Sherlock Holmes & Hound of the Nokiaville? Why Did Nokia Market Share Crash-Dive? I May Have An Answer..

I was definitely stunned yesterday, when analyzing the Nokia Quarterly Results. The findings were so utterly opposite to what I had expected. I was engaged with several discussions, some who had emotions of 'we told you so, Tomi' and at the other extreme there was Steve Litchfield of All About Symbian, who suggested I was over-reacting.

It was Steve's comments and our back-and-forth on Twitter, that made me re-think the issue. Steve is one of the experts of our industry that I respect immensely, and a very wise, calm voice. I was thinking, that maybe I was now spreading undue panic, maybe I was yelling 'Fire' in a crowded theater and just making matters worse. Why did Steve think this was not such a big deal. Steve argued that when you are the biggest in the market, you tend to grow more slowly - as a mathematical measure of 'growth rate' and the smallest players can have far faster 'growth rates' yet their total sales growth be smaller. Fine, this seemed reasonable but - it came to market share. Previously, in most quarterly results, and most annual results, Nokia market share in all mobile phones, and in smartphones, was very stable. Thus Nokia's growth numbers would be roughly in line with the industry growth number. If Nokia's number was a little bit below the industry overall growth number - like from Q4 2009 to Q1 2010 - then of course Nokia's market share would dip a little - one or two percentage points from one quarter to the next - and if Nokia performed better than the industry - as it did last year from Q1 to Q2 - then correspondingly Nokia's market share would gain one or two percentage points. This is 'normal'.

What happened in the past 6 months was utterly abnormal. Not unusual in the mobile telecoms sense - unusual, abnormal in fact, in ANY global industry serving mass market customers. So we have to understand why this truly is alarming, so first - understand the unpredecented growth rate of smartphones in 2010. Never before has any mass market consumer goods industry worth more than 10 Billion dollars in annual revenues (smartphones were roughly worth 25 Billion in 2009) grow by 75% in just one year. That rate of growth is typical of new industries, tiny ones, of the size of under 1 Billion dollars, but once you sell tens of Billions of dollars, then the industry never grows at 75% or more per year. The PC industry at its peak, the plasma screen TVs, the hottest fight of Playstations vs Wii vs Xbox never got this level of annual growth, nor did Blueray DVD players etc. We do not see this kind of growth in any industries, not even in mobile telecoms, I believe that 2010 was the peak year of highest growth rate in smartphones and now this year 2011 we'll grow at a rate closer to 50% from last year.

Because the growth rate is pretty much unprecedented and phenomenal, it hides 'bad news' inside exceptionally great growth numbers. So take Nokia smartphones. They grew 36% in one year! In any other industry you can imagine, in cars, in plasma screen TVs, in personal computers, in clothing, in soft drinks, whatever - if you grow 36% in one year, it is a fantastic year! Except if the industry grew 75% and you grew the slowest of any of the big competitors - it means you lost ground (compared to your rivals). While you grew numbers, you effectively lost sales that your rivals picked from you!

MARKET SHARE MARKET SHARE MARKET SHARE

I am obsessed about market share. Why is that? I wrote 'the' book for the mobile industry on how to win in the market, for carriers/operators, a book called 3G Marketing (my third) co-authored with Timo Kasper and Sara Melkko. It was not just a bestseller and gone into multiple printings and editions and translated - it was celebrated by the world's biggest publisher of technology and science books, John Wiley & Sons, as the fastest-selling telecoms book of all time - when they brought me to the world's biggest telecoms event (The GSM World Congress) to a special book-signing event for the launch of the second edition. That book is all about market share, how do you build loyalty in mobile telecoms, how do you handle churn, how to you gain customer affection, how you do pricing, etc if you are a mobile operator/carrier.

And why would I know how to write a book like this? Because I've done it. Back in the 1990s, I led the team at Elisa/Finnet/Helsinki Telephone that set the world record for taking market share from the incumbent! I own a world record in telecoms market share battles! I really know what I am talking about. The long-range race is for market share - and the only major constraint you have, is that you have to remain profitable, you should not dip into loss-making in market share battle - that is non-sustainable in the long run. But as long as your company is healthy (makes profits) then the battle is for market share. This is my history, this is my legacy to the industry, this is core to much of my consulting, and this is what I keep focusing on, at this blog. Not about the market valuation of share prices (I do not allow any discussion of market share prices here on this blog, this is not a blog about Wall Street speculation) but I obsess about market share.

Market share wins. Sony's Betamax VCR was technically better, in every generation than the VHS video recorders, yet Betamax lost and VHS won (I remember, I owned VCRs on both standards haha). The Apple Macintosh was the clever smart 'superior' PC but the IBM-compatible/Windows-compatible PCs took over 90% of the market and the Mac sells at about 4% of all personal computers annually. The Concorde was technically the superior aircraft but the lumbering Boeing 747 is what won the market share of jet aircraft in the 1980s selling over 1,000 planes while the Concorde managed to sell 14 units. Market share market share market share. In the mobile telecoms world, GSM took over from CDMA, not because it was somehow technically a better solution (in some ways it is, in other ways it is not) but because GSM got the market share, globally (about 90% of all mobile phones in use are now on GSM or compatible networks).

NOKIA LOSS QUANTIFIED

Nokia did GROW smartphone unit sales. The 4Q Results tell us that Nokia grew smartphone sales 7% from Q3, and 36% from the same period one year ago. That alone seems to be good news. If the industry sales were 'flat' for the year, then any growth (or loss) of sales would directly relate to market share. If you grew 5% sales (in unit sales, not dollar value), and the world total sales number was flat, then your market share grew 5%. If the market shrunk 5%, and you simultaneously grew unit sales by 5%, that means your market share actually picked up 10%. You see what I mean. It is all about market share.

In June of 2010, after Q2, 2010, Nokia's smartphone market share stood at 39%. In Q3 it fell dramatically to 33%. Now in Q4 it fell further to 28%. Yes. In only six months, Nokia's market share in smartphones fell from 39% to 28% - Nokia lost more than one quarter of its total market, in just six months!

This does not happen anywhere! When Toyota the carmaker had its global recall problems with its breaks, it did not lose one quarter of its total market in a year, far less than in six months. A car-maker will have a great year if they pick up one tenth of their market and may have a horrid year (like Toyota did) if they lose one tenth of their market in one year. When Sprint-Nextel the US telecoms carrier/operator made its famous marketing blunder of 'firiring the Sprint 1,000 customers who complained too much' - Sprint experienced an instant exodus of customers, but it did not lose a quarter of its customers in a year, it lost about a tenth. When Motorola experienced the iPhone effect and suddenly the Razr went from the hottest phone on the planet to the undesirable, Motorola lost one quarter of its customers - in one year, not in six months.

This level of Nokia market share loss is pretty much unprecedented. I have been a close follower of global business for over thirty years, I honestly do not remember any such instance in any industry where any major global brand lost a quarter of its total customer base in a period of only six months. Even airlines with air crashes or devastating strikes do not suffer this badly. Cars with 'unintended acceleration' (ie 'killer cars') like Audi experiences in 1995 did not destroy a quarter of their customer base globally in six months. This might be something like Tylenol maybe (a US medicine that had deadly poison in it) which I recall was in the 1980s - or perhaps some terrorism action - like Israeli oranges that were once injected by the PLO with some poisons in the 1970s, something like that which can destroy a quarter of your market in half a year.

But Nokia's market share in June of 2010 - half a year ago - was 39% of all smartphones. Its now 28%. How big is that loss? Its 11 million smartphone units of 'opportunity cost' as the economists say. This is what Nokia should have had. How big is that? Its more than all HTC smartphones! Or its more than all of Samsung's smartphones. Or its more than all of Motorola and all of SonyEricsson smartphones - combined. That is how much of Nokia's market has vanished in just six months.

What is it in money? 11 million smartphones in one quarter at Nokia ASP for smartphones of 156 Euros is about 1.7 Billion Euros (2.2 Billion dollars). And at 12% profit margin for all phones (probably more for smartphones, but Nokia does not break down that number for us) means at least 265 Million dollars of abandoned profits. For a full year, Nokia has just destroyed almost 9 Billion dollars of total revenues and 1 Billion dollars of total profit! This is not market share that Nokia could have 'attempted to gain'. It is market share that Nokia used to own! These were Nokia customers who had faithfully been loyal for years. They were not lost in 2007 when the iPhone came or 2008 when the App Store launched or 2009 when the N97 was a disasterous phone or 2010 when the N8 was delayed. Nokia lost one quarter of its customers in the past six months.

These customers were lost between June of 2010 and December of 2010, when Nokia had finally released its best touch screen operating system, when the Ovi Store was well established as the world's second best-selling app store for handset makers behind only Apple, and with the N8 finally released. Do you understand now, why I obsess about market share. If someone focused on unit sales - Nokia grew 7% in just one quarter - that is excellent growth in most industries, in the car industry, seven percent growth in one YEAR is excellent growth. Nokia unit sales grew 36% in one year, that is fantastic growth in just about any other industry and the CEO would be getting fat bonuses. It was so disasterous at Nokia that the CEO was fired. You cannot study this industry by focusing (only) on unit sales. You have to look at market share.

Nokia also reported better margins, and better profits from the previous quarter. This in almost any other instance is good news. I am devastated. Its not that I am somehow a communist, hating profits haha. No, I am a Finance MBA, I fully have internalized the corporation's and the CEO's mission to increase shareholder value - yes, I fully support the need to be profitable, and a growth in profitability is good news, in most cases. But if the company is already profitable (as Nokia was in Q3) and the growth in profits comes at the expense of market share - that is a perilous situation. Market share is long term viability. I don't believe in excessive profits, and I don't believe in excessive market share. But a sudden drop in either (market share or profits) is bad news. I signalled it here on this blog when reviewing Nokia numbers earlier in the year, that the profit margin was slipping dangerously low, but that reflected a global economy, where most of Nokia's traditional rivals (Motorola, SonyEricsson, LG etc) were reporting losses. Other major industries like Banking and Automobiles were so badly in the red, that they needed government bail-outs! Nokia was still making profits in its handset unit - but those profits had shrunk to very slim. That was cause of concern but - as long as you are profitable, then you focus on market share... That is my mantra. Once you are not profitable - that is not sustainable, that means you may go bankrupt and be gobbled up like Palm was - so if you can't make profits, then fix that, but Nokia was making profits, it should focus on market share.

So what do we know. Nokia lost market share from 39% to 28% in only six months. That means, Nokia has abandoned one quarter of its total smartphone market in only half a year. I have never witnessed such a wholesale destruction of any company's market share in a similar period of time. The nearest I can find, is Motorola which lost a quarter of its market in all handsets from 2006 to 2007 in a period of one year. Nokia smartphones today is twice as bad, as Motorola Razr led mobile phones was when facing the iPhone in 2007.

THE DAMAGE IS HIDDEN

This is such an important point, and when I debated it with Steve Litchfield on Twitter, it hit me. The disaster is hidden inside Nokia's enormous numbers. Nokia has 'too much of a market share lead' that this damage is 'hidden'. Nokia has such a 'buffer' that even abandoning one quarter of its market, Nokia is still by far the biggest smartphone maker. Its pain is not visible in any way! But market share does not lie. Let me show with a familiar example.

Lets go to my favorite analogy to phones: cars. The world's biggest car-maker in 2010 is (by a slim margin still) Toyota ahead of GM. What would happen if Toyota lost one quarter of its market - I am not destroying 11 market share points because Toyota's total market share is only 12%, so we can't drop them to 1% haha, that is destroying nine out of ten customers. No, the same 'ratio' of loss. If Toyota lost one quarter of its market, and instead of selling 8.4 million cars, they would only sell 6.3 million cars. That is the same proportion of loss as Nokia going from 39 million to 28 million sales. If Toyota fell from 8.4 million to 6.3 million, Toyota would be in the news headlines all over as the ultimate catastrophic collapse of a global market juggernaut - Toyota would fall behind General Motors, AND Renault-Nissan AND even behind Volkswagen Group, landing in 4th place, just ahead of Ford Motor Company. Do you see what I mean? It is a totally exceptional situation in mobile telecoms, that Nokia has such a massive lead in its own industry, that even when it loses one quarter of its market, we 'do not even notice' because before this happened, Nokia was the biggest, and after it happened, Nokia is still the biggest. Nokia still today is bigger than RIM and Apple, the two nearest rivals making smartphones - combined.

WHAT DID NOT CAUSE THIS

Lets now play Sherlock Holmes and try to find out what happened. Please read carefully, we have many possible suspects and we must examine each to see if they have a valid alibi or perhaps a motive and opportunity.. Many have been saying this is clear evidence how badly Nokia's smartphones are undesirable, the Symbian OS is old and the Ovi store is bad etc. The important point to understand is - that the Nokia market share has been stable - very stable, usually a variation of one or two market share points per quarter - for most of the past years. Yes the market share has been in gradual decline, but very gradual, on average less than one percentage point per quarter. And from Q1 to Q2 in 2010 - Nokia smartphone market share grew by two percentage points from 37% to 39%. There was no dramatic fall in any period in past years, until from Q2 of 2010 to Q3 of 2010, when the market share plummetted from 39% to 33%. And then the immediate next quarter from Q3 to Q4, another massive fall from 33% to 28%. The Nokia market share has been very flat - including many periods of slight growth - with gradual decline over time, and then utterly out of the blue, a catastrophic fall.

Something happened between Q2 of 2010 and Q3 of 2010. THAT is what we need to focus on. First, there was not abnormal external event, like terrorism, suddenly a Finnish Nokia exec writes some horrible cartoon about religious figures related to the Middle East and the world starts to boycott Nokia phones.. No, nothing like that. And its not like Sony batteries on laptop PCs that started to explode. No exploding Nokias in the summer of 2010. And we don't find cases of poison paint from China and children eating Nokia phones and starting to die. Or a poison cloud in an Indian town due to some chemical factory explosion etc. Or a big oilspill off New Orleans by Nokia's oil rig. No radiation damage like health causes like Toyota's brake problems and massive recalls, etc. No, there was nothing like that, we'd have covered it in the news. We have eliminated one possible cause for a catastrophic market share crash.

The reason cannot be 'Symbian is the obsolete OS' because it was equally obsolete in Q1, and more explicitly, the new OS was released at the start of Q4 - if Symbian was the reason, the fall should have happened in long before - and the decline should have mostly stopped by Q4. No, I know its popular to beat on Nokia for having a horribly old and obsolete and cumbersome and 'ugly' OS, Symbian, but we are exploring the cause for the dramatic fall in Nokia market share. It is NOT caused by Symbian. It cannot be, else the fall would have started many quarters before Q3 of 2010. Remember, the Nokia market share GREW from Q1 to Q2 using that horrid Symbian OS.

The reason is not Ovi store, for the same reason. The Ovi store was launched less than two years ago. Its been steadily growing. It became the world's second most-popular handset-maker app store behind only Apple's App Store during 2010. In the beginning of the year, Ovi was achieving activity at the rate of less than half a billion downloads per year (Apple gets 7 B per yer), today Ovi is doing three times better at about 1.5 Billion downloads per year. There was steady almost linear growth of Ovi. If Ovi was the reason, we would have seen a dramatic failure of Ovi around June or July of 2010 and after that, an wholesale rejection of Ovi. That Ovi keeps growing and grew steadily during the summer - guarantees us, that Ovi is not the reason. Sorry, you guys who hate Ovi store - that is not the reason why Nokia lost market share. Ovi is helping Nokia now in the second half, not hurting it.

Something happened in the summer of 2010. Well, Nokia did its second delay of the N8. That was times right then in the summer, that could be it. Very good my dear Dr Watson, yes what of the N8? It was delayed once before and the industry expected it for exactly that Q3 period, when it was suddenly delayed again. That could be it. Big disappointement, big drop in Nokia sales in Q3. That part of the pattern makes sense - but then Q4 makes no sense at all. If delaying N8 causes 6 market share point drop in Q3, then the launch of N8 three months later must achieve at least a partial recoverly in Q4. Not complete recovery, fine, but must achieve a partial recovery! What happened in Q4, after the N8 was launched, Nokia market share crashed a further 5 points! It cannot be the N8. It cannot be the 'delay to N8' because that would mean that in Q4 we must have seen a recovery. Because Nokia market share crashed FURTHER even after the N8 was released, no - the N8 delay is not the cause for this crash, even though the delay announcement is conveniently timed. That cannot be the reason either.

I know there are very VALID reasons to dislike Nokia's current product portfolio, its elderly Symbian OS, the Ovi store etc, and the frequent delays to flagship models but - those are long-term systematic problems, that will only cause long-term gradual decline. None could have caused the sudden drastic fall.

If not Nokia products, what of the competition then? Ah, yes! Now we have good cause to consider. The Apple loyalist have been waiting to yell out - obviously, the timing issue for June 2010 is the iPhone 4! The most celebrated and most anticipated new phone of the year. This is perfect cause and effect. Q2 of 2010 had only a couple of days of iPhone 4 sales in the USA, the iPhone 4 had its first real quarter of sales in Q3, and the iPhone market share explosion mirrors Nokia's crash in Q3. Almost perfect parallel. This must be the reason! Apple market share shot up 4% from 14% in Q2 to 18% in Q3, while Nokia market share fell from 39% to 33%. Yes, Apple grew 4 market share points and Nokia fell six points, but at least the vast majority of the reason for Nokia's crash is Apple. Has to be!

That makes very compelling sense, for one quarter only. Now the theory breaks down in Q4. Apple market share declined from 18% to 16% - and Nokia further declined from 33% to 28%. If the two were linked, if in Q3, the sudden drop by Nokia was caused by Apple's iPhone 4, then now that the iPhone market share has declined a little, then Nokia would have to have recovered roughly as much for Q4! It cannot be the reason. Yes, probably the iPhone 4 did take some Nokia sales but it also probably took some sales from Motorola and RIM and HTC etc in Q3. Because the pattern breaks down in Q4, we know it cannot be the reason. Nokia did not crash only one quarter, it crashed for two quarters straight - and in Q4, also Apple lost market share. The cause cannot be the iPhone 4 either.

It cannot be any of the other rivals either. Blackberry has been gradually losing market share, so it cannot be the cause. HTC and Samsung are not even big enough if all of their sales were the cause - and both were selling plenty of smartphones before Q3, the growth that either HTC or Samsung has had, is nowhere near enough, so it cannot be the Galaxy series of bada for that matter. No, the competition did not cause the Nokia market share crash. The competition probably gained from the change, but did not cause it.

THE EVIL VILLAIN IS STEPHEN ELOP.. I am kidding of course

Haha, we eliminate all other alternatives and what is left must be the reason, so says the book of our master, Sherlock of the Holmes, and so say we. It was not Nokia products or services or their delays or bugs. It was not Nokia competitors. It was not an external event like an act of terrorism or say a natural disaster like a volcano in Iceland grounding European airplanes etc. No, what else happened in the summer. We did not know it at the time, but by late Q2, Nokia's Board was in the process of firing then-current CEO Olli-Pekka Kallasvuo (OPK) and in the headhunting task of finding his replacement very rapidly, which turned out to be Stephen Elop of Microsoft, who was announced on September 10, 2010. The gossip in the financial press about OPK being fired started around July. I blogged quite passionately here on this blog that I felt OPK was not really doing such a bad job, and felt he deserved a chance, but also that I understood that the Board might want to replace him.

So we have seen OPK leading Nokia for about four years, and we know now, that by the summer of 2010, probably by late Spring 2010, Nokia's Board had come to the conclusion that OPK was no longer fit to run the company. A-ha! Now we can start to dig for some possible clues. So first, to be VERY clear, I thought it was funny to label Stephen Elop as the Evil Villain, just simply because of course we want an evil villain in this Sherlock Holmes story - he is not evil and he is not the villain, but in a kind of way, he may be part cause of what we see. Understand, Stephen Elop took control in September (ie end of Q3) - the first market crash happened during Q3 - Mr Elop could not have been the cause. I just liked the headline haha, in our mystery story. Sorry Stephen Elop, I was just kidding.

But yes, the timing! OPK has been in charge, he is effectively dismissed during Q2, the Chairman and former CEO Jorma Ollila holds the reigns (behind the scenes) while the Board decides on the new CEO, and suddenly Nokia market share plummets massively. The new CEO steps in at the end of Q3 - and the market share suicide dive does not stop in Q4! The new CEO Elop must be in total agreement with what was already happening in Q3. Something happened on the inside of Nokia. This market share crash is actively self-caused by Nokia! (the mystery deepens)

A HOUSE OF CARDS

Lets go back to the historical comparison. This kind of event does not happen 'naturally'. The market share under normal conditions for normal companies does not shift this dramatically in global industries. It is not because of a bad product, not this rapidly. It does not even happen if a rival introduces a fantastic product - remember the original iPhone in 2007 and how much it hurt US rival Motorola - even then the damage was only half as bad as what we see now in Nokia. Cars, PCs, TV sets etc - mobile operator subscriber market shares - etc - do not fluctuate that dramatically in periods as short as six months. It doesn't happen. We need utter collapse of business - a banking scandal or bankruptcy to cause this kind of utter collapse so fast. And nothing like that happened, Nokia is a highly popular phone maker, released many good new phone products during the period - sells them profitably, on one of the widest footprints across hundreds of carriers/operators globally. No. This was a deliberate management action.

So we hunt for the clues. What else changed between Q2 and now. Average sales prices are up. Nokia profits for handsets are up. Nokia profit margins are up. A-ha. At least part of the answer is here - Nokia has been transferring high market share in smartphones vs low profit margin, to higher average sales prices and higher profits, at the cost of market share. That much is clear to any Wall Street analyst. But it does not explain the sudden catastrophic drop. Nokia's profitability did not experience a similar 'dramatic jump' in profits. The gain in profits is only modest, not nearly as big as the fall in market share. But we do have a critical clue.

A major reason why the investors were demanding OPK to step down was because Nokia's profits were dwindinling. Nokia had not followed Ericsson, Motorola, LG and others into making losses, but Nokia used to be a powerful profit factory in mobile phones. Now that was Apple, and Nokia was struggling to keep its head barely above the water. The profits were becoming razor-thin.

Now lets go back to history. From Q1 to Q2, Nokia profit margin and ASP for smartphones declined, but its market share grew! From 37% to 39%. We know after Q2, Nokia's market share has been in free-fall and its average sales price and its handset profit margin has not recovered in similar proportion. What does this tell us. I think I know the answer for the market share crash. I think the evidence is overwhelming and the pattern is perfect. OPK had been buying market share into early 2010, by propping up an un-sustainable level of market share - by heavy discounts and/or marketing support of carriers/operators.

This is what I mean. The 'real' market share for Nokia in Q1 should have been about 35%, but Nokia offered big discounts to the major carriers, said, 'sorry the N8 is delayed, please keep selling Nokia phones' and this boosted Nokia's market share artificially to 37%. But it hurt average sales prices and profit margins. Then the N8 and new Symbian OS is delayed further during Q2, and Nokia comes back to the carriers and say, wait - hold on, please keep your order levels as what they were and we'll double our discounts for you. The real market share should have been about 33%, but Nokia props up the sales with huge discounts, selling most phones effectively at zero-margin - and cause the real market share to grow to 39%. But the profitability of the handset unit is near zero.

The Board finds out about this, and decides to stop the practise and issue an edict, no more buying market share. Nokia's real market share now starts to fall. It should have been 31% in Q3, but falls to 33% (some delaying factors) and with no further massive discount actions - the market share continues to fall to 29% today. It is where Nokia's market share should have been 'naturally' and meanwhile, Nokia's handset unit is returning a reasonably healthy profit margin of 12% and the average sales prices are significantly up in the past half year.

Obviously Nokia Board is not satisfied that OPK used such means, and fires him and hires Stephen Elop to come to run the company. Stephen Elop is told the reality, he is not alarmed knowing that there was false performance in the company, and its real market share in smartphones without the 'bought market share' is somewhere in the 30% range. He is not alarmed and he continues the same rules, lets compete on real prices and real products, lets not buy market share.

There is an interesting twist to the story: T-Mobile. Remember T-Mobile USA announced it would be selling some Nokia phones, and then it suddenly withdrew that. I was very puzzled by that - it does speak to me, that there was an internal deal, Nokia promised the phones at some deep discount, or else, Nokia had bundled some big marketing campaigns sponsored by Nokia to help T-Mobile. After the new CEO came in and ended such practises, T-Mobile is upset and cancels the launch. This makes sense. But remember also, OPK had previously committed to recovering US market for Nokia, so the easiest way for Nokia to do that, would have been to try to buy market share in the USA, by discounting deeply its phones for the US market.

I think this is the reason. I think all evidence fits the theory, and no other viable suspect can fully explain, why Nokia market share grew from Q1 to Q2, then suddenly in Q3 and again Q4, Nokia market share fell like we've never seen in the mobile industry. I think it was a house of cards that Nokia had tried to build - probably well-intentioned, thinking that as the N8 and Symbian S^3 was delayed (again) that they needed to do this. It fits perfectly with the corresponding price changes, profitability changes and the management change. I think what we now are witnessing is a 'correction'. The Nokia market share in smartphones of about 35% in 2010 was an unsustainable illusion, propped up by enormous price cuts. It was not sustainable. The real market share level is closer to 30%, perhaps 29% or less. Still biggest in the world but far less dominant. The Nokia Board saw what was happening, did not appreciate it, and fired the CEO and hired a new guy to take the company onto a more sustainable, healthy path. I am pretty confident this is what has happened, but I am very intersted in your view, what do you think?

UPDATE January 31 - I have added the final fourth piece to this set of Nokia blog stories. Many of my followers and people in the comments asked me what Nokia should do now (or kind of related, what are the real problems that caused the decline in Nokia's customer satisfaction). I wrote the last piece of this Nokia series of articles, Return of the Jedi, what Nokia should do to return to customer satisfaction and growth.

Note to all who leave comments. This was a long blog, sorry about that. Its my weekend, I volunteered my time to do this, and I am guessing no other mobile phone analyst has 'broken' this story yet, and solved the mystery. So please bear with me that its so tedious and long. I am not going to bother taking the time to edit it to shorter length. I have better things to do with my time, we have no ads on this blog, this is a hobby for me. But yes, about the comments. I will anwer the comments that are relevant to this blog - but you must demonstrate in your comment that you read the full blog. If anyone leaves any comments where my response would say 'if you had read the blog' - those will be deleted without mercy, no matter what other good points you make. And while usually we don't talk Wall Street share prices here, I will tolerate the profitability discussion here in this comment thread, please don't make it one focusing on share price comparisons, ok. I don't want to attract the speculators to chat on this blog, but yes, I will allow the discussions about profitability of Nokia and rivals - but also all Apple fans - I acknowledge openly that Apple makes more profits than Nokia, more profits than any tech company. THAT is not allowed to be discussed. I have explained why the iPhone did not cause this sudden drop in market share for Nokia, if you want to argue that, you may. If you want to argue Nokia profitability, you may, if you waste our time talking about the profitability of ANY other company than Nokia, I will delete your comments. Don't go there. This blog is the mystery of where did Nokia's market go, and who killed it. Apple is only relevant for iPhone sales Q2- Q3 and Q4 (and App Store etc) if you want to argue Apple. Fair? My blog my rules.

For those who are interested in the real numbers of the mobile phone handsets industry, including smartphones, I have released a month ago my TomiAhonen Phone Book 2010, the latest numbers and stats about the phones industry, installed bases, market shares, features, brands, customer segments, average prices etc. 98 tables and charts in 171 page ebook available for immediate download. Only 9.99 Euros and only available from this one source on my website, please take a look including table of contents etc: TomiAhonen Phone Book 2010.

Comments

[L4D]

Did I miss some part but didnt you include Nokia's component shortages as one reason for the market share drop? There would have been more demand for N8 for example but they couldnt produce them fast enough or they didnt have the components?

[zombie shareholder]

Wow.

My take-home from your analysis is that Nokia's smartphone business has been sicker and for longer than outside analysts have suspected. Is Nokia in even worse shape than the naysayers have it, a Greek tragedy unfolding, as an above poster stated?

- New smartphone customers: not enough choosing Nokia
- Current smartphone customers: no reason to switch to Nokia, diminishing number of loyalists sticking with the brand
- Dumbphone customers: marginal revenue, minimal profit, diminishing chances to upsell to a Nokia smartphone

Very curious to see what Feb. 11 holds, Nokia presence at US GSM carrier retail stores is about nonexistent. At least my stake in Nokia isn't that much, but a 50% loss is still a loss.

[Laskentelija]

Gartner added Others to market share, before pirate phones like Nookia made in Asia haven't been calculated ?

Are pirate shoes or pirate clothes calculated shoes/clothes sales ?? I hope nobody makes pirate cars!

[Ajit Jaokar]

Interesting .. but still .. when you say ' I think the evidence is overwhelming and the pattern is perfect. OPK had been buying market share into early 2010, by propping up an un-sustainable level of market share - by heavy discounts and/or marketing support of carriers/operators.'
Is there an evidence for this?

secondly, is there an evidence for the coresponding drop with carriers?
ie tie the cause and effect together. So in one quarter the sales are high with specific carriers - and after two quarters they drop with specific carriers

kind rgds
Ajit

[Mike]

Great post Tomi!

One thing I was wondering. You didn't mention the component shortages issue in your analysis.

How much of a contribution do you think component shortages made to the decline in market share (and also the direction to abandon market share in favour of increased ASP)?

[Onno ter Wisscha]

Tomy, great post. Lots of insight.
But still: you analyze effects and not the cause.
Having to buy market share is caused by something.
And the cause is simple: Nokia does not make smartphones!
What Nokia calls smartphones are not considered smartphones by consumers.
Put differently: consumers looking for a smarter phone are hardly considering Nokia.
So thank you for the very interesting analysis of how Nokia is dealing businesswize with this problem, but the cause is one step deeper:
Nokia is not making desirable smartphones any more.
Not since the N95 basically, which by today's standards is not a smarthone at all. .
Consumers had to end their contract. Some tried a new Nokia, but none of them were really happy. At least not as happy as the consumers who switched to Blackberries, Androids and especially iPhones.

[MeeGoFan]

Might have been a smart strategy if it were true, especially if you consider that the objective is to connect as many people as you can as long as you can do it profitably.

Nokia definately deserves more credit from the US press & blogosphere. I remember hearing Arrington from TechCrunch saying 'nokia is roadkill' in front of a microphone at le Web in Paris. I guess Nokia beating Motorola in this field in the past, the Quallcomm court case, GSM vs. CDMA have not made it easier to make new friends and give it a history where everything nokia does is being badmouthed and talked down upon one way or the other. It makes me sad for it is the greatest brand in the world, in good and in bad times. Largest installed userbase on the planet for any product maker ever?

Was Nokia not also the first company to have sold over 100 million smartphones in 2010? Any company who reaches that milestone first must have done at least something right, no?

People's perception can be changed, capabilties to meet peoples demands can not. I see 453 million Nokia customers being served in 2010 and still nobody else getting anywhere near. Android is a grab-bag of different manufacturers of which the largest (Samsung and HTC) seem to have other plans in mind for their OS further down the line. I see apple being excuberent with serving only the affluent in this world. Yet I see nokia helping people in egypt getting connected and changing their future. Do you have an app for that?

IF anything, nokia has and always will help to connect the unconnected, making services like free mobile email (witohut ads) available to people all over the world. The credit it deserves for that is paid in full by it's 1.3 billion or more customers who use their product every day. This number grows every year again faster than any competitor.

It is all about the people. So is 'marketshare'. So Tomi, when will you look at and provide us some numbers for the installed userbases for each of the mobile platforms?

And then, lastly, I have a secret to share. Don't tell anyone you got it from me because if it is true it would cause a revoltution, but the word on the street is that smartphones don't really make you smarter ;-)

[Tomi T Ahonen]

Am continuing (from Jan 29 replies)

Hi Nuno, Nemus, Romain, Baudrillard, Bob and kevin

Nuno - first, thanks for great answer to HangLoose. Secondly, very very good point about the delusion and delays and resulting disillusionment of Nokia supporters. Totally agree.

Nemus - I agree the Q1 results can well be even worse than Q4 was, that is what the early signals from Nokia suggest. I was not very clear in the blog that the 28% current level is by no means the definite bottom, but its pretty sure that the ceiling for Nokia today cannot be better than 28% (not like 33% a quarter before or 39% half a year before). So my case is the 'best case' haha.. And yes, I am now pretty much convinced that it was a self-inflicted wound.

Romain - Yes, I think there is nothing wrong in theory with using all marketing methods - including pricing - to fight for market share. But pricing is the last resort and the move of the weak, a strong player has always other options in the marketing portfolio, so a price war is a desperation move to my mind (or that of someone who utterly does not understand marketing). Now, the US market haha, that is where Nokia is 'desperate' and it would make sense to do drastic prices there - a very isolated market where essentially four big carriers control it all. Out of Nokia's smartphones sold, only about 1% are sold in North America, they could have sold them for free - haha - and still not cause the damage to the average sales prices and profits - if that strategy was only used in the USA. I do think Nokia should have more options than price cuts - but also - the US carriers know Nokia is desperate and could have insisted on the price cuts - which in turn they could use to squeeze lower prices from their other suppliers.. Its always action & counter-action in market share wars under real competition.

Nemus - on MeeGo for the USA, I don't see that as a viable strategy either, sorry. MeeGo is built to be for very advanced and powerful handsets, big memory, fast CPUs, touch-screen etc. It would require very expensive handsets - the kind that the US carriers are refusing to subsidise on Nokia branding. I believe the way in, is a portfolio of products mostly on the low end of smartphones, and build from there. Find a hit product at the very low cost end of basic touch screen smartphones, probably near the youth segment, and that will then be a modest power phone in features, and will run Symbian. I don't see the US carriers taking suddenly a 'Samsung Galaxy S' class style offering from Nokia as the come-back, which is what MeeGo devices would be. Maybe one Meego device but then its a high price handset which would only do a modest entry perhaps on one carrier. That is not enough. MeeGo will far more be launched in Europe and Asia where the customers are far more willing to pay premium prices for Nokia premium phones.

Baudrillard - oh, yes, very good point. Yes, there is an 'enemy' attitude to Nokia the nasty European (nasty Finnish, how bizarre a concept is that haha) company now that the US wireless industry is threatened not unlike how cars still are and how TV sets once were etc. And very good point that the US tech blogs will get huge coverage and echoes in the digital media, so their views help color the views of the rest of the world (even in Finland haha)

Totally agree about part of the blame is Finnish management style and culture. They really need a North American style CEO who can fight back and is not 'brainwashed' by the system never to brag, always let the actions speak for you, never dare to raise an argument or fight etc.. Very true. I hope we will hear a more proud voice from Espoo, not the timid whimper we used to hear from Nokia..

Bob - Excellent examples yes again, case studies of why market share is important, with Microsoft Windows and Office. About the 100 dollar smartphone, they already exist, but to reach that price point, you compromise just about everything, that it will truly be seen as a 'bargain basement' phone and I think it would hurt Nokia's brand image even more. If you can get an Apple iPhone 3GS for 99 dollars with contract, and Nokia would try to peddle a smaller phone, with smaller touch screen, weaker camera, no WiFi etc - what you'd end up with the 100 dollar device - that would not really do any big sales either - most of all, because of the near-criminal US carrier practises of not discounting their contract prices if the consumer brings their own phone! I have been arguing for a long while now that this practise should be reviewed by the US Congress and discontinued. It is totally anti-consumer and anti-free markets. The carriers are actively colluding to damage the consumer's best interest in the USA. If the consumer is rewarded with a cheaper monthly telecoms service fee for using their own phone, that would open a door for unsubsidised phones to also succeed in the US market. Then a 300 dollar Nokia phone would have a reasonable chance, and Nokia could easily sell an unsubsidised 300 dollar phone that was roughly on par with the iPhone 3GS on all specs, exceeding it on some. And then if your monthly phone bill was far less than what you have to sign for with the iPhone contract, now the option might become attractive - for some, not all consumers. But its not even plausible today, not with the carrier archaic practises.

kevin - great point that yes, it is both for smartphones and for dumbphones. For Q1 I do think Nokia expects further market share losses, so yes. On RIM - there is an element of price wars - but this was launched by Nokia if you remember when they did several across-the-board price cuts about this time a year ago. On Android, I do think the Android pattern was to invade the USA first, with Motorola and HTC especially focusing early Android action there. It wasn't really until Samsung came strong into Android and spread the Android footprint strongly to Europe and Asia. So that I think wasn't so much the factor, I think it was the native strong markets - Nokia wasn't a factor in North America so it didn't matter in the first half of 2010 in North America where Moto and HTC took early Android wins.

Thank you all for writing, I will return with more comments, please keep the comments coming, I am enjoying very much reading the intelligent discussion here and learning much!

Tomi Ahonen :-)

[Ryan Ferguson]

I am glad someone took the time to figure this out and did not take the easy way out by jumping on the common band wagon of attacking Symbian OS or OVI. I did take the time to read the whole article and this makes perfect sense. I was wondering why AT&T dropped the awaited Nokia X7 and T-Mobile simultaneously dropped the Nuron 2, more evidence that this is in fact the case. Thank you Tomi (AKA Sherlock Holmes) for this scoop. Well done my good man, well done!

[patrick bosteels]

I am not so much into the marketing, market share etc. We develop on all platforms for the moment and what we experience today is that Qt is surely not "finished" yet and although promising is quite a challenge for us. We started with the SDK from Apple, then Android, Titanium for cross platform, SDK for Blackberry (what a nightmare with the different form factors) etc. For us the succes of Apple with iPhone was that the phone is granny-proof, always works, always same UI and off course an immense hype around developers whom could now create something DIRECTLY to an audience that was the user. Everybody that came after was always second and to complex. Android is suffering from a clutter of versions and shells and UI's etc. When we started with Qt we saw an unfinished platform, but very promising. But off course, without the hardware the platform can not deploy. So I truly wonder what is now key, get the the hardware right or focus on the platform/software. So I read your post twice as we, as a company, will focus on Android and Qt by Nokia. Both because of the penetration and our believe that the platform/store are the most "open". No marketeers in the future will accept the way Apple is treating them, like children whom do not know always why they are punished or when the candies are distributed. On top of your remarks I would like to indicate also the huge opportunities Nokia is missing not to support more actively the local markets. They are present in all countries with PEOPLE but still they run around like chickens shouting that we should all develop on Qt and get apps in the OVI store. Why would we ? They could start by listening and support in a rapid and clear way the marketeers with brands, the companies with content, the game makers with opportunities. And the developers? A platform that is complete and well documented. But get first to the business, do not try to copy Apple/Android focusing on apps, copy cat will not bring the solution.
Thanks Tomi for your insights and most of all for sharing them !

[VEO]

Hi Tommy,

Thanks for great analysis always. Just want to contribute some of my thoughts and hopefully you may consider this as a valid point.

Another reason why Nokia smartphone number came down is the success of Nokia C3 model. Remember Nokia put a lot of efforts in terms of marketing it to the querty market but only that as entry level "smartphone". I said smartphone because while it is a feature phone it is capable of all the functionality of a smartphone. Email, web browsing, facebook, twitter name it and it has all the features in a very affordable price in india, china, indonesia, phillippines and all billions of people around the world. Average people does not care of the software whether it is a smartphone or not as long as it serves it purpose.

Look how Nokia have highlighted the success of its C3 in Q4 report:
On the Nokia C3:

"In the low-to-mid-range, the attractively-priced Nokia C3 QWERTY device continued to see strong demand in Q4, and was one of the top contributors to our overall revenues and gross profits. We estimate that we have the leadership position in global QWERTY volumes, driven primarily by the C3, which also contributed to solid uptake of our messaging service."

In a year which called to be a year of a smartphone Nokia manages to have a very healthy number in mobile phones. A 3% YoY loss is very promising where the number in the likes of motorola, LG, SE could be very disappointing. I can only attribute this success on a strong Nokia product porfolio in this category naming C3, X3 which are all smartphone capable yet it is a feature phone. Smartphone sales increased 63% YoY but the devices sales (feature+smartphone) only increased 13% which by mathematical calculation feature phone should shrink by at least 10% to get the smartphone numbers right.

So there you go if Nokia made C3&X3 in a symbian SW and delivered the the same price points and capability Nokia could end up maintaining the same (or near =/-) smartphone market share a year ago. Nokia was not beaten by the competition but rather Nokia has other things in mind. By the end of the day all it matters is the number of devices/services sold not by how much smartphone you gain and dumbphone you lose.

Cut from Nokia Q4 report:

In 2010, our total mobile device volumes reached 453 million units, representing an increase of 5% year-on-year. The overall industry mobile device volumes for 2010 reached 1.43 billion units, based on Nokia’s preliminary market estimate, representing an increase of 13% year-on-year. Based on our preliminary market estimate, Nokia’s market share decreased to 32% in 2010, compared to an estimated 34% in 2009 (based on Nokia's revised definition of the industry mobile device market share applicable beginning in 2010 and applied retrospectively to 2009 for comparative purposes only).
Of the total industry mobile device volumes, converged mobile device industry volumes in 2010 increased to 286 million units, based on Nokia’s preliminary estimate, representing an increase of 63% year-on-year. Nokia's preliminary estimated share of the converged mobile device market was 36% in 2010, compared with an estimated 39% in 2009.

From Nokia Q4 report:
Volume and Market Share. The following chart sets out our Devices & Services volumes for the periods indicated, as well as the year-on-year growth rates, by category.
DEVICES & SERVICES MOBILE DEVICE VOLUMES BY CATEGORY
million units

Mobile phones1
352.6 -2010
364.0 -2009
YoY Change -3%

Converged mobile devices2
100.3 -2010
67.8 -2009
YoY Change 48%
Total
452.9
431.8
5%
Note 1: Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Internet connectivity, including the services and accessories sold with them.
Note 2: Smartphones and mobile computers, including the services and accessories sold with them.

[Tomi T Ahonen]

(am still on replies from Jan 29)

Hi SoVatar, Brian, em, Baron, Nikhil, Bharadwaj, MeeGoUser

SoVatar - on your point about car industry - no. The comparison in any industry, whether it grows fast, or grows a little, or doesn't grow, or shrinks - the standard by how your company is measured, is whether you perform better than the industry average. This applies to all markets. In this case yes, Nokia grew, but from Q2 to Q4, Nokia was not able to grow anywhere near the speed of the industry, far less rapidly - in fact, of the Top 10 makers in handsets and top 6 in smartphones, Nokia grew at the worst rate. That is not always true, from Q1 to Q2, Nokia grew faster than the industry and picked up market share. So it is a recent problem (and now we know, it is the symptom of buying market share previously)

We agree about US analysts (not all though, some are very good). On execution this is a standard complaint about Nokia, has been for the whole decade but it also means, Nokia does not usually pursue silly fashions (Razr and flip-phones for example). In general they are not badly off, but have picked up very bad habits in the past few years - I have a separate newer blog where I explain how I would fix the problems (see Return of Jedi from 31 Jan)

On Maemo - you would have had more Maemo devices but Nokia found the opportunity to join with Intel and do Meego, that is understandibly taking some time and we'll get MeeGo devices this year. About a real flagship, I totally agree (see my newer blog)

Brian - haha, thanks. I can't really take the time to edit these down, nobody pays me for the blog, there are no ads, I have a real day job too. I am sorry for the time it takes for my readers but I believe that the readers get exceptional value and often find insights nobody else has yet offered..

em - you are right, that was not the only reason, but remember, the culling of the product line happened well before June, what I was trying to find out, in this blog, is 'why June'. What happened in June to cause the sudden catastrophic decline that is I believe a world record for destroying your own phone market share in a period of 6 months, its that bad.

I agree about the difficulty of managing a near 500 million unit sale annual market but still, a sudden total loss of a quarter of your market, that is inexcusable, don't you agree. Nokia has been incredibly stable across the whole past decade, both in dumbhpones and smartphones, by far the LEAST volatile of any of the big brands. Suddenly total crash. I do agree with you that who you see as your rival will also change how to approach the market (and Google should be seen as a major rival to Nokia, far more so than Apple for example, but not in the class of Samsung).

Baron - wow, thanks haha.. :-) About your theory for the accomplices, good thinking! I see yes, there is plenty of merit on that, if we take the non-US growth of Android, iPhone and RIM, they do mirror rather strongly Nokia's decline (and previous US growth didn't matter to Nokia because it wasn't meaningful in the US). But.... there is also the 'chicken and egg' situation. Who is cause and who is effect. If Nokia removes subsidies quite suddenly in the summer of 2010, then what will the carriers do? They still want to sell the projected premium phones that previously were 'allocated' to Nokia - they go upgrade their orders with ... Android, RIM and Apple of course haha.. I like your thinking and no doubt there will be part of it, but part is probably the cause and effect, that we saw so strong growth in particular for Android, is due to the fact that Nokia took such a clear dive in its market share (not unlike how the rapid growth of the iPhone in 2007-2009 was eating most of Palm and Microsoft in smartphones and SonyEricsson and Motorola in featurephones). But good point, I see where you're coming from and I like that thinking that its the international side..

Hey, your prediction on Android vs Symbian, first - the Canalys report today, is obviously bogus math, it hasn't happened yet (in Q4) but after the Nokia Q4 numbers and its steep crash-dive, I am now totally convinced Android will pass Symbian and if not in Q1 then definitely by Q2 of this year, Android will be the biggest OS. And your 'ominous' for Nokia - yes, very very true. I see announcements every day about hot new smartphones coming with pico projectors, 3D displays, dual core processors, who just now announced a stereo camera (3D camera) tablet, we'll see stereo cameras shortly on premium phones too. Plus every Android existing provider studies why HTC and Samsung are so successful - and will learn and adapt. The army grows bigger and stronger. And in one corner, a new iPhone comes in June. In another corner RIM keeps getting better. In yet another corner is the sleeping giant of HP with its Palm. Who knows when Sharp gets serious about its world domination plans (3D displays, pico projectors already launched in Japan as Android devices) and so forth..

It gets far bloodier for Nokia in Q1 and into Q2. Now today we hear from the UK that the E7 is delayed from February to April. When will they learn? This is disasterous news and reinforces the image that Nokia is the new Microsoft, they just delay and delay, and when they launch, its lousy disappointing products.

Your forecast for Nokia is very much in line with how I see it, but I'll do a fresh Blodbath 2, Electric Boogaloo review after I've done my final Year 2010 bloodbath final count haha.. And I'll commit then more fully.

On Elop, I hear that he is a smart guy who comes without preconceived notions and listens. My gossip tells me that Nokia middle management has been paralyzed in the past. I would think, that Elop will have taken very open and honest and wide-reaching discussions internally with staff. They all know what is wrong and how it can be fixed. Finns are nothing if not brutally honest. There can be disagreement on what should be done, and there will be internal factions believing in one or another path, but all good ideas for Nokia are well known by many good execs at Nokia HQ. They really are not dumb.

They have veered off the right path, partly due to the economic crisis, focusing on survival - Nokia hates nothing more than layoffs haha, so they've all pulled together on making sure to do severe cost cuts to survive - that has ended up hurting the quality, but its been kind of 'for good cause'. During that phase, the accountants and bean-counters have gotten too much control haha. And the company will often make at the senior level moronic engineering-led decisions that hurt the marketing side, ie customer-orientation and focus. I am hopeful/confident, that Elop will see with clear eyes the countering arguments, and make mostly the right choices.

He will also make mistakes, of course. He has to make big changes, some will work better than others. Some changes will not be seen as the right choice (but will end up being right because Elop will have had more real factual insights into the real problems he is trying to solve, than we can know as outsiders..).

On Symbian - I do think they are now something like 80% 'caught up' to iPhone and Android. They can never catch 100%, but by the time they are near 90%, for most consumers, it won't matter. The nerds will always know. The loyal iPhone users will immediately see the difference. But the average person won't. They still do today, but they don't 'hate' the latest Symbian the way they hated it two years ago haha, compared to the iPhone. But MeeGo.. That will take off like a bat out of hell.. Look at bada, they had the most successful new OS launch ever, on minimal branding, minimal apps, minimal features, on low cost modest phones. When Nokia goes MeeGo, they will have Ovi and Qt support already, and be at the top end of Nokia phones, they will easily - easily - have a 1 to 1 transition of Symbian to MeeGo, at the high and mid-end phones. Just the feedback from Maemo and N900 users shows how good that was, and it was pretty much a 'beta' version and kind of advanced prototype. MeeGo will be fine, and doesn't need to be rushed. What Nokia needs to do, is to return the overall phone satisfaction, so that Nokia owners can proudly again show their Nokia phones in the company of friends with iPhones and Androids. And Nokia is not at that point today. Today Nokia owners are ashamed of their phones haha.

A US strategy using anything other than Symbian or MeeGo would be immediately be interpreted as the new CEO will abandon Symbian and ditch MeeGo and kill both. I can't see that happening. And remember the US market, no matter how good Nokia's OS would be, that won't sell one unit in America - remember the Nexus One and the Microsoft Kin - its all about the carriers. And the carriers generally would prefer Nokia's way - Ovi with carrier billing remember - rather than Android or Phone 7 bypassing carriers... No, its up to carriers and the OS is irrelevant to them, they are currently punishing Nokia for whatever past sins they see, and no matter what OS, won't matter one iota on whether carriers will subsidise Nokia smartphones...

But I am curious about what comes in February at that announcement. I am thinking it is only explaining MeeGo (which is a partnership with Intel and an eco-system with multiple vendors supplying devices) but it could be somethign else. We'll see.

Nikhil - it depends per country but in very many countries, also the majority of unsubsidised phones are sold in operator stores. On Android - yes, but Android was growing from Q1 to Q2 and from Q2 to Q3. Why if Android grows from Q1 to Q2 - and Nokia grows market share, and then Android grows from Q2 to Q3 and Nokia market share crashes. Android did not change from spring to fall, but Nokia totally changed. Android cannot be the cause because we didn't see the effect in the previous quarter - then both Android and Nokia grew. It cannot be the cause if the effect is opposite on two following quarters.

But good point on the matter that Nokia fans were waiting in vain for the new flagship, which was delayed and delayed and delayed.. About Symbian, it keeps evolving. Its not as good as the iOS - but neither has Microsoft Windows ever managed to match the Macintosh - at some point the difference becomes nuances. Its not there yet, but for the first time with S^3, many analysts and reviewers of neutral phone review sites and magazines, rate the latest Symbian 'good enough'... The gap is closing. And Ovi - come on, its the second most used app store, its tons ahead of Phone 7 or RIM or Palm etc..

Bharadwaj - haha thanks. The Greece of phones, gosh, you know, it really MIGHT be.. If this is only the tip of the iceberg and there are more skeletons in the closet and the market share continues to crash-dive Q1 and Q2, it could be. I am hoping the worst is over and Nokia can now start to turn it around. But gosh, we have to see haha..

MeeGoUser - so totally completely right! Totally agree. Culling the product porfolio was a moronic move. We completely agree!

Thank you all for writing, keep the comments coming, I will return with more

Tomi Ahonen :-)

[maxxfi]

Thanks Tomi for this post! Very "provoking" theory...
which to me makes sense. And also I think it would match with the
news/rumor that I read when Nokia results were out that one
of the major share holders (Fidelity?) was quickly selling in Q3/Q4 all
its participation in NOK stocks.
(I was reading the news in a hurry and I can't find it anymore now)
So did they know from the board what was going on and they wanted to
be out of the game before too late?

[Ste]

Buying market share may be one reason, but in the middle of 2010 I started to notice that friends and family (in central Europe) started replacing their Nokia and SE phones with smartphones, mainly iPhone and Android (HTC, Samsung). If there existed any competition from Nokia it was invisible.

"Flooding every market with 200 models" in 10 colors and 4 operator brandings/modifications? All of these 200 x 4 models could have slightly different features. I would discourge anybody to buy any of them. Probably no (timely) updates/bugfixes for the OS, few well adapted apps.
Buying a smartphone is buying (longtime) into a software / infrastucture platform, the hardware is a comodity which gets exchanged every 1-2 years.

[kevin]

"The comparison in any industry, whether it grows fast, or grows a little, or doesn't grow, or shrinks - the standard by how your company is measured, is whether you perform better than the industry average."

The bottom line comparison for any company in any industry is how much operating profit you make. If it is both positive and greater than your competitors in your industry, you've won the battle for that quarter. That's the final score at the end of the football (soccer) game.

Comparing market share is just one of many indicators, like time-of-possession or #-of-shots-on-goal or #-of-corner-kicks in football, that might give further information on how well you played the game, and give some indication as to how well you will play in the next game.

[kevin]

"It cannot be the cause if the effect is opposite on two following quarters."

Not true. The effect might not be seen until a tipping point is reached.

Another stray thought: it possibly might be because Android is not a monolithic entity. Android growth in the first quarter might've been high end, higher cost phones, while in the second quarter, it might've also included mid-tier, lower-cost phones, which hit Nokia's market. Those second quarter Android phone sales might've been catalyzed by the "branding" and perception of value created during the first quarter.

Another thought: Nokia's brand might've also hit the tipping point in the second quarter, when it reached a large enough mass of people saying that Nokia was no longer a high quality, highly valued phone. That might've started the ball rolling downhill.

[Eero]

@VEO Very good point about C3-00. If this single model would have been S60 instead of S40 it would have ment many millions more to Nokia's reported Q4 smartphone sales. Exact numbers are not known but it must have been many millions during Q4 as it's contribution was separately mentioned in earnings call.

Actually, some shops are selling it under smartphone category. It is only 5-10 euros cheaper than the cheapest S60 devices (counted as smartphone). Propably 99 % of the people who bought it never think about the issue, they just bought a phone which fit their needs. And they can download and install apps from Ovi store for it, although it is not counted as a smartphone.

Nokia's own reporting for Q4 was 28 million sold smartphones, but Canalys says 31 million, where the difference comes from ?

Whether it could have been an S60 device with same pricing (would it have e.g. needed some more expensive HW), that I'm not aware of.

This example shows that the boundaries are somewhat fuzzy when smartphone market shares are being counted and you can't be dead serious about every quarter's numbers (it's a good show though ...). As more and more phones are smartphones, it becomes gradually pointless but some more subcategories are needed.

[Tomi T Ahonen]

More replies to comments from Jan 29

Hi Phil, Mark, Rafe, Jouko, Carlos, Ola

Wow, some big hitters in this group, hello to you all!

Phil - I love finding someone who is seemingly more of an optimist than myself haha.. That was an awesome observation - yes, the silver lining is, that if the market share was artificially propped until it crashed - then the real consumer preference had been falling gradually for a while - and therefore, the current steep dive is nowhere near as disasterous as it seems. Haha, I honestly hadn't been able to see that angle, and it is very merited. Once the bottom is reached, the recovery could seem surprising (while also, at best a mild growth, it cannot be as dramatic a sudden climb, as its now been a crash haha)

On the profits, the up and down were comparing to last quarter and the same quarter a year ago..

Mark - good point. I think the guidance is more a sign of the tough market right now, with Nokia phones delayed and rivals showing a lot of hot phones and launches. And after the Christmas season, usually there is slack in the distribution so phones are moved with after-Christmas discounts haha, cutting profits..

Rafe - haha, could count on you being in with the facts haha! Yeah, I think Q4 numbers with S^3 and N8 etc will have helped boost the ASP but that is only incremental gains - the previous flagships were selling in Q3 (ie N97 etc) so its not that all 5M S^3 devices were additional sales, they mostly replaced top-line Nokia smartphone sales which should have had similar prices.

The Android argument I think (I hope) I argued here in a recent reply, that its partly a chicken-and-egg situation. If Nokia is suddenly no longer perceived a great value, and is compared 'apples to apples' for the real price, then the new Androids (and iPhones and Blackberries etc) will seem 'more competitive' than before and where Nokia loses, the others will gain. Yes, I am pretty sure part of the cause is Android, but probably part is the effect of Nokia abandoning its price war strategy haha.. Remember that the Android family will offer far more wide a range of comparable devices across the spectrum against Nokia than what Apple or RIM can do, so they should also be able to take up far more of the 'slack' if Nokia diminishes its marketing efforst (in this case, the misguided price discounts)

BTW - I obviously agree with your numbers at the level of plus/minus a few here and there. And we both agree the drop for Nokia is enormous and the situation is very serious. If you didn't notice (I know you must have haha), I did write my 'how to fix' blog as follow-up, and would enjoy your opinion of it (The 'Return of the Jedi' blog - its hideously long, sorry..)

Jouko! Hi! - thanks, yeah, good points and good analogy with coming electric cars. And I am of two minds in this thing as a strategy. If it was, for example that Nokia saw it was about to suffer severe market losses, major customers might abandon it (meaning operators/carriers) etc - then a price cut as a last resort makes sense, especially for the short run. But its not sustainable, and it inevitably cuts into profits. Nokia had better profits than most dumbphone makers but nowhere near as good profits when this started, as Apple and RIM, so even going in, Nokia CFO and CMO should have seen that they had no possible chance of 'winning' a price war. The only conceivable opportunity to win is if you have deeper pockets than your rivals and clearly Nokia did not.

But as you write, I am reminded of some of the frustrations I felt back when we both were still employed at Nokia - at times there is a massive lack of understanding of the basics of marketing. Marketing even on the basic 4 P's is more than price alone. There is product design, promotion and 'place' ie distribution. Marketing should be a mix of those (according to classic 4 P's thinking and I know I know there is far more than the four today, but lets keep this simple). So - my worry is, and this may well have been again evidence of it, that if the management is not competent in marketing skills, they have relied ONLY on price - that is always the easiest to do, the fastest change, and 'everybody understands' price cuts. So it becomes easily the 'first step' or even worse - the 'only step'...

Carlos - first, yes, so true, the iPhone is typical Apple, it is a 'sexy' and popular story. And there is the impression among tech writers that Apple is the perennial underdog (something that could be challenged with the iPod and iPad haha) and where Nokia is the gorilla in the room, the 'story' is very easily david vs goliath, and it makes for better storylines to tell the story of the underdog, Apple, beating the mighty dominant Nokia who 'is about to fall..'

On buying market share - good point - see what I wrote to Jouko in the above. If price is one of the elements in the marketing mix, nothing wrong with it. If price becomes the only argument, that pushes the brand to be a discount brand, and then it cannot sustain the innovation (R&D budget which for Nokia is enormous) nor the efforts to create customer satisfaction with excellent products..

Ola - thank you so much, Ola for the kind words. And true, good quote by Nietzche!

Thank you all, I will return with more comments

Tomi Ahonen :-)

[jason]

I had been buying Nokia phones since 1999. After the n97, I moved away.

[backpack]

I recently came across your article and have been reading along. I want to express my

admiration of your writing skill and ability to make readers read from the beginning to the

end. I would like to read newer posts and to share my thoughts with you.