nokia's Linux based smartphone OS for low-cost smartphones. Microsoft itself said Windows Phone was not suited for the lowest-price smatphones. Nokia said so too. So Meltemi was no threat to Windows. And as most of Nokia customers are in Brazil, Indonesia, India, Russia, Brazil, Egypt, Nigeria etc - Emerging World markets, there the migration to smartphones needs very low cost smartphones. Meltemi. And what did Elop do? He killed Meltemi, when his first Meltemi smarpthones were only weeks from being shown to the public. The whole unit? Fired. Fired for success. That is the kind of leadership a madman exhibits. Or a man who has 25 million reasons to act against the best interests of his employer.
Nokia Money is another of the same story. Nokia launched its mobile payments solution in several countries such as India where it had already reached double digits in market share, in less than a year. The mobile payments service is highly 'sticky' in loyalty, as Nokia learned from its partner NTT DoCoMo of Japan (inventor of the first mobile wallet). Nokia was already the biggest handset brand and biggest smartphone brand in India. Nokia Money was a huge success and growing fast. Incidentially, Google CEO said at that time, writing in Harvard Business Review, that one of Google's top priorities would be mobile money. Who beats Google to innovation? Yeah. Heroes at Nokia innovations. Not just launching Nokia Money but gaining market share and building brand loyalty. So what does the smart Nokia CEO do? He terminated the Nokia Money project. Ended it. Mr 'Ecosystems' Elop. Mr 'Call me The General' strategic thinker Elop. Mr I-read-a-lot-of-Sun-Tzu Elop. Yeah. Clueless fuck is what I call him. (sorry again for the profanity, but I am truly angry at this story now) You, Nokia, are years ahead of Google and you decide to shut down that service? There is zero logic to terminating Nokia Money if you are Nokia CEO and want to win. There is 25 million percent logic to to terminating Nokia Money if your intention is to damage Nokia sales especially in the world's second largest handset market, India.
Qt is yet another story of the boss killing the babies. Qt was Nokia's developer platform, which would have the reach to - by far - the biggest ecosystem in the world, far bigger than Microsoft's Windows even if you include all PCs.. Qt already supported Symbian, Maemo and MeeGo. It was set to support shortly also Nokia's featurephones running S40 and S30 (you know them as Asha devices today). Qt was also ready to support most Linux based platforms plus Blackberry OS. And yes, Android. The only two platfroms that Qt was not (yet planned to) support were iPhone iOS and Windows Phone - and I understood that there was an unofficial version to even support iOS. So if Nokia were to fully continue to support Qt, any developer on Qt could create apps that worked on the 1+ Billion Nokia featurephones, plus the 300+ million Symbian smarpthones in use, even after the sale collapse of the Elop Effect, plus the 100+ million Blackberry users, plus what will be 1 Billion Android users by the end of this year, plus the miscellaneous more millions of LiMo, Maemo, MeeGo, Sailfish, Tizen etc Linux based smartphones and tablets and netbooks. Elop didn't like Qt to become the world's most powerful ecosystem to propel Nokia to victory in what he called was the battle of ecosystems. No, Elop killed the Qt strategy and sold Qt. Nokia's CTO resigned in protest at this decision.
LUMIA THE LAST NAIL
So then what Elop promised was the saviour of Nokia. His Lumia series of smartphones that ran on Windows Phone. I have been highly critical of why the Lumia series will not win over loyal Nokia smartphone users. The Lumia series seems to be designed almost to annoy loyal Nokia owners - what with the 101 faults and all. I wrote deep, analytical, passionate reviews of where the early Lumia is faulted, and what Nokia should to to fix the problems. I even did the analysis of how the transition was happening (Nokia lost nearly 17 out of every 20 conversion attempts it made from Symbian to Windows, and of the 3 that took Windows, 2 were not satisfied enough to stay and buy another) Yes. This is what misery looks like:
Ah, yes 'misery' only in the context of rational normal CEOs who try to have their companies succeed. For Elop this was obviously 'success' as Nokia was conveniently failing even with the Lumia 'strategy' and causing continued massive losses to the smartphone unit.
So yes, I tried to show Nokia where the problems were, so they could be corrected. Yeah, good luck with that. Nokia CEO didn't want the Lumia series to win. That is why he didn't use Nokia's own world-record-unbeaten-streak-always-winning dream team designers to design the Lumia. Remember - Nokia had won the market every single quarter of every single year for 13 years in a row, facing rival designs by Motorola and Palm and Blackberry and Apple and Samsung and LG and Sony and Ericsson and SonyEricsson and Panasonic and Fujitsu and Sharp and Huawei and ZTE and even Microsoft - but every single quarter of every year, Nokia sold the most. They weren't always the prettiest phones or even the most user-friendly phones (Apple does that the best) but Nokia won where it counted - they sold the most. Nokia designers knew what kind of smartphones sell in Argentina or Pakistan or France or Mexico or the Philippines. Nokia engineers knew what the world wanted and was able to deliver the bestselling smartphone in an uninterrupted winning streak for more than a decade and counting.
So Elop could have had his Finnish designers create the new Lumia series - and have award-winners like the N9 for example, but no, he went to America to novice designers to make iPhon-a-clones. By the time Nokia had released its first 9 Lumia devices, they were still all variants on exactly one theme - lets do an iPhone clone but with colorful packaging. Thats it.
Nokia led the world in cameraphones - did the early Lumia series celebrate this and take advantage of it? No. Not until now the 1020 Lumia with the 41mp Pureview camera, is Nokia's Lumia able to match or exceed the world's best cameraphone (which sadly, was the 808 Pureview by Nokia, on Symbian, from a year before). And this came as we learned that Nokia loyal smarpthone owners request the camera still in 2012, as the number 1 item they ask for in a new Nokia smartphone. Did Elop allow QWERTY variants of the Lumia series? No. Even as his own designers argued vehemently that as much as 40% of Nokia customers buy QWERTY versions and all previous Nokia flagships either were QWERTY devices or had a close sister product in a QWERTY variant. Yes, Nokia internal management argued to let there be one QWERTY at least in the Lumia series, but Elop overrided them. Now we know why. 25 million guesses why he doesn't want to make those 40% of Nokia loyal customers happy.
The total Lumia launch has been an epic disaster. Elop promised this migration from Symbian to Lumia:
And here is the sad reality. This is how the transition happened. Elop destroyed all three pillars of his strategy - the Symbian sales collapsed faster than promised, the Lumia sales never replaced lost Symbian sales - and even the floor of the strategy - featurephone sales - crumbled.
That picture was drawn in late 2012 when the transition was at half-point from Symbian to Windows Phone and Lumia. I have now drawn the final picture, removing all the losses, this is the actual delivery of Elop's promise. Remember he promised a 1-to-1 revenue transition in his strategy. This is what he delivered:
Yes, that is total failure of your strategy. Yes, Elop's radical new strategy delivers less sales today, out of both smartphones and featurephones of Nokia, combined, than just the featurephones unit did when he started. Yes, Elop caused this damage. This fault goes to Elop the mis-directed CEO. His own managers tried to rescue Nokia, they tried to argue on behalf of better cameras, of QWERTY keypads, of a a strategy of keeping MeeGo alongside Windows (who is such a putz, they put all their eggs in one basket) but time and again, Elop overruled his middle managers, to the point of many resigning in protest. Many say I am too critical of Elop, that the whole organization is to blame. I admit there were problems in Nokia execution before, but not in the smartphone unit strategy itself. Elop caused this damage. His own management team was fighting internally for the good of Nokia but Elop overruled them - causing carnage in his wake. And we see the final result.
ELOP ACHIEVED TOTAL DESTRUCTION
Before Elop started the destruction:
Nokia was world's largest handset manufacturer, in an industry growing 7% per year, Nokia was growing 4% per year and was highly profitable
Today Nokia has fallen to second place, handset sales fallen 37%, and the handset unit has been reporting losses most of the quarters since Elop's change. When it reported a profit recently, it was with accounting gimmicks - selling the Nokia headquarters building but assigning all that income only to the handsets unit, rather that split across Nokia's different businesses proportionately.
Before Elop started, Nokia smartphone unit was the world's largest, more than 2x bigger than its nearest rival, and growing more than its rivals. Please understand how incredibly rare this is! Toyota has for many years been the world's largest car maker. It has never enjoyed the luxury of being twice as big as its nearest rival. GM has for many DECADES been the world's largest car maker, yet it never ionce had the fortune of being twice as big as its nearest rival. This rarely happens in any globally competitive industry. Really, really rarely. Dell was never that big in computers, neither was Lenovo nor HP nor Compaq nor Apple nor Acer nor Asus. But Nokia was in smartphones more than twice as big as its nearest rival - and making record profits while doing that. You don't wreck this goose that lays the golden eggs. Not, unless you are paid a bounty of 25 million bucks to strangle the miraculous bird.
Since Elop started to wreck Nokia, the smartphone sales have collapsed - falling 74% while the industry has more than doubled in size. The smartphone unit was plunged into loss-making and has not reported one quarter of profit since. Nokia's dominating market share of 35% of year 2010, is now 3.5% by the latest quarter for which we have industry data - Q2 of 2013, so Elop has managed to frighten away 9 out of every 10 customers that Nokia had, as the world's bestselling smartphone brand which has the highest loyalty in most of the biggest handset markets in the world, starting with China.
For those who say 'But America' yes, before Elop wrecked the company, Nokia sold 2.6 million phones in North America per quarter - yes, 10 million on an annual basis. This was seen so much a 'failure' that it was listed as one of the reasons Elop's predecessor Kallasvuo had to be fired. 2.6 million phones is 'you will be fired' bad, for Nokia US sales. How did Elop manage to win back that US market? He demolished it. Now with the hated Lumia series, Nokia sells a paltry 500,000 phones in the North American market. Yeah, even in North America, the North American CEO of Nokia, using the North American partner Microsoft, with that OS platform Windows that has its highest penetration rate of any continent, in North America, with all the 'synergies' of the desktop and laptop space, that North America, Elop has demolished 80% of the market that Nokia had in January 2011. His predecessor was fired for doing a 5x better job in America than Elop. Why was Elop allowed to remain at Nokia this long?
Nokia's predecessor, Olli-Pekka Kallasvuo was fired for cause. He had presided over diminishing profits, while the company grew. Nokia reported its first ever quarterly loss (while even then the smarpthone unit generated a healthy profit, it was the Networking unit and the mapping unit that pushed Nokia under for one quarter). Nokia's share price had fallen 55% in four years. Even when Kallasvuo left office, Nokia dominated handsets and smartphones, and its future was so secure - EVERY analyst who reported a forecast for smartphones during 2010, was confident Nokia's position at the top was secure. The rating agencies agreed, Nokia was rated one notch below perfect. This inspite of producing one quarter of a loss.
Then the first five months of Elop, he managed to produce a Nokia record profit in the smarpthone unit, and found Nokia smartphone sales growing at 37% annually, handsets growing 4% annually, and the Nokia share price had climbed 11% during the first five months. Elop was a hero, he was holding victory in his hands.
We learn from the Bible that Judas sold out Jesus for 30 pieces of silver. Elop was a better negotiator. Elop sold out Nokia for 25 million dollars.
Nokia exchanged enormously powerful 37% growth for 32% decline, following that with 64% fall. Nokia's smartphone unit set a world record in collapse not just of handset makers. It was the biggest collapse of any Global Fortune 500 sized company in any globally competitive industry - ever. The damage done to Nokia is bigger than the damage of the launch of New Coke, to Coca Cola. Its worse than the brakes problems of Toyota. The damage done by Elop was deeper to Nokia than the Deepwater Horizon oil spill was to BP. Elop has been the most destructive CEO of all time. I did the comparison on this blog some months ago. Here is the highlight table view, just look at the damage of the most famous recent management failures, when indexed to the year just before the damage:
(If you'd like the full analysis, the six classic management disasters are discussed in detail here)
Elop took the highly profitable smarpthone unit, and plunged it into loss-making. He exchanged a dominating market position where Nokia was bigger than its two nearest competitors - combined, and caused such a severe collapse that Nokia has fallen out of the Top 5 and is currently ranked 9th largest smartphone maker, in fear of falling out of the Top 10.
The previous CEO was fired when the Nokia share price fell 55% in four years. Elop saw Nokia share price fall 55% in five months but he was allowed to hang around for another year after that, all in pursuit of his 25 mil. Nokia's rating today by all agencies is junk, going further into junk.
And the Nokia handset unit, which generated 8.5 Billion Euros of revenues - per quarter! - ie annual level of 36 Billion Euros - a handset unit that was highly profitable and all by itself would have qualified in the Fortune Global 300 as one of the world's largest companies - that unit was systematically destroyed by the new CEO, so that he could personally pocket 25 million dollars, and sell the unit for song to Microsoft, who only paid 5.3 Billion Euros (not only for the handset unit, but 10 years of patents and a non-complete clause from Nokia as well).
Before Elop started to destroy the handset unit of Nokia, the handset unit generated a quarterly profit - profit not revenue - profit of 1.1 Billion Euros in Q4 of 2010. So now, Microsoft gets to buy this demolished unit for 5.3 Billion Euros. Had Elop done nothing (or had Anssi Vanjoki been selected as CEO) - every single sign suggests, Nokia would have pocketed that 5.3 Billion Euros in the next 5 quarters - remember how strongly the MeeGo devices were received, this would have been more, not less. But the difference is, that today Nokia would still be the world's largest handset maker and by far the world's largest smarpthone maker, owning the world's largest ecosystem.
Yes, Elop destroyed Nokia. Yes, the Board made a ludicrous contract allowing Elop this crazy bonus, giving Elop an incentive to destroy the handset unit. Now we know why the Board was silent all along, and never once complained as the CEO pillaged and plundered the company and sold its assets and fired its staff and shut down its factories and closed all its projects. The Nokia Board knew that Elop had this clause in his contract, he had been incentivized to sell the handset unit to Microsoft. And the Board was going to be silent, letting Nokia be destroyed, just to let Elop pursue this perverse goal. It is just like I said in the analogy at the top. The city hired a new chief of police. His 'job' is to reduce crime, but his 'bonus' - 50 times bigger than his salary - will come from 'eliminating complaints about crime'. the new chief of police then goes ahead and kills everyone in that town who complains about crime - including all who complain about him, the chief of police, killing people who complain. This is a mad comedy. This is a true managemen farce. This should be a Hollywood movie.
Elop was the most destructive CEO ever, not because he was an idiot or clueless. He was the most damaging CEO of any Fortune 500 sized company in history, because the Nokia Board gave him a contract, that gave Elop 25 million reasons to destroy Nokia. Elop was very efficient in doing just that. You get what you pay for. Nokia Board bought the destruction of Nokia, when they signed the contract with Elop. Should the Nokia Board be investigated - obviously yes. Has Elop been the most destructive CEO of all time. Obviously yes. But now we know why. Yes, there was a reason to that madness. Elop had a contract that explicitly motivated him to destroy Nokia's most profitable unit. To wipe it out. To so totally damage it, that Nokia itself would want to sell it off as damaged goods, for below its market value.
So. First, we know that Elop had a CEO contract that placed him into clearly a conflict-of-interest situation. It is obvious. Elop would be more rewarded by ruining the handset business, and getting it to be sold to Microsoft, than staying as Nokia CEO and fixing the problems Nokia had. Clearly Elop's actions have been consistent in promoting the downfall of the handset unit and preparing the handset unit for 2 and a half years, to be sold to Microsoft. This must be a clear - clear - violation of the rules of the New York stock exchange, the Helsinki stock exchange and the Frankfurt stock exchange (where Nokia was still listed when Elop was hired, Nokia has since de-listed from Frankfurt). Elop has not acted in his fiduciary duty to Nokia interests. He must be investigated and the stock market rules are very clear - for a CEO there cannot be even 'an apperance of conflict of interest' - and with Elop there is plenty of clear evidence now when we see what is his true motivation.
If this - selling Nokia handset unit - was what he was hired for, and this was clearly communicated to Nokia shareholders in 2010, then it would be fine. But Nokia shareholders were told that Elop was hired to fix execution problems, to help Nokia improve its profitability. Elop has clearly acted - through the private contractual incentive - against all promises that were made to Nokia shareholders. I think the Nokia shareholders have good cause to investigate Elop, the Board and past Chairman Jorma Ollila who announced Elop.
Now, if Nokia Board decided in 2010 that it wants to sell the Nokia handset unit - where all the profits were, and keep the networks unit where it mostly made losses - that should have been told to the shareholders. But more than that, if Nokia was to want to sell its handset unit, then it should invite open bids for it - we heard many times from Lenovo and Huawei for example, that they wanted to buy parts of Nokia but Nokia wasn't seriously offering anything. But secretly Elop arranged the sale to Microsoft. Why? Because of his bonus incentive that clearly was not in Nokia's best interest. Nokia shareholders cannot - cannot - allow this injustice to happen, that their property, Nokia's handset unit - is destroyed by the CEO and then sold secretly, without inviting open bids. This is robbing Nokia owners. This is criminal behavior by Elop and the Board.
If Nokia's handset unit was to be sold, it should have been at least allowed to build to the best possible status, win market share, release popular phones (like N9, N950 etc), on popular form factors, in Nokia's major markets, using Nokia's partners. So that the handset unit would be healthy now, and fetch a price 10x bigger than what Nokia got, maybe 20x bigger. What Elop and the Board did, in preparing this sale in secret to Microsoft, is a crime against Nokia owners, the shareholders. And one could argue, it is also at least morally wrong against all Nokia stakeholders, employees, the various towns where Nokia has been supported for years with the factories around the world, etc. Certainly Elop and Nokia Board have gone against all commitments and promises made to Finnish towns and employee associations etc, in how Elop promised to preserve jobs and create profitable business, but in secret went on to destroy Nokia competitiveness. He has to be investigated for those crimes.
Elop must be investigated. It is very clear, that he has had a conflict of interest. That is where the Nokia Board must step in now, and re-examine every contract, every decision and every communication that came from Elop, and fix the damage. Nokia's CEO must look after the interests of Nokia. Nokia's CEO cannot possibly be rewarded for destroying a profitable part of Nokia (indeed, its most profitable part) and further be rewarded for selling that damaged part to a rival tech company. All contracts signed by Elop relating to Microsoft must be revisited and revoked - all including patents, licences, royalty payments - any commitments to Windows - were all fraudulent if the CEO was not acting in Nokia's best interest. That is clear, Elop has to go to prison for this kind of breach of his fiduciary duty. And banned from working at any publically held company (including Microsoft).
But Nokia has also cause to revoke all those contracts with Microsoft as its clear, Nokia's own side has not been represented by a Nokia party. Elop was in that instance, playing on Microsoft's side. Its like you are having a divorce, and your attorney is paid for by your spouce. It cannot be fair. No court will enforce those contracts, once it is clear that Elop has been fraudulent in his dealings. Any competent international contracts attorney can successfully argue in any US or Finnish or EU court, that the contracts between Microsoft and 'Nokia' represented by Elop - were made 'not in good faith' - and are thus unenforcable. Yes, Microsoft has a massive army of lawyers. But they cannot escape the very basic rule of contract law, that these contracts were executed not in good faith, therefore the party that has gained unfairly - Microsoft - cannot be awarded those gains. This is a case Nokia attorneys will win easily in the USA, in Finland and in the EU. They cannot let those Microsoft contracts stand, not about Windows Phone commitments, or royalty payments or now, the outrageous discount sale to Microsoft, or any Nokia non-compete clauses etc.
Then the Nokia Board - how utterly incompetent have they been, when they have seen this damage, and didn't act. If they noticed that its Elop's silly contract that causes their newly-hired CEO to start to destroy and demolish Nokia, then the Board must act - fire the CEO (or offer him the chance to re-negotiate the contract so that it won't give bonuses for destroying healthy parts of Nokia). The evidence was mounting in February 2011. The evidence was overwhelming with the MeeGo N9 fiasco. From that date, each Board member must account for his or her personal objection to Elop's management, else the Board member is to be fired. Only those Board members who registered disagreement since June 2011, may be considered valid to remain on the Nokia Board. All who let Elop continue to demolish Nokia's profit engine, they are either incompetent or in collusion or both.
Because the Nokia Board witnessed all this damage for 2.5 years and did nothing - then either the Nokia Board is complicit - is actually in some secret gains out of this deal - or else is incompetent. In either case, the whole Nokia Board (except anyone who can prove in Board meeting minutes their objections) must be fired including the new Chairman. Because they would be fired for cause - they must forego any gains they would have, including any Nokia (or Microsoft) share options etc. I would argue that all Nokia Board members who are thus fired, should also receive a lifetime ban, forbidding them from acting in any director capacity of any publically-held company including sitting on any other Boards, or holding executive positions such as Chairman Siilasmaa with F-Secure.
I would further suggest, that if Nokia wants to sell the destroyed handset unit, it should at least invite bids from the major tech companies, and offer them not only one 'take it or leave it' option of the whole package, but also offer to sell the parts - if someone wants the dumbphones unit, or someone else the Nokia brand, or someone else the smarpthone unit, or someone else the 10 year licence to Nokia patents - offer the parts separately too. Just like how Rolls Royce cars sold its factories and brand, separately.
Finally, as a personal observation, seeing how this whole disaster has been totally self-inflicted wounds by Nokia's misguided CEO - it wasn't failing handsets or missing trends etc - I would suggest hiring any competent manager to run the handset unit for 2 years. This would return the handset unit back to profits and Nokia would be far better off selling it as a profitable entity than how it is now severely in the red (or, obviously, keeping the handset unit at that time perhaps).
BTW - Who knew? Obviously just about everyone in top management positions at Nokia who was fired by Elop or who resigned out of protest of 'personal reasons' disagreed with Elop's mad actions. They clearly didn't know this was 'the plan'. (Nobody in their right mind could imagine the new CEO is attempting to destroy the profitable smartphone unit). Did anyone know inside Elop's inner circle? What kind of lying bastard is the boss, if he speaks of saving Nokia in public, and then secretly plots in every one of his actions, to actively demolish every part of the company. Who can possibly trust this creep, ever?
For those who would like 'more' (yeah, I know, if 10,000 words wasn't enough) - if you want the full story - or even if you read it before, this may be even more eye-opening now, when we know Elop's 25 million bucks of motivation - the full story of Elop's strategic mistakes, all in one monster blog is here: The Sun Tzu of Nokisoftian Microkia. That blog takes you more than an hour to read, but many have called it my finest article on this blog.
THE DISCLAIMERS BIT
So a few points about me and my crusade against the management mistakes of CEO Stephen Elop. First, yes, I am an ex-Nokia guy. I was not fired by Elop, I left Nokia 9 years before he even joined the company. In my last job I was at Nokia Headquarters where I set up and headed Nokia's Global Consultancy department and was responsible for the budgets of the end-user research of Nokia's 3G Research Centre. In my last job at Nokia, in my daily work, my consultancy department gave strategy consulting advice to the the telcos, the telecoms operators/carriers who are still today Nokia's primary customers. And as part of that work, I oversaw the end-user survey research, covering half a dozen global reseach projects over 30,000 end-user interviews of what consumers do with their mobile phones (or might want to do in the future). I had some idea of what Nokia customers - telcos - wanted and what their end-user customers, those buying Nokia phones - wanted. I advised not just Nokia clients on those points, but also the media, investors, analysts, regulators etc on those points, on Nokia's behalf.
I am not a 'Nokia hater'. I was often accused of being too much a 'Nokia defender' on this blog in the past. There have been other times when I have been accused of being an Apple Hater or Motorola Hater too. But I honestly call it as I see it. I have been very critical of Nokia before Elop came to the company. I agreed with the decision to fire Elop's predecessor, Olli-Pekka Kallasvuo - so I was so alarmed by Nokia's condition, that I agreed Nokia needed a new CEO. I was not always against Elop. When he joined, I welcomed him to our industry on this blog and wished him well. I reported on his early progress mostly supportive of him during his first 5 months.
Some people who hate what I write, try to paint me as suggesting Nokia should 'go back to Symbian'. I have never once advocated that position, not once. Half a million words on Nokia on this blog, go ahead google the words 'Communities Dominate' and Symbian and go through every one of them. Never once. I was explaining - BEFORE Elop was hired - that Nokia's Symbian path was not tenable in the long run, and Nokia had to abandon it - and go MeeGo of course. Once, in one blog, where I explained why Windows Phone was a dead-end strategic option, I wrote that any other smartphone OS would be better - there I said, even going back to Symbian would be better, but even in that blog I argued that Nokia's best option is MeeGo (or Android at that time). Never once have I suggested on this blog that Nokia should go back to Symbian. People who write that about me, have a mission to discredit me as an out of touch irrational loonie. No. I never said that. I showed that Nokia's Symbian based smartphones were still competitive in their last years, but I was on this blog, advocating and explaining why Nokia had to move past Symbian (into MeeGo) well before Elop was even hired.
When the first news broke of the Burning Platforms memo, I wrote on Twitter and then on this blog, that the memo was so outrageously damaging - and full of errors - that it could not have been written by Nokia's CEO. It soon thereafter emerged that Elop did write the memo and took proud ownership of it. As we now know, with his 25 million dollar incentive, I was correct - the memo was not written by a Nokia CEO interested in Nokia's best, it was written by a saboteur intended on destroying Nokia's core business. As far as I know, I was the first to identify that memo as purely damaging. Even when I learned that Elop had written it, I didn't call for him to be fired.
When Elop announced the Windows Phone strategy and Microsoft partnership, my first tweet said it was great news for Microsoft but disaster for Nokia (and I was proven correct). I came on this blog, wrote several long articles about the history and prospects for that partnership, and warned that it was highly risky for Nokia, but I did acknowledge that it might succeed. There were plenty of others who said from Day 1, that Nokia was doomed. I did not see it as that bleak. Yet of all published forecasts of Nokia's smartphone future sales, released in the Spring of 2011, mine was the most pessimistic - and yet, mine was the one nearest to the truth. Even I could not see how badly it would be ruined, because obviously even I could not imagine that Nokia would give a contract to the CEO to allow him to destroy the most profitable part of the company. Note, even as I forecasted dire sales collapse for Nokia, I did not call for Elop to be fired at that point.
When Elop made his incredulous CEO statement about MeeGo and the N9 (will never authorize more phones, no matter how well it might sell) - that is when I understood that Elop is going to wreck the company and is unsuited to run it. So from June of 2011, I have called for Elop to be fired. I was not the first to do so, but of those who felt that the Windows strategy might work - I was the first to 'turn coat' and turn against Elop. There were others who felt he was a Microsoft mole from the start and wanted to get rid of him from before.
We now see that I was correct in essentially all of my calls about Nokia - that the CEO was making major mistakes (against Nokia's best interests) in his explicit decision and announcements about Windows, Symbian, Ovi, MeeGo, N9, N950, Lumia, Qt, 808 Pureview, Meltemi, etc. When I said this latest decision or statement by the CEO would damage Nokia - it invariably did. When I was forced to revisit my forecasts about Nokia, I invariably had to downgrade my forecasts even worse. If you want to see, who is accurate and who is truly living in a fantasy world, of the telecoms analysts, check out this comparison of all published Nokia forecasts made.
I wrote those long passionate blogs about Nokia, because I cared. Because I saw a CEO on a rampage to destroy the company I loved. I wanted first to warn the CEO and his close management (he knew, they obviously knew). Then I wanted to warn Nokia shareholders and Board members to act, while there still was time. In June 2011, when I called for the first time for Elop to be fired, Nokia's handset unit was still earning 5.3 Billion Euros of revenues per quarter (ironically, exactly the same amount it was now sold for). Nokia's smartphone unit was still strong and sold 16.7 million smartphones in that Q2. Note, two years later, now, while the industry has doubled, even if Nokia had achieved zero growth from then, that amount, 16.7 million smartphones, would still have Nokia as the third largest smartphone maker, not 9th largest it is after Elop. I wrote my blogs because I wanted to show where I saw clear mistakes (and I was right) and I wanted to illustrate that there were alternate ways to bring better fortune for Nokia.
Lastly still about this blog. This is not a 'Nokia' blog even though recently Nokia has been dominating the coverage. This is not a 'smartphone' blog nor a 'mobile phone handset' blog. This is a blog about the digital technology space, with a focus on mobile and social networking. I write about things like mobile advertising and multiplayer gaming and SMS text messaging etc, not just about smartphones. This blog has no advertising, while we get 1 million visitors per year, this is not a news blog, this is not a professionally run blog. It is only me, with my co-author of my fourth book, Alan Moore, occasionally joining to contribute an article. I have no professional editors to clean up the text, I write here often at night - like today, out of a passion of sharing.
We have no ads, this site has no registration, we do not collect your emails (that is part of Typepad, the software that runs the blog, I do not collect the emails myself) and we have no interest ever in selling this blog. So I have zero incentive to try to run up visitor numbers or get people to click on the stories here. I write here only to share my thoughts, with my readers, who have come to trust my thinking over the years. Everything I write here is consistent with my 12 books. Forbes rated me the most influential expert in mobile, last year. I have a long track record and I stand by what I wrote. I am not infallible, especially as I do a lot of forecasts, I am often wrong - that is the nature of the trade. I am the first to Tweet and blog, whenever one of my forecasts is found to have been wrong. Obviously I also cherish those moments when I am found to have been right. In the smartphones space overall, and in Nokia related forecasts, I have been uncannily accurate, by far the most accurate forecaster of this industry. You don't have to like my style, you may complain that the blogs are too long - but this is a hobby and I do this for free, for you. I hope you can appreciate it, that the level of analysis and facts shared here, is available nowhere else for free.
One last thing - about the conspiracy theorists. Many who like the 'Elop was a Microsoft mole' conspiracy theory, like to come here to chat too, among my comments. But I have not subscribed to the main theory that Elop arrived to destroy Nokia so it can be sold cheaply to Microsoft, and I've said so often on this blog. Now we know that Elop actually had a bonus clause in his CEO contract that motivated him to do just that. So now we can see, that his actions have been pursuing the downfall of Nokia so the handset unit could, indeed be sold to Microsoft. But my (evolved) view on the conspiracy theory is this. I cannot see it in Microsoft's interest to ruin Nokia's 35% market share to 3.5% and then buy that wreck. Microsoft's intention was to have a 'muppet' so to speak, a puppet, a friendly CEO to run Nokia, but shift all its software to run on Windows. That was in Microsoft's best interest. They could not have 'wanted' to wreck the 35% market share to be so tiny, that they have to come now to 'rescue' Nokia to buy it, and run this part themselves. Certainly its possible that Ballmer and Elop may have talked about possibly at some point Microsoft buying parts of Nokia - the Lumia unit - but no, Microsoft would be far stronger today, if the worst of the major analyst forecasts had happened, and Nokia had something like 15% market share now in smartphones - but running those on Windows - and paying nice royalties to Microsoft.
So Ballmer and Microsoft, I cannot see them being part of this 'conspiracy'. I think its rather a lonely wolf lunacy. Elop had his incentive to destroy the handset unit and then sell it to Microsoft. Imagine 25 million dollars in bonus. That is not a normal Vice President bonus - Elop was a VP at Microsoft. Its a very good CEO bonus if happen to be in a lucky place at a lucky time. Elop could have taken the task of attempting to fix Nokia - lots of pain - or just wreck the handsets, knowing that no matter how much he ruins it, Microsoft will have no option but to buy it sooner or later. And when Microsoft buys Nokia's handsets, Elop pockets his 25 million. Sweet. So, I think this was Elop's private plan. If you think of it as a Troyan Horse (remember Troy was the city, the Horse was given by the Greeks, who then used it to conquer the city of Troy). Under the normal Troyan Horse conspiracy, Elop is a Greek, who represents secretly Microsoft, comes in to conquer Troy (Nokia) and hands it over to the Greeks without a battle. Yeah. Except Microsoft (Greece) is not involved. So this would be like if Elop was a Roman, acting alone. Taking Troy at night, then selling it to Greece. Yes, destructive work like a saboteur, a mole, was Elop yes. But not in collusion with Microsoft, that doesn't make any sense. Elop worked alone, and then proceeded to help sell it to Microsoft.
This also helps explain why Elop was not involved in the final negotiations, and why Ballmer and Elop had their falling-out during 2012. At some point Elop must have mentioned to Ballmer about his brilliant plan, which must have angered Ballmer. So Elop went to deliberately destroy the prize that Ballmer wanted intact. Go get me that crystal bowl. Crash-crash-crash. Here it is, boss, in pieces. You wanted to have the crystal bowl? So just for those of my readers who love the conspiracy theory, no, I still don't buy it. I think Elop acted alone and this is not the outcome Microsoft wanted in February 2011. It is still, for Microsoft, better than having Nokia now abandon Windows and going to Android, as they had been threatening privately.
(Note - this blog still being finalized, I'll add links and more pictures for you shortly)