Wall Street is a Cruel Mistress. The business press are buzzing with the rumor that Nokia is searching for a replacement for Olli-Pekka Kallasvuo (OPK) their CEO who has only run the company for 4 years following Jorma Ollila who is now the Chairman.
Nokia is the world's bestselling mobile phone brand - selling more mobile phones as numbers 2 and 3 combined. Nokia is also the world's largest smartphone maker - selling more smartphones than numbers 2 and 3 combined. Nokia is profitable where most rivals are struggling to make profits. None of Nokia's big 5 global handset makers have managed to migrate customers to smartphones in meaningful ways, while Nokia's market share in smartphones is better than its market share in dumbphones. By all measures Nokia is executing well. Why is Wall Street demanding his head on a plate?
I think its a combination of 6 factors. There is Apple's iPhone of course. Then there is the question of Nokia's profits. There is one particular Nokia phone model, the N97. There is the smartphone operating system Symbian. There is OPK's promise to investors that he would restore Nokia's market share in the US market. And lastly - but very importantly - there is the relative lack of sophistication and knowledge of the US based analysts who are far more familiar with the easier and simpler PC industry than the complex mobile industry. This is another very long article, so please bookmark the page and read it when you have good time. Grab a cup of coffee to go with it.
WHAT DID OPK INHERIT
OPK took over from Ollila to run Nokia in the summer of 2006, four years ago. What was the mobile world like back then? Nokia was the world's bestselling mobile phone maker. For the full year 2005 they had achieved 35% market share. Their big rival was Motorola who was nearing 20% market share with their surprise hit phone 'Razr' and many analysts were accusing Nokia of having missed the boat on flip phone design - thinking the world would soon all have Razr look-alike phones (how quaint, isn't it. Today most phones are still candybar phones - the Nokia staple - even Apple's iPhone is a candybar form factor, not a flip phone, as are most Blackberries and most Androids..).
In addition to Motorola's Razr surge, the two big trends in mobile phones in 2006 were 3G phones and musicphones - and in both, Nokia was accused of having falled seriously behind. SonyEricsson was launching Walkman phones, Motorola its Rokr. And in 3G Nokia had only about 25% market share vs 35% in all phones where the South Koreans LG and Samsung had taken a surprising early lead.
In 2006 the tech world was not very impressed by 'smartphones' - the category of superphones that Nokia had invented exactly 10 years before - and most analysts felt that the very expensive smartphones would only sell to enterprise/corporate users with business-oriented smartphones like the Blackberry and various Palm, Windows Mobile etc devices. US analysts didn't even believe in mobile data services in 2006, as the USA was the last country to discover SMS text messaging and didn't really believe in SMS until the Obama Presidential campaign of 2008. And here was Nokia with its crazy notions of expanding the expensive smartphone market to consumers - the N-Series - with the cameras and music players and user-installed applications and video recording and forward-facing second cameras for 3G videocalls and internet surfing and picture messaging - all that was seen as a dangerous and costly gamble by many analysts.
But Nokia believed in its views. It had set up the Symbian partnership with its rivals (something we don't see Apple or Microsoft or RIM even trying today) where all of Nokia's biggest rivals - Motorola, SonyEricsson, Samsung, Panasonic etc were invited to join as part of the Symbian family - as co-owners! By 2005 there were 60 different smartphones manufactured by ten major phone makers using the Symbian OS, which powered almost 7 out of 10 smartphones. Nokia was the biggest minority shareholder in Symbian - but only minority, it couldn't dictate Symbian development. The OS was being developed to meet the varying demands of the partners, including Motorola asking for improvements based on the laggard USA market, to NTT DoCoMo asking for improvements based on the world-leading Japanese mobile market. Nokia was there in that mess, but determined to keep it a partnership that helps all, rather than having the mobile phone industry fall into an all-out war of a dozen duelling smartphone operating systems and immense fragmentation.
So when OPK took over, Symbian powered most smartphones in the world. Nokia's market share in smartphones was a fraction of that, obviously, being 48% for the full year 2006. Microsoft Windows Mobile based smartphones were the second biggest platform behind Symbian with 14%. RIM's Blackberry had 8% of the market and Motorola who made both Symbian and Windows Mobile smartphones had 6%. Previous global number 2 smartphone maker Palm had fallen to 5%. The total worldwide smartphone market in 2006 was only 80 million handsets, about 8% of all mobile phones sold. Of the world's Global Fortune 500 brands, only 7 were involved in manufacturing or selling smartphones, so the competition was not very fierce.
ENTER APPLE
The first thing that happened during OPK's reign and changed 'everything' in the phones market was Apple entering the phones space, with Steve Jobs demonstrating his prototype iPhone in January of 2007. OPK had only had half a year in control, when the whole mobile world changed forever. And all the rules changed too.
Up to 2007, the best marketing machine in mobile telecoms had been Nokia, hands down. It was loved by the tech media and had the best customer loyalty in the world. But Apple is far better than Nokia in marketing. And Apple's customer loyalty is legendary. A new kid was in town. Steve Jobs is the master showman even back home in the USA, where marketing and presentation is given far more relevance than in OPK's home country of Finland, where you are expected to conform to the rules and stick to the facts. Not to brag, not to show off.
The iPhone 2G was not the best phone in the world. Apple has since made 15 major technical improvements to the original, over the past 3 years, and Apple itself has celebrated those 15 changes as radical and important. Nokia's flagship N95 which was being sold before the iPhone 2G even launched in 2007, had 14 of those 15 technical abilities as standard features. And the N95 had tons more features and abilities that even the latest iPhone 4 does not support. By every reasonable comparison, the N95 was the superior phone in 2007. Except for one very visible drawback - the N95 didn't have a touch screen. And most head-to-head comparisons of smartphones by international reviewers in 2007 found that the N95 bested the iPhone 2G.
But somehow with Apple, the facts no longer matter. The iPhone was the ultimate best phone ever - according to Steve Jobs - and because Steve Jobs says so, that started to become the storyline. The truth didn't matter. That the iPhone 2G was not even a proper 'smartphone' - it didn't even offer users the ability to install apps (this ability came a year later) and didn't support industry standards like MMS and even today doesn't support Adobe Flash. The iPhone 2G was not a 3G device, making it instantly obsolete for example for the Japanese market and didn't have such abilities as GPS and stereo bluetooth. But that didn't matter. If your smartphone didn't have the one cool thing the iPhone did - a touch screen - it seemed that your phone was old-fashioned.
Nokia was manufacturing over 50 phone models when OPK took over. The iPhone was outrageously expensive and with that price point, it could 'afford' to install a touch screen. Nokia sold a wide range from superphones more expensive than the iPhone (yes thats true) to far cheaper dumbphones with basic T9 keypads. It would have been prohibitively expensive to abandon the existing product lines of its existing 50 or so phone models at Nokia in 2007 and migrate them all with reckless abanbdon to touch screens (and a dumb move too - even today in 2010, more QWERTY based texting-oriented phones are sold than touch screen phones; and more basic T9 keypad based phones than all QWERTY and touch screen phones put together).
But it was not only about the phone with Apple, ie the hardware. And no, I'm not talking about the UI or the apps or the App Store or the iOS eco-system. Something far more devastating changed with Apple's entry to phones. For Nokia, someone changed the rules of the game in January 2007 and didn't bother to tell Nokia. Because Apple was in the game, now anything Steve Jobs said was the word from god. And no matter how severely deficient the first iPhone models were, because they were Apple phones, that meant they were the world's 'leading' phones. And if you didn't match the current iPhone model with a potential 'iPhone killer' - then you were obsolete. Suddenly in 2007 Wall Street lost its respect for facts, and started to believe Apple's version of the story, ignoring the truth. And most analysts who would study the iPhone would come from the PC side of the tech industry, far more familiar with the relatively simple and easy PC industry than the remarkably complex mobile telecoms industry. Those PC industry experts were very familiar with Apple's accolades and could see in the iPhone the long-held promise of the pocket PC. Again it didn't matter that Nokia was the first phone maker to boldly call its smartphone a 'multimedia computer' - the truth no longer mattered in 2007, when all stories were now spun by Apple's PR machine. Besides, with Apple's touch screen, the 'pocket PC' metaphor seemed far more compelling than with Nokia's early smartphones with keypad based navigation.
I do not mean this as a criticism of Apple, I mean it with admiration. Apple are masters at marketing. They know how to wow the investors and Wall Street. They know how to play THAT game. So for example, RIM has sold more Blackberries every single quarter since Apple launched. The past 3 quarters when Apple's iPhone unit sales have been flat or declining, and the iPhone market share has shrunk from 17% to 14%, in the same time Blackberry's unit sales have grown and its market share has grown. How does Wall Street report the story? They keep repeating the factually opposite from the truth story - they keep repeating the myth that RIM is losing market share to Apple's iPhone. The exact opposite is the truth. Apple is losing market share to RIM! But with Apple, Wall Street is hypnotized. Facts no longer matter, it is what Apple says.
So suddenly the rules of the game changed. Now its the ultimate game of hype and spin-the-story. And Nokia was Finnish to a fault, being the 'stick to the truth' very honest and open story, any problems too, bring them into the open and volunteer as much truth as possible. This had been a good strategy back in the Era Before the iPhone - when the rivals were other very engineering oriented, facts oriented rivals like Motorola, SonyEricsson, Samsung etc. Now there was a new kid who seemed to play 'unfair' and start to distort the market opinion with all sorts of bizarre claims and facts and 'innovations' which certainly were not invented by Apple and often were simply established industry standards. Look how Apple handled the Death Grip problem. First, it denied the problem and told customers to hold the phone differently. Then Apple said there is no hardware problem, there was a software bug in the display of the phone. Only after Consumer Reports verified the problem, did Apple do a formal acknowledgement of the issue, but then, Apple blamed the press (for supposedly spreading a false story) and then took the child's excuse - everybody else is doing it too (which turned out not to be true) and then finally said the problem is miniscule (again not true). This is the modern spin-doctor way to handle a crisis. That is the Apple Way. Fight the story, control the story, deny it all, change the story, blame the reporters, blame the rivals. Spin doctors that Donald Rumsfeld and Dick Cheney would be proud of.
When facing a rival like Apple, what Nokia needed from a CEO, was a showman and a brawler. OPK is not that showman and its not in Nokia's ethos to go out and fight. What Nokia needed was over-hype and super-celebration of its huge legacy of achievements and every possible new tidbit it was doing. Nokia has a trophy cabinet full of innovations and patents and true world leadership it could celebrate with every major phone launch, but Nokia doesn't do that well. It is understated. It is the wrong rival to Apple, Nokia can't win in a marketing-spin game. Not with OPK in charge. That is not his style (nor the style of previous CEO Ollila either). It is anathema to Finnish management style. They want to 'do it' rather than 'say it'. They want actions to speak rather than words. They believe in cooperation, not competition. They want to work with their rivals, not fight with them in public like Apple does with Adobe and Microsoft and now HTC and Samsung etc. And then Nokia are bewildered why is Apple getting all the accolades for deploying solutions and systems that are industry standards and Nokia has had on its smartphones for years already.
This was a total change and it hit OPK and his team hard. There was an unreal aspect to the coverage of the phones market, in particular the smartphones market, after the iPhone launched. Nothing was the same, and still up till today, Nokia has not adjusted to the press relations and analyst relations and investor relations side of the new world order in the iPhone Era.
Consider how unfair this issue is. Apple has today 2% of total phone market share. Nokia has 34%. Apple has 14% market share in smartphones - and has lost market share now for 3 straight quarters. Nokia has 41% market share in smartphones and has been growing market share in the same period. Of Apple's flagship phone the iPhone 4 - with its 5 major improvements now in 2010 - Nokia has had 4 of those in its phones long before 2007. Why is Apple given any credit as the 'leader' and Nokia accused as 'having lost the lead'?
But Nokia doesn't know how to sell itself to Wall Street. Not to match Apple's amazing PR spin machine and Steve Jobs's stage presense.
Apple yes is the most profitable phone maker (it is the most profitable tech company too) but it is 100% certain that Apple could not sustain that level of profits if it sold 20% of the world's phones. That is classic 'niche' luxury bracket market share profits - its what Porsche does in cars. Nokia is not a Porsche, its more like Toyota. Nokia's motto is not 'connecting rich people of the West'. Nokia is connecting people. Period. All people including the poor in Africa. Selling new phones as cheap as 25 dollars, unsubsidised. Selling 3G smartphones as cheap as 100 dollars, unsubsidised. Thats one sixth the price of an iPhone, yet its a 3G smartphone. And Nokia is still doing it profitably. It is patently unfair to do any financial comparisons of Apple's niche smartphones-only luxury goods strategy to Nokia's mass market strategy.
Apple will never, ever, have 20% of the global mobile phone handset market. Never. It cannot hope to have it, why? Because Apple has a huge investment in its design and look and feel, which is expensive to maintain with its expensive California based designers. Apple's price points are far above the industry average in anything it does. Look at the Mac line of PCs. The Macs have always been premium priced PCs. The Macintosh sells in the 3% or 4% market share globally. That is what Apple is good at. The Mac has never had even 15% of personal computers. Never, not one quarter in 26 years since launch. That is Apple. It is a luxury premium design brand. That is not a true rival to Nokia! And if Nokia abandoned its 35% market share in the mass market, and put all its effort to win some share in the small 4% luxury bracket where Apple currently is, I'd get a shotgun and go shoot the CEO myself. No, Nokia has been doing the right strategy (for a mass market brand). It has had to manage its global dumbphone market share (profitably) while migrating its customers to smartphones (profitably) and has been able to do that, where Motorola, Samsung, SonyEricsson and LG have been spectacularly unable to do that.
But now that Apple is in the game, and as Apple is the master at stealing the spotlight, suddenly Nokia is being compared to Apple! How unfair is that? Its like comparing Toyota's total range of cars and their average engine performance, to the performance of the Porsche! Giving no credit that some Toyotas have four doors or big cargo ability or diesel engines, etc. Just on Porsche's particular one advantage! Come on, Toyota sells taxis and family sedans and rugged off-road vehicles and cheap city cars and luxury sedans and hybrid eco-cars and minivans - and some sports cars too. Porsche cannot offer anything in almost any of those other categories. Porsche is pure performance at luxury niche prices, profits and markets. Toyota cannot be compared to Porsche, not fairly. Compare Porsche to Ferrari or Aston Martin, and compare Toyota to Ford or VW or Nissan. But no, Nokia finds itself now constantly compared to Apple.
And then that bizarre and cruel twist of the facts. While Nokia's market share in smartphones is growing and Apple's is declining, the storyline for nine months now and counting, has been from Wall Street - that Nokia is 'losing market share to Apple's iPhone'. This is absolutely categorically factually untrue! For the past year the exact opposite has been happening. Apple's market share peaked in Q3 of 2009 and is in decline. Nokia has turned its market share decline back into growth. And with any other tech brand as Nokia's rival, there would be sanity with the tech reporters and business press. But its Apple and their hypnotic way to change the perception of reality.
PROFITS
Which brings us to OPK and Nokia profits. When he took over, Nokia had 21% profit margins. Last quarter (Q1) Nokia reported 4% profit margins. During his tenure Nokia reported for the first time in more than a decade, a quarter of making losses (last year). And twice this year Nokia has already issued profit warnings. This is a very valid Nokia investor concern and the CEO has to take very strong leadership in profits.
So again, the nemesis. Apple makes ever bigger profits one quarter after the next. But Nokia is in three businesses, in the 'dumbphones' business, in the 'smartphones' business and in the networks business. In the dumbphones business, since OPK took over, almost for the full 4 years Motorola has reported losses. SonyEricsson has reported losses about half the time. LG has reported losses several quarters and even Samsung reported losses a few times. Nokia's handset business has never reported a loss! Does Nokia master its core business? Yes. Does it get credit for it? No, because a luxury niche smartphones-only maker called Apple makes tons of profits.
In smartphones Nokia has been making profits too. Not all its rivals do that. Yes, Apple and RIM make profits, but HTC and Palm have been making many quarters of losses, Palm did them for three years straight until bought out by HP. The smartphones business is no guarantee to make money - witness how quickly Google pulled out of the market with its Nexus One 'superphone' and even more astonishingly Microsoft, who pulled the plug on its own smartphone 'Kin' project in only 6 weeks. Nokia keeps making profits in the smartphones space - a market it invented and it utterly dominates - selling more smartphones than Apple and RIM combined. But because Apple makes massive profits, and Nokia only modest profits - Nokia is punished. It is not compared to the other major handset makers like SonyEricsson, LG and Motorola who have struggled deeply in attempting to shift to smartphones.
In networks the story is truly bleak. Ericsson has been barely profitable countless quarters and making lossses in many more. Alcatel has reported many quarters of losses. Canadian Nortel and American Lucent were making losses and were sold. Motorola's networks division was deeply in the red until sold to NokiaSiemens Networks now. But Nokia's networks division has been on the threshold, making mostly slim profits, but falling into losses several quarters. Is it fair to compare Nokia's brave and mostly successful performance in this deeply unprofitable industry against Apple's niche smartphones performance? I think not. But networks do about a third of Nokia's total business and is a heavy drag on its profitability. To put it another way, the handsets business (dumbphones and smartphones) are far more profitable than Nokia's corporate profitability. But the networks unit has hurt Nokia's corporate performance.
Is that the responsibility of the CEO? Yes, definitely. Is it something OPK could have done and fixed? Yes, he could have sold the unit or spun it off. Or he could have instituted severe staff cuts to reduce costs. Or he could have increased networks division prices trading NokiaSiemens Networks market share for better profits. Yes OPK could have been a more ruthless CEO and made painful cuts and forced the networks unit into better profitability, helping Nokia's bottom line immensely. He didn't do that. He was a more 'Finnish' CEO respecting the individuals and giving the division time. Was he too soft? Its a tough call, but this is management difference very strongly between US and European managements. OPK is definitely a European manager.
SYMBIAN
Then we have the Symbian operating system. The analysts seem to hate Symbian. There are continued calls for Nokia to abandon Symbian and adopt Google's Android. There were many who suggested Nokia should have bought Palm to get its operating system and replace Symbian with Palm.
Here life is utterly cruel to OPK, to Nokia and to Symbian. A decade earlier, Nokia could have very easily developed its own OS for use with only Nokia branded smartphones. That would have been the better thing for Nokia but not for the industry. Nokia has believed in open systems, partnering and industry standards (where Apple, RIM, Microsoft and Palm have all been pursuing proprietary solutions that create industry fragmentation). So rather than create only its own OS, Nokia invited its rivals to join in the Symbian Partnership: Motorola, Sony, Ericsson, Panasonic, Samsung, etc. Who does this? Especially where Nokia had invented the smartphone and had a huge lead in smartphones, and Nokia very much in public said it believed that in the future the smartphone market would be enormous? Why 'gift' this advantage to rivals? But that is the Nokia Way. They believe in cooperation with rivals, especially on standards. Nokia wanted a global standard OS. They had 10 handset manufacturers providing Symbian phones by the time OPK took over Nokia in 2006.
So what did Nokia and Symbian do when the iPhone appeared? They first started to develop a touch-screen oriented Symbian evolution. Note that if you compare the 'advanced' Apple OS/X or iOS of the iPhone 2G in 2007, Symbian was MILES ahead of it in 2007, in everything else except touch interface (and please please remember, even today in 2010, the majority of all phones do not use touch screens, not even smartphones). In 2007 Symbian supported apps (Apple added app support in 2008); cut-and-paste (Apple added in 2009); folders and multi-tasking (Apple added in 2010). Even today, Apple doesn't support Adobe Flash, the internet industry standard which Symbian has supported for most of the decade. Why is Symbian 'accused' of being old fashioned and Apple's iPhone OS 'celebrated' as being modern?
But the Apple interface looked futuristic, and its touch interface was 'intuitive' and definitely modern. Far more modern than keypad navigation. But this is only one aspect of the OS. By any other measures, Symbian was ahead in 2007. But this was now the Era of Apple's iPhone, and nothing mattered except Apple. So no matter what else you had, if you didn't have touch interface, you were obsolete. That was suddenly the new thinking in 2007. No matter how unfair, that is how the world reacted to Apple's spin.
Yet consider what Nokia did. Symbian was a partnership. Nokia spent a billion dollars to buy out its partners, and then Nokia would have owned Symbian to do anything with it. What did Nokia do? This is totally Nokia philosophy - the best thing for the industry, not just for Nokia's short term interest? Nokia turned Symbian into a Foundation and made it fully open source. Apple's iOS is not open source. Microsoft's Phone 7 is not open source. Neither is RIM's Blackberry OS or HP's Palm. Who is 'advanced' and who is retarded? Who is the true leader? But this is how Nokia does things. The Symbian OS is still used by leading smartphones made by Samsung, SonyEricsson, various Japanese phone makers - and of course Nokia. Apple, RIM and Palm do not license their OS to anyone else. Is this the 'right thing' or the 'wrong thing' for Nokia to do with its smartphone OS strategy?
If you were Nokia with Symbian after Apple's sudden success of its App Store in 2008, what would you do? You'd want an app store, wouldn't you? The Apple iPhone App Store has received all the big press and attention. Did you know Nokia launched its first app store in 2003? Yes, five years before Apple's App Store. And then while Nokia was carefully working with its carrier/operator partners - where Apple rudely bypassed the operators/carriers and deployed its App Store to bypass the carriers/operators - Nokia still was able to build an app store - with operators/carriers. Again that Nokia mindset of cooperation, not abuse. And how is Ovi doing? It was the world's third most successful app store behind Apple's and GetJar's. Still, where is LG's app store? Samsung's app store? Motorola's app store? SonyEricsson's app store? Nokia has the world's 3rd most used app store and gets no credit for that, while Nokia started before Apple and works through its partners, not against them. And Apple gets all the accolades as it thumbs its nose to the industry and bypasses the chain. Yeah I like Nokia's approach more, even if it takes more time.
And the first Symbian touch screen version was not very good. Nothing first generation usually is (remember all the missing 'standard' parts in Apple's iPhone OS in 2007). But what is Nokia and Symbian doing with it now? They do as they always do, keep improving. The touch interface is getting better. It need not be as good as Apple in the touch department, as long as it is good enough. Nokia is not trying to become a Porsche of supreme performance only in one type of vehicle; Nokia does the full line of phones to all market segments. So as long as its 'sports car' is reasonably good, if that same platform (Symbian) also supports business phones and youth phones and cheap Africa smartphones, etc, then it is far more suited for Nokia's vast market - and its partners who make smartphones for other markets! And you know what? Nokia is now selling more touch screen phones than Apple does. Yes.
Then if you were Nokia, what is the perfect strategy? Seeing the new operating systems like Google's Android and Samsung's Bada and Microsoft's Phone 7 - all operating systems developed after the iPhone - what would you want in an ideal world? You'd want Nokia to embark on its own super OS for 'modern' touch-enabled smartphones. But not to do it like Apple or Microsoft with proprietary systems. And you'd want Nokia to license the new OS to rivals, not like Apple and Palm and Samsung, but more like Google's Android and Microsoft's Phone 7. And you'd want Nokia to use Linux as the basis of that new OS, like Google Android.
Better than that, you'd want Nokia not to abandon its vast Symbian developer community. So you'd want the tools to be made compatible for Symbian developers also to be able to develop on the new OS,wouldn't you? That is opposite of what Microsoft did, when it abandoned Windows Mobile developers when switching to Phone 7. And where there is a Linux heritage to Google Android and Japanese Linux Mobile phones and Nokia's new OS, you'd want Nokia to pursue 'compatibility' into the future, among all Linux OS platforms including Android, wouldn't you?
And if you could ask for one more thing, a partner, a global giant partner, so Nokia isn't doing this alone. That theoretical smartphone OS strategy is 'everything you have in Google's Android' - but more and better and even more kind to Symbian partners and Nokia's heritage. That is not the quick solution and not the cheapest solution, but it is by far the best solution for Nokia, its developer partners, its handset manufacturing partners and Nokia's future - as well as the industry. When Apple and RIM and Palm and Samsung all selfishly release smartphone operating systems only for their own platform, that only hurts the industry with unnecessary fragmentation.
So now Nokia. This is exactly what Nokia is doing with MeeGo, the Linux based totally new smartphone OS, developed together with Intel. They have over 20 manufacturers already signed up to release devices using the MeeGo operating system. The development tools for Symbian will be harmonized with MeeGo to allow smooth migration. This is Nokia's future smartphone OS. Isn't this the 'perfect' strategy for Nokia?
You didn't know all that, did you? Isn't this a very prudent, well thought out, strategic path for the brand whose smartphone OS (Symbian) in Q1 of 2010 still sold more than Apple and RIM and Android - combined! Give the developers a growth path into a cutting edge touch-oriented Linux OS, but along the way, don't abandon the Symbian platform and the Symbian handset partners and developers.
Because Nokia has a strategy already in place for MeeGo, there is utterly no point in even considering going Android. Buying Palm would have been idiotic in this environment. But then consider true Nokia rivals SonyEricsson, LG and Motorola - they do not control their destiny. They don't even make a smartphone OS. They are utterly dependent on Google or Microsoft (or Symbian or MeeGo) for their smartphone future. Which is the right strategy? And what of Samsung? Nokia saw smartphones as a strategic direction in 1996. Samsung launched its own smartphone OS, Bada, now in 2010. Is Nokia not miles and years and yes, lightyears ahead of its real rivals, Samsung, LG, Motorola and SonyEricsson, when it comes to smartphones? But no, now there is an Apple in the market, suddenly Symbian is 'obsolete' and Nokia is 'lost' in its smartphone strategy? No, OPK, life is not fair. Wall Street is giving you no credit for the best strategy in smartphone OS's and is rewarding Apple for very sub-optimal, proprietary, industry-dividing, hurtful, excluding smartphone OS strategies that even refuse basic internet standards like Adobe's Flash being supported.
With Symbian, Nokia has failed in communicating clearly its strategy. It didn't defend Symbian's reputation when it should have. It has ignored Apple's 'improvements' and let them enter into the folklore of Apple's supposed leadership. This is as much OPK's and Nokia's PR failure as it is a failure of Wall Street in understanding Nokia, Symbian and MeeGo. If more QWERTY phones still are sold in 2010 than touch screen smartphones, then isn't there at least some merit in saying that Symbian will allow excellent QWERTY use, for enterprise/business phones - where Apple utterly fails - and for the youth segment that is addicted to SMS. No, Nokia doesn't know how to fight a PR war and with a better OS and a far superior OS strategy, they lost the perception war. Now all think that Symbian is a dinosaur in its death-struggles..
US ANALYSTS
So then there is that aspect, that the country where there are more Nokia investors than any other, is the USA. It is Wall Street which decides what the majority of Nokia investors feel and think, not Helsinki or Stockholm. And American analysts are very knowledgable and have high standards of reporting and analysis. They have excellent tools and there is a huge resouce of various tech analysts who support Wall Street bankers. The USA tends to lead most industries of high technology so there is an abundance of competence to do deep analysis of computers and rocket science and nanotech and microbiology and home electronics and automobiles and the internet industries and almost any other, including the fixed landline telecoms industry. As it happens, the one technology area, where the US domestic market lags the world leaders by many years is also one that is evolving currently the fastest - and that is mobile telecoms.
American domestic mobile industry analysts are very much behind the times, when it comes to mobile telecoms. This is due to no fault of their own - they are very competent and hungry for information and are doing a professional job. But it is the US domestic market which has stagnated, fallen years behind the world leaders, driven now by true industry dinosaurs like the carriers Sprint, AT&T, Verizon. Note that almost all traditional major mobile tech vendors from North America have gone bust including Palm, Lucent, Nortel and now Motorola which was in the process of splitting into two. American mobile telecoms is so far behind, it took outsiders like Apple and Google to come and revitalize it. The US domestic mobile industry is a corpse, rotting.
Now understand, I am an ex Nokia executive and a Finn. You might forgive me for arguing that Finland leads the mobile world (and indeed there would be plenty of evidence to suggest that) but I do not claim that. The world's leadership in mobile has shifted from Northern Europe to Northern Asia, where Japan leads closely followed by South Korea, Taiwan and Singapore. And note, I live in Hong Kong, so I am not somehow championing my new home country either.
Very quick evidence. Those cool things you liked about the iPhone? GPS? 3G? WiFi? App Store? 5 megapixel cameraphone? Touch Screen? Games? HD video recording? Video calls? - those were all invented and done first on mobile phones in Japan, years and years before the iPhone (obviously all done in Japan before Nokia did it too).
Or consider the carriers/mobile operators of America. That 'all you can eat' data plan you like on the iPhone? Invented in Japan. The 70:30 revenue sharing that Apple's iPhone App Store offers - was invented in Japan but they offer a far better deal: 90:10. Mobile wallet/mobile payments? Invented in Japan. 2D barcode based coupons you see now on Times Square? Invented in Japan. The mobile internet? Invented in Japan. Idle screen services. Invented in Japan.
It is very clear that Japan is currently the world leader in mobile. And South Korea, Taiwan, Singapore come far ahead of Europeans, who come ahead of the USA. So take your 'superphone'. The top Samsung Galaxy from South Korea that went on sale last week - offers a built-in pico projector! For the same price roughly as the iPhone 4. Think about that for a moment. Where was that first sold? In Singapore. And HTC? Based in Taiwan. Apple manages one new smartphone model per year, which it doesn't have time to test well enough, that it fails the Death Grip test by Consumer Reports. HTC is releasing 6 new smartphone models mroe this year before Christmas of 2010. HTC does have time to rest its smartphones well enough, that it gets on average 2 complaint calls per day. Apple's iPhone 4 generated 750 complaint calls per day in its first 3 weeks and growing.
If you wanted the world's best analysis of a rocket program, whether by a company or a country, you'd go to NASA or any US based aerospace analysts. While Iran also has a rocket program, the world's best rocket science analysts are not in Iran today. So similarly, the USA is behind in mobile telecoms. Not all telecoms, but yes, in mobile telecoms. Years behind. And yet, Wall Street has tons of analysts who specialize in mobile telecoms (ie 'wireless telecoms' haha). They do their best, but they are guided by what they know, and what they can see in their own market. They cannot know how outdated some of their views are, because those analysts don't get to make pilgrimages to Japan or South Korea etc to study the most advanced mobile markets.
Now, which was the Western smartphone maker who first put a camera on its smartphone? Not RIM, not Apple, not Palm, not Motorola - it was Nokia - based on studying Japan. What was the first Western smartphone maker who first put a 2D barcode reader on its smartphones? Nokia again. TV-out? Nokia. App store? Nokia. Touch screen? Nokia. Etc. Nokia has been tracking the most advanced markets and brought innovations to the smartphone space for the whole decade, but the US based tech press do not know this, and do not understand this.
The problem is made worse, by the fact, that most US carriers/mobile operators do not carry Nokia's top phones. They were seen as too expensive. It wasn't until the iPhone came along, that US carriers were willing to accept that consumers would be willing to buy 'expensive' smartphones. Up to then, the most expensive phone for consumers in America was the Razr. It was a mid-price phone in Europe and advanced Asia at the time. But an 'expensive' phone in America.
So in 2006 Nokia had a true superphone, the N93. By many features it was equal to the iPhone 4 of today and beats it with many features (but was not a touch screen phone obviously). In 2007 Nokia introduced the N95, far better than the iPhone 2G and in most tech specs matches or beats the iPhone 4 today (except not touch screen obviously). In 2008 Nokia brought us the E90 Communicator - the most awesome Nokia superphone ever, and the last Nokia phone to regularly defeat the iPhone of that time (the iPhone 3) in tech press comparisons (but the E90 was not touch screen). And fast forward to 2010, now we have the N900, again a master class of superphone design (which now is touch screen). But these smartphones are not carried by US carriers. The US carriers will not offer subsidies so that US consumers could pick one up for 199 dollars on a 2 year contract (European and Asian carriers/operators offer them!). So is it no surprise, that Nokia's reputation in almost all of the rest of the world is one of a superphone maker of very high quality premium luxury phones, but in the USA, Nokia is thought of as a garbage brand of cheap phones?
So the US analysts had no 'heritage' of comparing Nokia's best with those of the US domestic smartphone market like say the Blackberry Bold or Palm Pre or Motorola Droid or Apple iPhone. The Nokia flagship models were all missing from the US. So the US analysts were very easily convinced that the iPhone was the best phone on the planet. Also that as it looked like all phone makers were now ape'ing Apple (based on premium phones released in the US market recently) and as Nokia didn't release an iPhone clone, clearly Nokia had 'fallen behind'. And as the US analysts would read each others' thoughts (and not tend to read Japanese or Korean or Finnish or Swedish language analysis of the market haha) - some 'group think' emerged, where if the other US analysts also thought so, then it must be true, that the iPhone is the world's most advanced smartphone. This is for example the fallacy that follows RIM analysis time and again - even though Blackberries are growing unit sales and growing market share, while Apple is losing unit sales and losing market share - the madness of Wall Street thinking is that RIM should abandon its brilliant QWERTY oriented messaging phones, and try to copy Apple's touch screen. Lunacy! RIM is not losing to Apple, RIM is pulling away from Apple! If Wall Street analysts got their heads out of their behinds, they'd look at the facts and insist Apple launch a QWERTY phone to reverse the Apple decline in market share and catch the big growth wave that propels Blackberry.
But no. The US press were hypnotized by Apple to obsess about the iPhone's multitouch screen and if you didn't have it, you were rubbish. Even though QWERTY outsells touch. No, if you're not touch, you are 'not modern'. But again, this is something OPK could not control. Nokia sells its shares on the DOW and therefore it has to live by US analysis.
But this is something Nokia could have tried to influence at least. The N-Series HQ was moved from Espoo to New York. Anssi Vanjoki, Nokia's most charismatic senior exec has been based out of New York for some time. Nokia should have been educating the US media and analysts. I do not know to what degree they have been doing that (and I am sure they have tried) but clearly they have failed, if today in 2010, the US tech press says 'Nokia is falling behind Apple' (when facts show the opposite is true). Nokia have failed, not in the technology race, but in the perception race. And truth be told, they have been taking a black eye from the masters. Apple had been doing the same punching of Microsoft for decades now haha, and beating up Sony pretty badly for a decade now starting with the iPod. So small solace, but at least Nokia wasn't losing to a marketing novice. They were beaten in the PR game by the best. With Apple laughing all the way to the bank.
TAKE BACK US MARKET
So if the US analysts were a fact Nokia HQ had to deal with, and suffer the consequences, there is one self-inflicted wound which hurt OPK dearly, and more quarter after quarter, as time went on in his stewardship. It was OPK's promise to shareholders when he took office, that he would restore Nokia's market share in the US market. This has been the most dismal failure of Nokia in what I really think has been a very solid run of management. There is no Apple effect here, there is no 'reality distortion' here, and there are no mitigating factors. This is OPK's fault on a personal level, and his very visible commitment. Utter failure.
OPK promised that Nokia would regain its market share in the USA. The opposite has happened. Almost every quarter since he took office, the US market share of Nokia in mobile phones and in smartphones has declined. Think how bizarre this is. 93% of the world's mobile phone accounts are outside of the USA. In that market, when OPK took office, Nokia had 35% market share in all phones, and about 50% in smartphones. Today outside of North America, Nokia has about 36% market share and about 52% in smartphones. It is only in North America where Nokia is a failure (apart from Japan and South Korea where domestic standards and domestic phone makers rule those small markets).
In the US market Nokia has suffered continuous losses in market share. This to me is unacceptable and since the new CEO committed to regaining US market share, OPK should have achieved it. No matter how. If that meant creating CDMA phones for Verizon and Sprint, then be it. If that meant creating USA-only iPhone clones, then so be it. If that meant (remember the commitment was from 2006) creating Razr clones to match Motorola's US success, then do it. And Nokia had huge profits back then - bankroll that US invasion. If it meant Nokia's US sales had to be subsidised from other markets, no biggie, its only 8% of the world market. Nokia EASILY could have afforded to do this.
But yes, change the leadership. OPK should have taken personal responsibility, and talked to the CEO's of Sprint and AT&T and Verizon and T-Mobile USA, to find out why they are not selling more Nokia, and then appointed the type of manager to the US project, that gets the job done. Hire someone from one of the US carriers to do it, someone universally respected by the US industry. And keep meeting with those CEO's every quarter, fly to their HQ's and bring them every year to visit Nokia's fantasyland, the special Nokia private lab and future showcase they used to call Generation Nokia (I think it was recently renamed, I forget what its called now, but this is like the Disneyland for telecoms engineers, where only 2 visits are arranged per day for VIP guests, to showcase Nokia's view of the future; its a truly breathtaking place, I've seen it once..)
There are reasons why US carriers do not support the world's bestselling phone brand. There are reasons US carriers won't support the world's bestselling smartphone brand.
There are reasons the US carriers don't support the mass market phone brand that generates the most SMS text messages - where carriers make most of their profits. There are reasons of history and of politics and of personalities. Nokia know this, but OPK was a new CEO, and he was the boss, and he could have - and should have - made all the personnel changes (and policy and price and design changes), until these 4 US carriers were satisfied. Nokia needed the US market to experience Nokia's best, not Nokia's worst phones. And Nokia needed US carriers to promote its phones, so US consumers would adopt them.
But instead of going the carrier route, humbly, and accepting the bizarre, often archaic ways of the US market, Nokia went defiantly its own way. For the N97 Nokia decided since US carriers would not sell its flagship phone of 2009, Nokia would sell it online, directly to consumers. If you recall, Google tried this trick too, in 2010 with the Nexus One. Both were marketing disasters. You can't bypass the carriers. And Google can be forgiven for not knowing this. Nokia knew this, they were stupid to do this. That would not get them the US market and Nokia knew this. Yet they did it, including the flagship store on Manhattan's Times Square etc. All blatantly fighting the US carriers, rather than humbly working with them.
The US market recovery was botched totally by Nokia. And for that OPK has to take personal responsibility. He did promise this to shareholders and Nokia was unable to execute. This is his personal failure. And this point does surprise me, that OPK did not force this to happen. There is ample and intimate Nokia knowledge of the US market, Nokia has been there for decades already. But newcomers like South Koreans Samsung and LG are the ones who are now bestselling phone brands in the US market and Nokia is ranked something like 6th or 7th..
THE ONE ROTTEN APPLE - N97
Then we get to the straw that broke the camel's back. High tech is difficult. All tech companies stumble at some point. Mercedes Benz once made a car unsafe at any speeds (remember the launch of the A-Series which tipped over when it turned around corners?). Toyota was making cars recently which didn't seem to have any brakes. And even Apple failed in phones now with the first phone ever in history, that Consumer Reports tells us the iPhone 4 has such a bad Death Grip problem that it cannot be recommended. So yes, in tech there will be the occasional failure. And while Nokia has had a great hit parade of awesome flagship phones, during OPK's short reign, there was one failed flagship, the N97. The N93 was superb in 2006. The N95 was a technology showcase in 2007. The E90 was so far ahead in 2008, it still today beats most smartphones. And the N900 of 2010 is highly praised and the early previews of the upcoming N8 are also highly positive. In that string of superb hits, comes one blemish - the N97.
And the problem is, that the N95 and the E90 Communicator were never even suggested as 'iPhone killers' and were not touch screen phones. They were in a different class, like comparing a Range Rover to a Ferrari. But the N97 was offered to the world as an iPhone beater, being Nokia's first touch screen flagship phone (with a slider QWERTY as well). On paper compared to its contemporary iPhone 3G and the later iPhone 3GS, the N97 seems to tower and indeed 'devour' its rivals (as from the LL Cool Jay rap lyrics). The specs sheet is impressive. But the N97 is not. It was a dud. A rare failure in Nokia's long history of premium phones, but one of its worst. And Anssi Vanjoki even openly said so.
When any analysts, not just US analysts, were offered the side-by-side comparison of the N97 vs the iPhone, the faults and shortcomings of the N97 become blatantly clear. Most of all, its touch screen (resistive and not multitouch) is slow and non-responsive. The touch screen Symbian OS seems slow and counter-intuitive. And then there were bunches of other technical faults and this flagship smartphone from Nokia's N-Series was indeed a flop. Nokia did as it always does, it kept fixing it, better software and hardware, and the final N97 version is not bad, but even then, its no match to the iPhone 3GS.
When Nokia finally did an 'iPhone killer' - that project failed. And this falls onto the feet of OPK. The N97 was a rare disaster phone for Nokia and with hind-sight, its clear to see, Nokia would have been better served by delaying the N97 until it was more-or-less bug-free, than hurrying the phone to the market. The lessons from the N97 were very painful to Espoo and no doubt those lessons are why Anssi Vanjoki delayed the N8 launch now, knowing its not good enough yet, and wanted to refine it before releasing it.
But for most US analysts, the 'current' flagship smartphone from Nokia is still the N97 and the 'next' flagship will be the N8 (they mostly have not taken notice of the N900 which obviously is not targeted nor sold to the US market but we have for example here in Hong Kong as the current flagship Nokia smartphone). So the more the iPhone gets amazing news stories from Apple's PR machine (how many billion apps downloaded or how awesome is the iAd platform or the new version of the iOS operating system etc), the US press is reminded that Nokia's entry in the touch screen smartphones is that expensive and failed N97 with the old Symbian OS and its lousy touch screen. If the N8 had been released for Q2 (and assuming it was not very flawed haha) probably OPK would have survived, by the skin of his teeth. But that the US market still thinks in July 2010 that the N97 is the best Nokia can do, that was too much. The straw that broke the camel's back.
WHAT IS FAIR?
So we have 6 major faults that are assigned to Olli-Pekka Kallasvuo. Apple was one of those 'once in a decade' types of events. Think about it. When Sharp introduced the cameraphone in 2000, it didn't change everything. When RIM introduced the Blackberry in 2001, it did not change everything. When Motorola introduced the Razr in 2004, it did not change everything. When SonyEricsson introduced the Walkman phone in 2006, it did not change everything. When Google introduced the Nexus One in 2009 or Microsoft the Kin in 2010, these did not change the whole industry. But when Apple entered the phone industry, suddenly not just were phone expectations changed permanently and thoroughly - the way marketing and PR to the investors and shareholders changed permanently and thoroughly.
But 'unanticipated' changes like this are what nimble managers are needed for, and executive wisdom to see when such a strategic change happens, and to adjust. Yes, Nokia was hurt and this media/marketing/PR side of Apple's influence has hurt OPK's reign and reputation. They should have fought back like Adobe fights with Apple or Microsoft fights with Apple etc. Now you have to put on a show and you have to brag about your greatness, else you will lose. Its no longer a 'lets build it together' world of cooperation, it is now a dog-eat-dog world of zero-sum: 'for me to win, you have to lose'. That is the game Apple brought to town. And Nokia did not learn that lesson and did not adjust to it. The next CEO has to be far more brazen and bold - and vocal.
Profits is a fair point but an unfair judgement. Yes, Nokia's profits are down, drastically, from 2006. But the market is fiercely competitive, and against Nokia's traditional rivals, those who sell mass market phones to the world - Motorola, SonyEricsson, Samsung and LG, during OPK's rule, Nokia has far outperformed these true rivals. The unfair part in profits is that the analysts are comparing Nokia to Apple and nobody can touch Apple's profits. Not in PCs, not in musicplayers, not in tablet PCs like the iPad, and also no, not in smartphones. Its an unfair comparison. Apple is an aspirational luxury brand. But profits are a valid concern even without Apple. Motorola made losses and replaced its CEO. Nokia made its first-ever quarterly loss last year, and since then its profits have been very slim. This is an honest shortcoming of OPK. I would argue that the market has been fierce - the worst economic downturn of our lifetimes - and Nokia weathered that storm far better than its traditional rivals. But yes, its profits are down, and unfortunately now for Nokia, it is compared to Apple who reports ever stronger profits.
Symbian is not a fair accusation of any failure of Nokia's CEO. He did not design the OS, he inherited it. Symbian was in 2007 - now with hindsight - actually a far more potent and mobile phone-optimized OS than Apple's iPhone OS - and Nokia has played its Symbian global market share leadership brilliantly with the upgrade evolution path to Symbian - including touch screen now - and the future OS of MeeGo with Intel. Ovi and Nokia's software strategy was in place long before Apple's and Nokia has been patiently building this too. Its the world's third best-used application store, where again Nokia is miles and years ahead of its real rivals Motorola, Samsung, LG and SonyEricsson.
And for the future of its OS, Apple's iOS is proprietary, using its proprietary tools, tightly controlled by Apple and only working on Apple devices. Palm's is exclusive as is RIM's and Samsung's Bada. Microsoft is licensed to others but is using Microsoft's systems. Google's Android is the most open using Linux. Nokia's new MeeGo is also fully open source and using Linux and licensed to rivals, but it is developed with Intel. And Nokia went through the trouble of ensuring a migration path with common tools to support current Symbian developers into MeeGo, and also is working to bring harmonization among other Linux OS tools like Android. Isn't this the best possible smartphone OS strategy. But its a 'complex' story. Its 'easier' just to hear that Symbian is old and fragmented and difficult to develop for and its touch screen interface is cumbersome. The lazy story is to take the superficial and just say, Symbian is dead. This is not a fair criticism of OPK's rule. Nokia has by far the best smartphone OS strategy of any in the industry and in the past 4 years Nokia has executed brilliant and elegant migration decisions on its two operating systems.
Then there is the issue of US analysts who live in the laggard US market and their views of advanced phones is very outdated. This is a 'reality of life' and Nokia is fully aware of this. There is no excuse that Nokia couldn't navigate in this environment, knowing the landscape. But yes, it means that if Nokia introduced widgets or near field or FM broadacast or some artifical intelligence elements into its new phones, Nokia has a far bigger job of educating to do with the US based analysts. Nokia knew this. There is no excuse. Nokia failed its PR efforts with US analysts and journalists.
And finally the N97. OPK could not go personally test the phone. He should have been personally interested enough in its launch - as it was so critical also for the US market - to pay attention to final testing etc. He should have known as the N97 neared launch that there were problems and halted its launch. Or else, the moment the world started to complain, he should have stepped in, apologized for a bad phone, and fixed the issue. That N97 should not have remained long on the market as Nokia's primary proof of leadership (ie lack thereof) as its 'flagship'. Nokia could have taken an older world-winning superphone like the N93 or E90 or some other recent platform, slapped a few updated parts onto it, and launched that as the N98 and quietly discontinued the N97 - very quickly. This is what Apple will no doubt do very soon with the iPhone 4 - Apple cannot let the 'Consumer Reports cannot recommend' iPhone 4 to remain as a stain on Apple's reputation. It will be replaced by a newer iPhone long before June of 2011, mark my words. Probably still during 2010 haha..
Similarly Nokia should have issued a new flagship quickly to replace the flawed N97. It didn't and the N97 still today continues to stain Nokia's leadership reputation, in particular in the US market.
Its a cruel world, Charlie Brown. OPK got to dance with Wall Street for four years as Nokia's boss. He would have done fine were it not for the best dancer ever, Fred Astaire stepping on stage in the form of Apple. Now OPK is remembered for losing to Apple. This even as Nokia's market share in smartphones grows and Apple's share shrinks. Life's not fair..
Incidentially. Four years ago, Nokia's global mobile phone market share was 35%. Since then the number of rival handset makers has doubled. The market shares of the other top 5 makers have shrunk from 48% to 40%. Did Nokia do well? Before OPK took charge, Nokia's smartphone market share globally was 48%. Since then the number of smartphone manufacturers has more than tripled. Nokia's market share is still 41%, bigger than numbers 2 and 3 combined. And Nokia's smartphone market share is better than its dumbphones market share - as the only one of the Top 5 phone makers, Nokia is able to improve its market share, as it migrates customers from dumbphones to smartphones. And is doing it profitably. Of its major smartphone rivals just four years ago, Palm died and Motorola's smartphone market share was cut in half, Microsoft's Windows lost three quarters. Nokia weathered the influx of over 30 new rival smartphone makers by only losing a couple of market share points over a 4 year period. Did Nokia do well?
Of the challenges he inherited, Nokia did not foolishly retool for all flip phones in the Razr craze and that was the right call. In the transition to 3G, Nokia's market share in 3G is now the world's best, so Nokia did not lose out in the migration from 2G to 3G. Nokia led the smartphone revolution, then the migration of smartphones from business phones to consumer phones - both initiatives Nokia started long before the iPhone. Nokia set up its app store with partners, and all along the way it is connecting people also for the very poor, and even manages to win consistently Greenpeace's award as the greenest phone maker. While Apple uses Foxconn as its supplier, a manufacturer some accuse of being a sweatshop, Nokia set up the world's largest handset factory into China so it can control the handset manufacturing process itself. Is this all good management? I think it is.
But OPK failed the US market, he presided over the launch of Nokia's worst flagship phone. His rule coincided with the moment when Apple came to disrupt the phone market and his PR people didn't adjust to this, nor to US analysts and their lack of understanding of the finer points of modern premium phones. And yes, Nokia's profits have declined from the good old days. These are valid reasons why Nokia shareholders demand a change in management. The Symbian story is not fair, but it is not an easy issue to understand adequately either, so I can see why the lazy analysis says, Symbian is not good in touch screen, therefore Symbian is obsolete. Thats not true, but I can see why that argument is easy to make.
Sorry OPK. I think you did do a competent job steering Nokia through very tough times, and in all other markets of dumbphones and smartphones - except the USA - Nokia has shined. Unfortunately the US based analysts, press and investors will not prioritize the rest-of-the-world performance ahead of that within the US market. I think its clear your management was far better than those at Palm or Motorola or SonyEricsson or LG.. But it was not perfect and now Wall Street is demanding your sacrifice. Its a cruel world out there..
Tomi,
You're making things up in your response to Staska.
I'll say it again, the 3GS did not lose market share. In the quarter in which it was released (Mar-Jun 2009), Apple market share was 13.7%, and 3GS grew that to 17.1% in its first full quarter. In its last full quarter, 1Q10, iPhone share was 16.1%. Not all the numbers are in yet for 2Q10, but using Nokia's estimate of 59m total smartphones sold, and recognizing that there were 17 days of little sales and 3 days of iPhone 4 sales, iPhone share would be 14.2%. All of those numbers are still higher than 13.7%.
The N97 was released at the end of the same Mar-Jun 2009 quarter- a quarter in which Nokia had 44.6% market share. The first full quarter for N97, Nokia had 37.9% share. 2Q10, Nokia had 40.2% share. All of those numbers are less than 44.6%. These numbers tell me N97 loss market share.
It's actually even worse than that for N97. N97 was announced in Dec 2008; Nokia reported N-series good sales of 7.9m that quarter (down from 11.4m the year before when iPhone was mostly limited to US sales). The next 2 quarters of N-series sales were a bit depressed at 5m and 4.6m. After N97 release, N-series sales was 4.5m and 4.6m, after which, Nokia decided to no longer report N-series sales (which I assume means less than 4.6m). Clearly, N97 did not increase N-series sales.
Posted by: kevin | July 28, 2010 at 02:02 AM
This has brought tears in my eyes! We indeed live in cruel world.
Toyota realised they couldn't make Porsche so they made a Lexus. Nokia didn't even bother with Lexus...
Posted by: Michael | July 28, 2010 at 08:32 AM
I have to disagree with your conclusion that OPK has done a competent job. He and the pack of dunderheads on the GEB have done NOTHING short of waste time. They continue to rearrange the deck chairs, their own seats, while taking on water and waving off the USS Android saying that it would be giving someone else control of the future. Well, in a company where everyone can pretend to be captain I guess all will go down with the ship.
Wasn't it Anssi who steadfastly prevented the company from leaving the candybar path? Maybe its me but I thought the N76 was one of the nicest N-series devices Nokia made. As Anssi seems to be the VP most out of touch with what US consumers want I'm guessing they'll probably have him tap OPK out of the ring.
@Roger Johnson - With those powerful rose-colored glasses on and the invincible cluelessness it has imparted upon you, you'd fit right in with Nokia management. I hear they have a CEO position open. Go for it!
Posted by: Laskea Goldberg | July 28, 2010 at 09:39 AM
@ArbitRabbit - The product managers at Nokia become part of the big machine quickly. That means requirements come from category management, not customers.
@Michael - Nokia made Vertu. 10x the price of the mainline products rather than Porsche's 3-4x.
Posted by: Laskea Goldberg | July 28, 2010 at 09:50 AM
hello,
your data and analysis has some true parts, so congratulations, but interpretations can be different, like it seems that sun is turning around earth, but earth spins on itself. I'll send a more complete comment after, but just one question :
why a CEO would be the one who speaks and "fights" ?
If OPK would want to do it, he could, as he can do some more difficult things ! Carpet's salers who speak loud and "fight" a lot and make story telling "my carpet is the most beautiful, the Prince buy me some (what is not true, but if stupid people believe that they might buy the ugly carpets)" : it is trivial to do the same !
OPK had a lot of changes to manage, and I think that for the next phone release the communication will be better.
Of course, Nokia should better communicate. But someone else, a clever and pretty woman could do that, as her job, and with smartness and charm. And there are some women like that in Finland precisely. The CEO's job is not to do the speeches himself for a phone release, except if he wants to, precisely because he doesn't run the company himself...
By the way, it is precisely, because a lot of people make Steve Jobs' speeches that he can tell them !
You didn't tell that Apple was showing itself as a small dissenting against Microsoft etc. and now it is "spining" another way : Apple is seen as a mainstream company with rough methods...
Regards to you :-)
Phil
Posted by: Phil | July 28, 2010 at 02:19 PM
Hi Timo, cygnus, haha, Lars, Yap, Yuri, Murali and Andreu
Timo - Yes, good point, Symbian was quite bad, but the point from OPK's management is - he didn't preside when it was created, OPK authorized the expensive 'buy out' of the Symbian partners, to enable Nokia to take it more into its own control. And you have to admit, even though the progress has been slow - Symbian has improved quite a lot compared to 2006, and signs look good for the latest release coming in the N8 for example.
cygnus - thanks
Haha - well, you are entitled to your opinion obviously. We clearly disagree. For what its worth, that 'altruistic' attitude you deride - Nokia has supported open standards at every stage, Apple has thumbed its nose at them. Which is better for the industry and the long run benefit of the company? And which gives short term gains but is not long-term sustainable. I prefer the Nokia way.
Lars - thanks! and we obviously agree. Its funny yes that the criticism is coming from those sides of the industry who really don't understand mobile, and are thinking of the mobile phone (and smartphone) as the pocket PC. If that was the metaphor that wins the world, the world's bestselling smartphones today would be Palm, HP and the Apple Newton haha. No, the pocket PC was tried and failed, it didn't work until we had the phone metaphor and today phones based smartphones outsell standa-alone PDAs (which still exist) by 30 to 1 haha..
Yap - your comments are very relevant and they totally apply to this situation, thank you. Yes, like I have said time and again, ever since Apple joined the mobile phone industry, they ran away with the reputation of best phone to use, by far, and they lead that with a long lead over all others. Sadly for Nokia, it was Nokia's domain until Apple came along (Nokia phones used to be the world's best phones for users, before the iPhone, when compared to Motorola, SonyEricsson, LG etc..). I totally agree with you that Apple makes the best devices in any category, when considered from the users' perspective.
Now, while the Mac has been the best PC to use, it has also helped Microsoft change from the horrible DOS operating system (you really had to take a computer course to learn to use DOS) to Windows. And it took Microsoft 6 years of heavy work to create ever newer versions of Windows, copying the Mac, until in 1990 Microsoft finally had Windows 3.0 which was the first reasonably 'good' OS, that also became a big global hit (and essentially defeated the Mac overnight). You don't have to be 'as good as Apple' as long as you are 'good enough' that most users don't care about the minor differenes.
So in smartphones - in 2007 when the iPhone launched, it was 'night and day' difference to any existing smartphones. Apple was BY FAR the most friendly to users. Now its 3 years later, and many Android phones are considered nearly as good. Some analysts said the Palm OS on the Palm Pre was as good as the iPhone and now the rumors around Nokia's N8 is that this is the first time Nokia has 'solved' the problem of the friendly user interface when using a touch screen. I am not saying Apple will not lead - in fact I am convinced Apple will forever hold that lead in having the most user-friendly smartphone - but the rivals are now narrowing the gap, to the point where most soon will not care.
Yuri - I see your point, but to me the Navteq acquisition was not a major step by Nokia, and I do not see it as a major competitive advantage. Some yes, sports and outdoors types of uses maybe but not a big key to Nokia's future success or failure.
murali - thanks, yes me too. The US press obsesses about the US companies, and often don't give the rest of the world a fair shake. But also, as you say, Nokia has recently stumbled quite a lot. Its not easy in this space (just yesterday LG reported big growth in phone sales, to 30 million phones sold in the quarter, yet their profitable phone business has sunk once again into making losses. Its a VERY rough space to provide desirable phones at profitable price points, in this very bloody competition for mobile phones.) So yes, there are ups and downs for any company. Nokia has had a bit of a down, but considering that even in the worst economic times of our lifetimes, where most rivals produced losses, Nokia managed to make profits - even if only modest - and managed to hold onto its dumbphone market share - while growing its smartphone market share. If this is Nokia struggling, I'd like to see Nokia how it does when it is firing on all cylinders, haha..
Andreu - thanks! And yes, those are definitely there among their biggest sins recently. But also, that these are matters they are attempting to correct..
Thank you all for writing
Tomi Ahonen :-)
Posted by: Tomi T Ahonen | July 29, 2010 at 10:28 AM
Where's the exec summary of this article?!
:-) Dominik
Posted by: DL | August 06, 2010 at 05:45 PM
Hi all,
I believe what OPK did for Nokia is already the best strategy beyond what apple/RIM/andriod/microsoft could do in mobile industry.
First of all, Symbian were own by psion. Nokia bought all symbian share and open sourced it. Why? To make symbian the de facto standard. Not only that, nokia also bought QT from Trooltech. Then nokia corporate with Intel to do the Meego. All of this happened while OPK in charge.
Why any of these mattered (symbian/meego)? Because nokia want that Symbian and also Meego to be used by all the mobile industry and beyond.
And what this have to do with QT?
Let say making an apps, either for apple or Blackberry, or nokia would cost about the same +/- 15%. With QT, the developer can develop for Symbian+Maemo+Linux in 1 code. Reducing the cost of development by ??300%??
So, I think what OPK did were making a foundation for a GOOD/STRONG OS, and it's a good long term strategy. And for this OPK deserve to be given a medal of Honor. For his bravery to make a long term strategy that will make nokia survive for another decade.
If he were short slighted, and do the android, than, I would think he were not worth being the greatest mobile phone company leader. Because only a person without a great vision do a shortcut.
Posted by: cycnus | August 06, 2010 at 07:03 PM
Premiums to the Thai people much like Nokia.
Posted by: Dach | August 07, 2010 at 05:52 PM
(on replies from July 22 and 23)
Hi Ged, Mark, klkl, JFH, A and Leebase
Ged - very good points about the myth of convergence! On N900 vs E90, had same experience (testing N900) and didn't like it either. Too flimsy, not robust for daily use, at least seemed like it. My E90 is still doing heroic duty today haha, but need to replace it soon. I understand why you now use the iPhone and there are many of my friends and colleagues, who knew me only as an ex-Nokia guy, and they apologize to me when they show me they abandoned some N-Series or E-series phone and went iPhone - which to me is no damage, I used to work for an authorized Mac/Apple reseller long before I worked for Nokia, so there is a lot of Apple loyalty within me. I am happy for them haha...
But back to your points. Very good points there that Nokia lost a lot of early adopter customers with very poor PC support both with Windows and the Mac.
Mark - thanks
klkl - I think you have missed my main points. I never said that the only thing is having more features. I clearly state in the article, for example, that the OS for a smartphone is a critical competitive advantage - but that in my view, Nokia has a better long-term viable strategy - having a family of devices and manufacturers supporting it (a dozen makers for the Symbian, 20 for MeeGo) - than what Apple does with its proprietary system only supported by one manufacturer. And that since OPK took over, he has presided over the 'right' strategy for a company who controls the biggest smartphone OS on the planet - to turn it into fully open source, to make it touch-screen friendly, and to give the developers a growth path beyond the old version to a brand new Linux based open source OS. That is the best smartphone OS strategy out there. I was not arguing anywhere in the blog that Nokia's smartphone strategy is counting features..
But on the feature comparison - that is not what I was doing, that is what Steve Jobs has been doing with the iPhone 3G, the 3GS and the 4. Not me, it was him. I only repeat the 15 updates that Apple itself - in its press releases for its newest iPhones has highlighted.
lastly on 'ditching the small screen in a heartbeat' - that is fine. Note that the world's first 3 inch screen, the first 3 inch color screen, the first 3.5 inch touch screen outside of Japan and the world's first 4 inch screen were were all on a Nokia phone. You probably didn't see those phones, so I am guessing you are an American visitor. But Nokia knew people like large screens and have been putting ever bigger screens onto their phones long before the iPhone and have again today several bigger screens than the iPhone.. including the magnificent 4 inch screen on my E90 Communicator - twice the resolution of the first 3 iPhone models (but not as sharp, as the new Retina Display in the iPhone 4, the first phone 3 years later, with a better resolution than Nokia's E90)
JFH - Thank you for taking the trouble to copy all that! I hope I have all your points here. First, USA missed SMS until Obama campaign. That is actually factually true. Up until 2007, far less than half of Americans were active users of SMS. It reached national attention beyond the teenagers, only when Obama did the amazing stunt of announcing his VP choice Joe Biden, via SMS, rather than via press release. During 2008, American SMS use passed the 50% mark, and is at 64% of all subscribers today (the world average is 78%). I think it is very clear, factually true, that before 2008, most Americans didn't know what SMS was, and who did, mostly thought it was a youth thing. Today the majority of Americans are users of SMS...
On the 'ENTER APPLE' part - I don't see what is his gripe. Sorry. On his point of 'Profits' he claims I don't know HTC made a profit. Yes I do, but HTC was making losses last year and for several years, similar to Palm. I think I am clear about it, that I was looking at recent history in my posting. Currently (riding the Android wave) HTC is one of the most profitable smartphone makers. I know that and I celebrate it on this blog often.
But he then says the part that gets me 'HTC is growing market share and margins at the same time, Wall Street is in love with that shit'. I AGREE and here is MY GRIPE. Nokia went through very tough times as did all of its 'real' rivals in the economic downturn - but the whole company reported only one loss-making quarter last year, due to bad performance of the networks unit. And it has made a profit with handsets every quarter. And most quarters, again this last quarter, Nokia grew profits and grew market share - thats EXACTLY what Wall Street should be 'in love with that shit'.. Meanwhile Apple, their darling AGAIN lost market share while making a profit. What is wrong with the picture. Nokia is sinking, Apple is flying. Nokia grows market share and grows profits, is punished. Apple loses market share, grows profits and is rewarded. Here is my personal disconnect... :-)
Haha on Symbian he makes good points, he agrees with me and he also thinks companies should be more socially responsible - like Nokia - but that Wall Street hates that haha..
I agree with him, that Wall Street looks forward and will reward the promises of the future, not the performnce of the past. But that comes back to my blog, that this is a perception issue PR nightmare that Nokia now faces, what it didn't face before Apple joined. Like the guy said, before Wall Street was very bullish on Nokia, but now that Apple is around, Nokia isn't bullish enough, apparently..
Om Palm he and I agree, on Android we totally disagree (you read my reasoning in the above, I don't have to repeat it). I think anyone who suggests Android to Nokia is truly clueless on how total, utter, devastating two-year catastrophic mess it would create for Nokia, while abandoning control, while abandoning the ability to create competitive advantages, and giving all rivals every chance to copy all Nokia benefits (using the same Android platform). Ludicrous idea. If Symbian was failing severely, back in 4th place or something, then yes, maybe, but not when Symbian is as big as Android and RIM combined? Three times the size of iPhone? Total utter rubbish point. Nokia has the best OS strategy for smartphones in the world, their problem is not the OS strategy, it has been execution (recently).
On the Samsung smartphone with Pico projector, it is the Samsung Galaxy Beam. It is a Galaxy phone - I was not wrong haha.. We agree on how the US market should be handled (thanks haha) I hope I covered all the points adequately.. Thanks!
A - You did not read my full blog, or you are using selective arguments. I have clearly said that the iPhone changed the market for mobile phones, totally. And that is what could be expected of Apple, and that is a change Nokia has been adjusting to. But that there was a SECOND change, that was not obvious to Nokia (but one, that I predicted on this blog in May of 2007, a month before the original iPhone launched) that the marketing of mobile phones would change totally. I never said Apple's success is only due to its marketing - that was clearly never said in the blog - I clearly said that Apple's primary benefit is that UI which I called intuitive. I THEN said, that ANOTHER change, that hurt Nokia, was how Apple changed the game for how PR and marketing happened for the handset makers.
Leebase - 'Wall Street doesn't care about marketing' haha, yeah. Why is it that all big corporations arrange press events to publicize their results? They don't want to admit that they are influenced by the PR spin of the corporations, but of course the WAY communciation is made, is as important as WHAT is said. That is elementary communciations theory. Sorry. Style matters.
But on the accusation that Nokia should have 'done an Apple' on the smartphones, gone full steam for the 2% market to beat Apple at the iPhone, at all costs, and if not, the CEO should be fired? That is ludicrous. Nokia's factories - the world's biggest phone factory in Beijing China for example - are owned and controlled by Nokia, not like Apple who subcontracts iPhones to Foxconn the suicide-inducing sweatshop. What should Nokia now do? Dump the big phone factories in a fire sale and make a huge loss selling those to whom? Samsung? LG? Lenovo? And then go hire a subcontractor to make N-series? And what of Nokia's sales channel to nearly 600 mobile operators/carriers, which for many of them have dedicated sales staff? Fire all those very professional sales people to have the small team that Apple has to sell to its small cadre of carriers, with one phone per year? Your argument is LUDICROUS, Leebase. Its exactly the same as saying Ford should stop selling cars for mass markets, abandon all those, and sell only Ferraris or Rolls Royces.. Come on, a luxury maker has totally different production, design, sales channel - and Nokia's competitive advantage is its world-leading sourcing, manufacturing and distribution. What a silly statement from you Leebase, usually you make much more sensible comments..
Thank you everybody, more replies coming soon
Tomi Ahonen :-)
Posted by: Tomi T Ahonen | August 07, 2010 at 08:23 PM
Perhaps Carl-Henrik Svanberg is interested to move from BP to Nokia, especially considering the controversy surrounding the oil giant. His experience with Ericsson would be valuable to them.
Regards..
Posted by: Symbian Development | August 09, 2010 at 10:37 AM
It is not only OPK's fault, it is also board of directors for not having vision and the corporation for not finding ways to answer challenge before it hits you hard. Nokia is slow ship with too much incompetent mid-management. I hope that Meego and QT will make some difference, but the more there is success, the more there are managers flocking around making the next big thing impossible. I hope but I'm not holding my breath. iPhone will be the high end competitor but what about Android, will it eat the S60 away?
Apple and iPhone has been all about incremental growth with reasonable time frame before obsolescence (~2-3 years). Nokia has been always a pressing the reset button between phone models. When a model has been out of the door, it is forgotten. There might have been some support updates, but there is no way to update your phone to newer release the same way as Window, Ubuntu or iPhone. That is like a computers - something consumer friendly. So your only option was to buy a new phone and in the switch you usually had to say byebye to the few expensive, hard to find, programs you bought.
US technology press makes the news to the rest of the world. If they sell wagonloads of iPhones in US and Nokia's phone is not even on sale, there is no Nokia phone. Nokia penetration in US market has been minimal for long time. Design was hindered Nokia dysfunctional management and operator relations. Nokians wanted to do what they wanted, operators wanted thing by their way - a deadlock. The customer rarely know what they want or really need and in this case neither the seller knew any better. Then response to the iPhone by many Nokians: "It does not even have MMS". Who cares, MMS is a niche application. Mobile TV is another. I rather email good quality photo or upload to web and share a link and dvd-rip or podcast which I can play on demand. The future will be that the operators will be data pipes, even if they do not want it. Usually closed service offered by single operator has been a kiss of death.
In first stage iPhone was all about design and usability - do little but do it well. Have operators drooling over the idea - take it or leave it - it is going to be a hit so we'll find then somebody else who want it as is. Apple was in the sweet position to bend the rules the existing industry player were tied by. In second stage iPhone has been all about apps - easy to make, good way to distribute, excellent price point to buy. USABILITY. Same time it was reaching technical parity on other parts. Instead of fragmented app stores they made one united and visible - that is a achievement which has paid off.
When Nokia has tried to make comeback, it makes what it has been doing for a long while. Push out by deadline, usually something unfinished - shit that is. And Nokia has had quality problem for long time, for example, PC suite anybody? For sure everybody knew N97 was garbage, but they were used to consumers eating it with spoon like nice little children. Calculated risk so to speak; sell now and make money or fix and start selling later. But now there was something to compare with; iPhone which has only functionality which works well.. N97.. just kill me..
For last, that stone-aged Symbian, the flagship. Horrors, I did some Symbian coding in beginning of '00s and let me tell you, it was not a pleasure. I was wondering that it shouldn't be so hard, for sure there could be some other better way. The amount of self-learned non-professional Symbian hobbyist developers is close to 0. No wonder the offering of apps has been weak and market tiny.
Posted by: Veijo Esso | August 12, 2010 at 06:31 PM
Sorry Tomi,
but you don't have an idea you're talking about in a lot of the stuff. I was working in Nokia strategy system at the time of the iPhone launch, so here's a perspective.
You have a completely wrong attitude & angle in your text: countering Apple threat is not about PR!
You fundamentally say "Apple is a marketing company and their technology is fundamentally weak/N95 had it already"
This is complete misstatement. Apple is marketing company too, but the core of their excellence is understanding ease of use. This is NOT spin, this is real valuable excellence.
Do you know anything about the MIPS, GPU speeds, fps in iPhone? Well I can tell you they were and are much higher that Nokia has at its disposal. They have true HW superiority for a limited feature set. Apple's genius was to select those limited features that they wanted to implement well and they implemented them so well that user found and finds pleasure in using them. There's something right, something natural about the way they work. Easy example is that FPS is so high (60) that the objects look almost real objects, not digital, tearing graphics. Or that they decided to implement video calling only when they could be sure that the framerate is 30fps and experience very natural. This creates a key part of stickiness.
You said also:
"Those cool things you liked about the iPhone? GPS? 3G? WiFi? App Store? 5 megapixel cameraphone? Touch Screen? Games? HD video recording? Video calls?...invented in Japan"
Yes, and Nokia implemented those too. But here's the catch. WHO CARES if these were implemented as features? Have you ever used Nokia video calls (Try in Finland,should work)? They're fcking disaster. Awful quality. Nobody ever uses them.
App Store? Oh, the S60 Download! program. Give me a break. Nobody ever used it, even hardcore Finnish Nokia fanboys. Games? Ngage :) need I say more about how many used that one, nicknamed 'Elephant'? WiFi? Have you tried settting it up on say N95? It asks you every damn time what network to use when you start browser that nobody used it in real life.
The admirable genius of Apple product planning & management seems to be that they select only features they can make so easy that people use them. I'm doing my best to push this thinking to my team.
I can tell you that this precise point was completely missed inside Nokia: in R&D , in product marketing. Certainly OPK didn't get it or Kai Oistamo until later. Focus was on multiple 'HW configurations' for S60, it was said that S40 touch will never be necessary (guess what was launched yesterday), slogans like 'Nokia will become internet company' instead of focusing in a limited set of activities done really really well. If that had been done, we would't be in this mess and Kai or Peter Ropke (R&D head) or others might still have their jobs.
I'm sorry to say this -- and please excuse me for my directness-- but you represent the kind of feature-tick-mark-in-the-box-but-dont-give-a-sh*t-how-consumer-experiences-it culture that got Nokia in this mess and we'll do very well without.
Finally, i want to address the points you make about US market, which I claim to know quite well. The market has changed very much in last 3 years with iPhone from a silly laggard dumbphone market to world's most vibrant mobile internet & smarpthone market. That is today's most important market, because whatever you create there is likely to work elsewhere, but not the other way around.
The most important change of rules that iPhone brought is that if you have something very very compelling that differentiates a carrier, you can sell it without carrier requirements. Hear me? All of the old reasons 'why Nokia failed in NA' just went down the toilet? *flushhh*, you hear that?
The US market is now about pure innovation. If you bring something very compelling to an operator, the likelihood is you'll be saved from a lot of tough operator requirements. You still need to get the spec & price right, though.
Nokia just needs to find that innovation and execute it.
Posted by: HH | August 19, 2010 at 01:33 AM
@HH: I think you nailed it with great passion on several points - ease-of-use, limited but well-done (with well-fitted hardware & software) feature sets, and the new US market, including going around carriers/operators.
Many including Tomi, acknowledge Apple's ease-of-use and aesthetics, but yet discount it as just another feature, when in reality, it is a meta-feature that cuts across all features, making all those features pleasurable to use.
Why use a second-rate, less accurate, less responsive, less intuitive system when for $0 to 200 more, you can get the best? (For now, Android and other mobile OSes still trail, and in the case of Android and Win Phone 7, it's not clear if separately developed hardware and software will ever be well-fitted.)
We'll see in the coming months how much ease-of-use is worth to the next several tiers of consumers. For iPod, almost all consumers were willing to pay the premium. Back in the 90s and early this decade, Windows PC users were unwilling to pay thousands and later hundreds more for Mac, but now that the difference is $100-500, the Mac has outgrown the PC market for 20 out of 21 quarters.
Posted by: kevin | August 19, 2010 at 02:27 AM
@Kevin: exactly right. The fact that iPhone drives so much net adds for AT&T has enabled them the $300-$400 subsidies, and has consequently killed all also-ran smartphones above $99 price point (for foreign readers, that's the shelf price of second-newest iPhone with 2year contract). Simply put, if you offer a smarpthone above $99, it has to offer more than iPhone 3GS.
That's the challenge to overcome. As long as Android and others are lagging iPhone in experience, there's no reason why Apple couldn't take more than 20%-30% of the smartmarket (after that, you'd have to make people change from Verizon & TMO en masse, and that's unlikely to happen if you have Vzw/TMO family plans).
Posted by: HH | August 20, 2010 at 05:35 PM
Ley ho mah, Mr. Ahonen. I am writing this from the viewpoint of a Nokia shareholder. I bought the stock at $19 in the summer of 2006. At that time there was a lot of hype coming out of Nokia management about GPS navigation, music, games, ovi, and smartphones – and Nokia was making the acquisitions to walk their talk. OPK talked about transitioning the company away from just hardware to a more software (Apple) like company. Wall Street bought the hype too because by November of 2007 the stock had risen to $42. During that time some Nokia management said they were not afraid of Apple because there was plenty of market pie for everyone. One analyst, during a conference call back in early 2007, asked about Nokia's timetable for developing a competitor to the first iphone. “Oh”, said OPK, ”you can't hurry R&D”. Ha, I thought to myself – this leader has some wisdom. A few months later, during another conference call, analysts again pointed to the iphone and wanted management's reaction. OPK infamously said he was “paranoid” about the iphone. I should have seen the storm clouds at that time.
Fast forward to today. A few weeks ago the stock was trading at $8. That means the stock is worth just 19% of it's high value just 3 years ago – it has lost 81% of it's value. By any measure, that is devastating. Here are some questions that I hope readers can answer.
1)It is often said that he who gets there first wins. Apple got there first. People who have their data on iPhones won't go through the hassle of porting all that info over to a new Nokia phone unless that new phone is light years ahead and worth the cost/benefit ratio. It's not like being able to recover from lost market share as with the Razr. Does Nokia have such a phone in the pipeline? More importantly, can Nokia ever regain lost ground?
2)I've heard that Nokia's annual R&D budget is 6.5 billion, whereas that of Apple is 1.5. How is it possible that it has taken over 3 years to develop the N8? And if Nokia phones were so far ahead of iphones on technical specs why could this not be monetized?
3)If you know that Wall Street is a cruel mistress, and you know that US analysts are not sophisticated, and you know that 38% of the shareholders are American, then why was insufficient attention paid to this issue? To say that OPK did fine against dumbphone manufacturers does not address the key strategic issue, which was how to compete against smartphone manufacturers. Where is his ability to address high priority issue?
4)If you know that middle management is slow, then why does OPK tolerate this? Nokia has a global management image of “The gang that could not shoot straight”. This underscores OPK's lack of leadership ability. Is he not in command of his ship?
5)If you agree that people see their mobile phone as a fashion accessory, and that's just human behaviour, then why has Nokia not taken more advantage of this insight? (Apple got there first)
6)I don't buy the Porsche/Toyota analogy. Mobile phones are not cars – or perhaps with the correct RFD I could be convinced). What's to stop Apple from building on the traction they have gained and lowering the prices of their phones to gain market share?
7)Why have there been so many execution problems with Nokia products (not just the N97) such as Ovi rollout, Ngames, comes with music, dual sim phones in India?
8)Is it not true that not just Wall Street is upset with OPK, but that European fund managers, including Scandinavian managers, are also calling for his dismissal?
9)The stock is so low that the boards are filled with speculation that Nokia could be a take over candidate. Is this at all possible? Seems like a case of operation successful, but the patient died.
OPK is paid 8 million euros annually to solve problems, not to tell me that Nokia lost money because of “a competitive environment” or because of a “painful transition”. Here's my view.
He does not know how to get a good return on investment from his R&D budget.
He does not know how to demand performance from middle managers.
He does not know how to address analysts questions during conference calls. In fact, he does not communicate clearly at all (try listening to him during a conference call).
He did not keep his promise to address declining market share in the US.
He does not test key products – the N97.
He does not know how to go eyeball-to-eyeball with Wall Street.
He has been CEO while the stock lost 81% of its value.
I think life is fair. I think it's the Nokia hype that got Nokia in trouble, not the Apple hype.
Posted by: Jay | September 07, 2010 at 05:26 AM
I think you're completely missing the point with the iPhone. Sure, Apple has a great marketing engine, but a marketing engine is nothing without a good product. Yes, the iPhone lacked or lacks things Symbian had, as features, for years. But that is where you are ignoring the problem: the features were there, but the usability was awful. Most people never ended up using most of them, simply because they were so hidden, flakey and difficult to operate. Apple has added features one at a time, with each one being relatively polished.
The second thing is that Apple has acted like a software company. Features are actually added with updates to old phones and supported phones for a long way down the road. At the same time they have fewer devices. The phones basically act as channels for their software integration. At the same time Nokia has umpteen different devices with different software and features. I can't even remember the name of most of them.
Finally Apple, and obviously Google, act as Internet-aware companies. For years I couldn't understand why Nokia would have Internet capabilities on their phones, yet not use them for anything (like syncing or good emailing). Even the very first iPhone had a killer web browser and an emailer which actually was reasonably pleasurable to use.
If you don't address these facts you are actually missing the whole reason why everyone started looking at the iPhone and why it changed the foundations of the mobile business. It is not just a story of super marketing.
Posted by: Kristoffer Lawson | September 13, 2010 at 05:30 PM
I think the writer is missing a crucial point if Nokia is not successful in the high end they will loose the market eventually. It is always easier to scale the business from high to low but not the other way round.
Posted by: Desmond | September 23, 2010 at 01:07 AM
Seems to be written by a nokia apologist. Fact is Nokia was/is a arrogant company, and they are getting screwed for it. ridiculous to blame the US or the rest of the world for nokia's problems.
As a ex-nokia employee, I can see it was downhill all the from the late ninety's. the only thing nokia got right was the switch from Analog to Digital (i.e. GSM/TDMA). After that they were about as innovative as microsoft. sure you can spin this all the way you went but that is the truth.
My own 2 cents are, nokia was paying far too much attention to manufacturing, and not enough to R&D and really thinking what the customers wanted. This would have been fine in a mature industry, but not in mobile phones where the technology was evolving on a really fast basis.
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