Undesirable at Any Price? What happened to Nokia, who invented the smartphone

Nokia invented the smartphone. It then went and re-invented the smartphone, insisting the enterprise/corporate oriented business phone should be replaced with a bigger market of consumer smartphones (and they were right). And Nokia introduced a gaming oriented app store, bypassing the carriers - something that was the prototype for Apple's App Store (and were again right, but too early). They offered a touch screen smartphone two years before the iPhone. Nokia offered the world's first phone to do the real internet, and they offered the first smartphone outside of Japan to offer WiFi. They brought cameras to enterprise-oriented business phones. And Nokia was the first smartphone maker to boldly claim that a smartphone was a 'real' computer (also now held as mantra by all of the six big PC makers, starting with HP and Dell on down).

(After several Twitter discussions after I had posted this blog, I returned to add this paragraph on the alarm level) - We have just received Nokia Q4 quarterly results for 2010. I wrote a blog about the numbers. Here are the big picture facts. For the first half of the year 2010, Nokia grew rougly as fast as the industry. It ended year 2009 with 39% market share in smartphones. At the end of Q2 it had 39% market share. Then in Q3 and Q4, suddenly - catastrophically - Nokia growth slowed to anemic, for the first time for as long as I can remember, Nokia's quarterly growth was the slowest of any of the biggest 6 smartphone makers, and far slower than the industry. Nokia's market share crashed to 33% after Q3 and down to (about) 28% after Q4. In six months, Nokia destroyed 11 points of market share - it abandoned one quarter of its total market - in half a year! This reminds me of the disasterous suicide-ride that Motorola embarked upon, but even in its worst period, never did Motorola lose a quarter of its market share in any six month period. I don't mean this is the end for Nokia, but the signs are very dangerous, if two quarters have already gone like this, the cause is no freak accounting error or component shortage, it is a major systematic problem that has to be corrected immediately before Nokia finds itself ranked 3rd or 5th or - like Motorola which went from 2nd to 9th in all mobile phones (smartphones and dumbphones combined) in only 4 years. Right now the Nokia market share is not in decline, it is in a dive. That is why I am writing this blog.

So lets go back a little. In the year 2006 Nokia produced more than half of all smartphones sold on the planet, was by far the biggest total handset maker in the world and was making tons of profits along the way. It had astronomical customer satisfaction and loyalty, and Nokia's phones were all known for great usability. Nokia also was known for incredibly reliable phones (a dog ate one, it emerged 'through' the dog later, and was fully functional still, if perhaps a bit smelly, that kind of stories). And inspite of this, Nokia also sold some of the ultra-cheapest Africa phones on the planet. Then a funny thing happened in January 2007, when a computer maker called Apple decided to release their first-ever mobile phone. A phone so astonishing that even this Nokia-friendly blog claimed it was the first truly transformational phone, that we would measure time in 'Before iPhone and After iPhone' - and others who read that blog, started to claim that Tomi was calling the iPhone the Jesusphone (which I never said). But the world for Nokia did change utterly totally completely. It was the end of the good old days.

FAST OR GOOD OR CHEAP

I am often reminded of my boss early in my career, when I was selling computer networks for a PC networking company on Manhattan called OCSNY. Our CEO, Todd Stevens, would often use the phrase when talking to customers who were trying to bargain with him - that 'you can have it done fast, or done right, or done cheap - but only two of those three, which do you want'. I thought it was a very good lesson for me in understanding the real world impacts of the typical positioning triangle. I have used that triangle often in my workshops with operators/carriers about customer satisfaction, pricing etc.

Lets put the triangle into handset thinking. When we say 'fast' its not highest speed internet, I mean 'fastest' to deploy something new - most innovative. So SonyEricsson is known for this, they are often the first to deploy something new to phones. Cheap is easy, ZTE is currently among the cheapest phones in the world. And good means reliable, having all bugs fixed. These three are always in 'inherent conflict' ie you cannot have simultaneously lots of new features, and also the most reliable phone. Also if you make the phone very feature-rich, it will not be the cheapest, and to make a relatively new phone very reliable, it and good to use, it will not be the cheapest.

WAR ON EVERY FRONT

I am also a history buff. So lets look at WW2. Hitler in World War 2 started the war fighting in Europe against several armies each of which was bigger than his - Poland, France, England and the Soviet Union all had armies that were bigger than Germany's and often had better equipment even - French tanks were stronger than German tanks early in the war, etc. But Hitler's Nazi Germany was able to win i the early years for a great part because he took care of his enemies one-by-one, Poland first, then splitting England and France - forcing England to retreat across the channel (Dunkirk and all that) before taking care of France's giant army, and then when he need not fear England to attack him, he went against the Soviet Union. If Hitler had faced all four nations in 1939, fighting a 'four front war' the Second World War would have been over in weeks, not years.

Nokia had somehow managed to offer some of the most innovative phones, with the best customer satisfaction, while also offering many of the cheapest phones - and to do this all profitably. What we know from applying competition theory - is that it must be, that Nokia was not really facing 'full competition' up to 2006. Motorola was a weak rival, they were drastically lost in the transition from 1G to 2G, and they had their brief hurrah moment with the Razr, which they could not carry further and fizzled away. Several of Nokia's traditional rivals, Siemens, Philips, Panasonic - quit the handset business. In Smartphones the biggest rivals to Nokia came from North America - where smartphones were still considered only to be business phones - hence RIM, Palm were the main offering. And then there was the little HTC out of Taiwan with the quirky Microsoft Windows Mobile OS. Of Nokia's 'real rivals' Samsung, Motorola, LG and SonyEricsson - all made smartphones primarily on the Symbian operating system where Nokia was biggest co-owner, so Nokia would never be 'blind-sighted' by rivals doing something wild and weird - like Apple managed with its bizarre touch-screen phone.

Military strategists advise that you should at all costs try to avoid a multiple-front war. That is what Nokia is now facing. At the 'customer satisfaction' end, where Nokia was head and shoulders above all rivals in 2006, after Apple came onto the scene, today clearly the world's highest loyalty is with the iPhone. Nokia lost the corner where it used to rule as the best phone at usability. The worst part is that its 'partners' all abandoned Symbian and went to support Google's Android - so Nokia smartphones are not even 'second best' in that category, being stuck using the obsolescent Symbian OS, which no matter how much you may love Nokia, is not up to par in terms of usability compared to iPhones or Androids. Yes, Symbian is getting better, but this is a race of catch-up, and Nokia has to also prepare MeeGo its new OS, which is the only one that can hope to fight for the future. Nokia is not fighting on even terms for customer love, it is losing that fight. We saw it in the UK customer satisfaction survey last year, when even those Nokia current owners who did say, that they wanted their next phone to be also a Nokia - were not willing to recommend Nokia to friends - they were, in effect, ashamed to own Nokias. This is not a recipe for market success in loyalty. Nokia has just about lost this front, of the war already. Compare that to Apple owners - who will stick their brand new iPhone in front of the noses of anyone, to show how incredibly cool and clever their latest iPhone is. That is the difference. While Apple owners proudly display their iPhones, Nokia owners hide their gadgets in shame.. If Nokia had been managing to make a come-back, then in Q4 they should have sold Nokia N8 models in comparable numbers to Samsung Galaxies and iPhones and HTCs - they did not. Not even close.

Then the innovation front. Nokia has been promising us wonderful things, but has not delivered. Rather, Nokia has issued apologies and delays. Take the N8. It would have been a hot phone in early Q2, before the iPhone 4, if facing off against the iPhone 3GS and very early Android devices. But it got onto store shelves for Q4, by that time there was the 'Retina Display' iPhone 4, and the magnificent Galaxy 2 series of Samsung phones, and vastly upgraded Blackberries and HTCs and Motorolas etc. The N8 could have been a contender half a year earlier, but was not shipped in time. Nokia was not fast enough, or - its rivals had learned to become faster than Nokia, whichever way you want to see it. Now what of the truly hot new phones? Apple created the phone in 2010 that had the sharpest screen ever produced (not Nokia). Among the major brands, Sharp created the world's first phone with a 3D display (not Nokia). And Samsung's Galaxy Beam was launched in 2010 as the first phone with built-in Pico Projector (not Nokia). Around 2005 - 2006 - 2007 - 2008 Nokia top end N-Series and E-Series phones astonished the industry with phenomenal technology - remember the N93? With 3x optical zoom - the 'real' zoom that only 'real' cameras have. And with TV out. With QR reader. Etc. A technology masterpiece, years ahead of rivals. Now Nokia has lost this lead, and its N97 or its N8 or its N900 or its E7 are only 'me too' devices, nowhere near the real global leadership. Nokia has lost the battle in the second of the corners.

And what of the last of the three fronts, the low cost corner? ZTE and Huawei and G'Five and other Chinese and Indian manufacturers are carving up the low-cost markets. Nokia is there, but is losing the low price war. Part of it is Nokia's brand, trying to do 'world phones' but these markets need their own peculiarities, like dual SIM slots for example. Samsung was there a year before Nokia doing dual SIM slots for its low-cost phones. As to low cost smartphones - yes, the 'marketing spin story' sounds good, that Symbian was designed to run on phones with modest technical requirements, ie weak power CPUs and low memory requirements etc, but Moore's Law moves on, we have faster CPUs at low cost, as well as more memory at low cost. Samsung introduced its bada OS to target low cost phones - and had the most successful new OS launch ever selling over 5 million bada devices in its first half-year, and meanwhile Android - being free - is being used by the low cost manufacturers like ZTE, Lenovo, G'Five etc to sell cheap smartphones in the Emerging World markets. Nokia is fighting a three-front war, and is losing at all three, much like Germany in 1944, when it faced the Americans and British (and free Polish) coming from the South in Italy, the British, Americans, Canadians and French attacking from the West after D-Day, while the Soviet Union was pushing in from the East. A three-front war, where each of the countries alone could afford to match an army the size of Germany's.. An unwinnable war.

BAD CHOICES

Along the way, Nokia has made many notorious choices. Nokia once stood for exceptional quality. Even the simplest cheapest Nokia phones were durable, were robust, were reliable, were operationally sound. But in the past few years we hear time and again, delays, problems, dis-satisfaction. The N97 was not an isolated case of a bad product. Nokia also started to cut corners. Its a bit like what happened with Mercedes Benz cars some years ago. What once stood for ultimate excellence, suddenly had production problems, time and again. And then the result is worse parts, removing obvious features etc. So in its panic to react to the iPhone, Nokia made some ridiculously stupid decisions.

Like releasing phone models suddenly that didn't allow users to change the battery. What phone has an infinite battery life? What phone even in normal use has 'too good' battery life. Not a one. Nokia knows this, they knew that their devices will be used for all kinds of consumer entertainment, and if you start to watch some videos on the phone, its battery drains rapidly. And Nokia used to be the phone you wanted wherever electicity supply is not reliable (or available) - why, because every tiny village with a gadget store will stock some spare Nokia batteries. But suddenly some pinhead in Nokia HQ decided that 'we need to be more like the iPhone' even though iPhone users themselves were begging Apple to give them user-changeagble batteries - but no, Nokia suddenly got iPhone madness, and yes, we got phones where the battery is no longer changeable by the user. So the heavy user - someone like me with using my 15th smartphone - I would not even consider buying one for which I can't get a spare battery - I always walk around with a spare battery for each of my phones that I use (and on trips, also a spare battery for my laptop haha). A small thing, but an utterly stupid decision. Even if that was only 5% of Nokia users, it is customers who otherwise would have been loyal to Nokia, who are now driven - and where, the iPhone doesn't support changeable batteries - I am sure Samsung took a disproportionate share of those customers.

Or the abandoning of the microSD card slot. This is utter madness. First Nokia is so clever and innovative, that they offer us the hot-swappable microSD slot like on the E90 Communicator - a godsend for swapping media data, whether your favorite music or the movie you want to see or you need more capacity for pictures etc. And so loyal Nokia customers buy high-capacity (relatively expensive) microSD cards. And what does Nokia do - it makes itself incompatble with previous Nokia phones! Previous PREMIUM Nokia phones. What utter madness! No problem, these customers will notice that if they like their QWERTY phones, the Blackberry will support microSD very happily. And for nice touch-screen phones, Samsung Galaxy phones support microSD.

Nokia has systematically been adopting idiotic ideas from the iPhone, which are not industry-conforming, and in particular, which will infuriate loyal Nokia owners. Like that silly slider keypad on the N97 - who was the genius who decided to cut one whole line of keys to make the keyboard so weird. Its like a QWERTY but its not a real QWERTY so its like the worst of all worlds! So therefore after a couple of weeks of struggling with it, many loyal Nokia owners returned the N97s in massive numbers and told friends: don't buy it. Don't call it a come-back, indeed, it was no come-back, it was utterly a dud.

ABANDON ICONIC PRODUCTS

Then the most bizarre bit. Imagine if you are General Motors the car maker, and you own the Chevrolet Corvette, the iconic two-seater sports car, sold at a very high price above the price of an average car. The 'Vette' has a fiercely loyal user base in the USA and cult status in most other car markets. I do not know for a fact, but I am pretty confident that the Corvette has been consistently a profit-generating special car, and also it is used as a showcase car and high-priced aspirational car, to promote Chevrolet and GM as sporting brands - ie used as the pace car at the Indianapolis 'Indy 500' race, etc. Now, we know that Toyota introduced the Prius as a totally different form factor and is popular as a hybrid car. There would be nothing crazy for GM to 'copy' a Prius and release its own hybrid car - but as long as the Corvette is still selling profitably - it would be utterly crazy for GM to 'discontinue' the Vette in favor of the Prius (unless there are some fuel consumption or safety regulations obviously).

But this is what Nokia has done. Nokia had two truly iconic phones, both premium phones, and both, so explicitly known 'Nokia' phones, that almost any 'clone' that tried that form factor would be assumed to be a Nokia. Truly iconic designs. I am talking of the Communciator ie 'palmtop' clamshell body style with full QWERTY and massive screen; and the N93 ie 'contortionist' body style which folds many ways, including the way that typical videocams now look - camera shooting in one direction, with the screen flipped and turned so we can see from the screen what we are shooting in video mode. Both of these form factors, in their last models - the E90 Communciator in 2008 and the N93i in 2006 - were award-winners and widely celebrated by the industry. The beauty of the N93 was, that it allowed exceptional optics - something you cannot do in a slim 'iPhone clone' phone. And the beauty in the Communicator was obviously the widest most comfortable QWERTY screen as well as allowing the fitting of the biggest screen conceivable.

So what does the Nokia management do after the iPhone cames along. They first release touch screen phones like the N97 and the N8, which 'are not iPhone clones' and 'are not iPhone killers' while clearly attempting to create phones that mimick the iPhone look and feel - so this is like GM trying to do a Toyota Prius - but the the sheer madness - then Nokia announce that they won't release more phones on the N93 form factor (why on earth not!) and while not expressly saying so, seem to suggest there will never be any more Communicators either. This is madness.

If it was actually possible to 'out-do the iPhone' and Nokia's N8 would now be selling better than the iPhone, I would be ok with the above. But Nokia was winning, then they panicked, and decided to snatch defeat from the jaws of victory! Nobody is going to match Apple in user friendliness, that cannot be done. Hundreds of PC makers tried for 27 years to defeat the Mac and they never ever managed to do it. Same for ten years now with the iPod and four years of the iPhone. No, let Apple have its 'customer satisfaction' corner - for pure touch screen phones - and don't try to fight that battle. Go for those areas that Apple (stupidly) is not pursuing ie QWERTY+touch hybrids and pure QWERTYs. And there - don't cut the corners! You have another rival for QWERTY now, and thats the Blackberry - far better at 'narrow QWERTY' - where you do have to fight RIM. The only part that Nokia has 'to itself' more-or-less is the wide QWERTY which is the Communicator form factor. Don't abandon that! Apple refuses to meet you in that battle and RIM probably knows better that it would be a costly battle to try. You own that, Nokia! But don't shoot yourself in the foot. If you are known for the best QWERTY wide keyboards (Communicators etc) then make darn sure that every one of your QWERTY keyboards is indeed the best on the planet. This is the corner you cannot cut! Else you lose your loyal customer (like with the N97!)

And the same with the camera. You have your partner Carl Zeiss. Why not release every single year one new superphone that is the best camera/video phone - on the other 'iconic' Nokia form factor, yes N93. And raise that camera to 12 megapixels and beyond - with 3x (more more) real optical zoom and by now with Zenon flash etc. Yes, make it a touch screen phone too, obviously, but this is a form factor and type of phone, that Apple refuses to do. Its your market. Why abandon it! Then for the premium super cameraphone smartphone, you then offer cheaper models, like BMW does its 7 series and 5 series and 3 series, so using the same folder form factor, offer a smaller touch screen and lesser optical resolution, like an 8 megapixel camera for a mid-price point, etc.

NEED TO FOCUS

The reality is that Nokia had been fighting in all three fronts, against very 'weak' rivals - many of which really 'threw in the towel' - Siemens, Philips, Panasonic - and others who were pretty clueless for long - Sony and Ericsson took years to get their act together - and Motorola got drunk on the Razr. Nokia HQ got to believe that they were somehow so smart, that they could fight a three-front war and win all three. That is not possible, not when you get real rivals in all three. Today clearly Apple and Google/Android are far ahead of Nokia in customer satisfaction; Samsung, Sharp, Apple etc are more innovative than Nokia in the speed corner; and ZTE, Huawei, G'Five and even Samsung are beating Nokia in the price leadership corner. Nokia is not leading in ANY corner. It has to now make clear strategic choices, pick one corner and fight for that - and/or (taking ideas from the car industry) to split the company into very clear divisions with a lot of internal autonomy, to have one unit to fight for each corner - the luxury satisfaction brand, the tech innovation brand, and the cheap brand.

IS NOT LOST ..YET

Nokia is still by far the biggest phone maker. They are still by far the biggest smartphone maker and dumbphone maker. They own the biggest smartphone OS platform, Symbian, and they have a credible migration path to MeeGo via Qt and Ovi. The Q3 results were alarming but that could have been a temporary blip and Nokia could have recovered. Now the Q4 results tell us that the current product portfolio, and the strategy, is not working. Nokia grew the least of all major makers, and lost market share in all price segments. The current trends suggest that Google's Android may pass Nokia's Symbian OS during this year 2011. This is a ship which is seriously taking in water and will sink if management doesn't turn it around very rapidly.

I think the biggest critical mistakes are that Nokia is almost willfully annoying its loyal customers. Customer loyalty is a fickle thing, if you lose it, you may not get a chance to try to recover it, for many many years. Think about it, in terms of market share, out of all those customers who bought Nokia branded smartphones in 2006, for every three customers Nokia has managed to keep - it has lost another two! Only three out of every 5 loyal Nokia smartphone users five years ago, still support Nokia today. What is worse, Nokia's loyalty is strongest in markets and segments of low-cost smartphones - India, Africa, China etc - but Nokia has all but lost the top end of the market. In 2006 Nokia's top N-Series phone cost literally 1,200 dollars (the N93i). Today Nokia has no phones even offered in that price range, the last superphone Nokia was selling was the E90 Communicator which has a list price of about 1,000 dollars in 2008. The N8 sells for about 500 dollars and the upcoming E7 will sell for about 700 dollars (vs iPhone 4 costing about 600 dollars - all these prices without subsidy obviously). Imagine if you were BMW and you bought the rights to sell Rolls Royce, and then you just stop selling it - even as the car was profitable and there was a big global market for it. But because Audi sells a popular mid-priced car - which BMW also matches - they would abandon their top product. That would be crazy!

And the very little things like suddenly no longer hot-swappable microSD cards (ie deliberately making your phone incompatible with all older models!) or not letting users swap batteries, etc. Crazyness!

Yes, there also are big issues with Symbian - at least those are being worked on. Yes, the Ovi store is not anwhere near perfect but again, Nokia is working on it. Most smartphones are not bought for the app store (said several surveys last year). Those are yes, important things too, but they will not fix the problems that are already deep inside Nokia. Nokia used to be the must-have phone. Now its a phone its owners dare not recommend to friends. That is the core of Nokia's problem. At one point you bought Nokia and you knew you got ultimate value and you would not be disappointed. Now even the most loyal Nokia fans, whenever they write about their newest Nokia phones - write about one disappointment after another. This is the problem the new CEO, Stephen Elop needs to address. Else it will continue to lose customers - and unfortunately, the phone replacement cycle is far faster than that for cars, the demise of Nokia could happen before Mr Elop gets a chance to retire..

UPDATE Jan 29 - I have just written a follow-up. We know here what is ailing Nokia to cause it to lose customers and loyalty. We do not know in this blog why it happened so suddenly. That troubled me, so I went on one of my famous searches and played Sherlock Holmes. Come read with my why Nokia market share crashed from 39% in Q2 to 28% in Q4 - this is worse than what Toyota experiences with the failing brakes recall scandal etc. So follow me to Sherlock Holmes and the Hound of Nokiaville.

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.

For those readers who might want tons of facts about the handset market, including smartphones, dumbphones, featurephones, installed bases, customer segments, form factors, operating systems, regional markets, average sales prices, and a view to the 5 biggest phone makers and their regional markets and sales patterns, the brand new TomiAhonen Phone Book 2010 has 98 charts and tables in 171 page eBook that costs only 9.99 Euros. See more at this link TomiAhonen Phone Book 2010.

Comments

[enyibinakata]

Wow Tomi, this is the best I've read from you. Epic stuff!.

Please use whatever Nokia connections you have left to get Stephen Elop or some top managers to read this. It is compelling.

The vestiges of Nokia's glorious past remain evident in some of its recent phones (N8 camera and multimedia, 5800XM audio, N900 computing). Nokia still has the necessary ingredients for a world beating device/strategy but is Elop the right cook ?. I and a lot of hardcore Nokia fans surely hope so. A gadget world dominated by Apple and Google is not one I will feel comfortable in

Thanks for this epic article.

[MeeGoUser]

Brilliant pice as always Tomi. Very honest.

I have a feeling that if you ran Nokia it would be in way better shape. Then again, jt's always a bit easier for us on the outside than those who ave their heads in the scrum.

One detail I want to pick up on though, Nokia said that over 5 million Symbian^3 devices sold in Q3. That would mean that the N8, that was the only S^3 devce for most of Q4 outsold the Galaxy S series which sold 10million over the entire year.

What do you make of the US tech blog hostility towards Nokia and he brewing hatred of anytig Nokia by commentors on those blogs who have never even touched a recent Nokia smartphone.

How much has US carrier hostility towards Nokia contributed to their Decline?

Thanks again for another brilliant Analysis! :D

[MeeGoUser]

I meant Q4.

Excuse the typos :)

[Antoine RJ Wright]

Nice post, and sure to get some (many) of the folks who've called you a "Nokia apologist" to pull back their ears to listen a bit.

A point you might have said, but might have been lost in the depth of words you used:

- it takes risk to make iconic products. You have to have belief that the product is going to be above expectations, even in a broken state. There's the vision and execution needed to pull it off. And a focus on not merely appeasing customers, but believing that you know better than they what they'd want. Nokia, for all of its battling on several fronts (to pull your analogy), might have stopped believing in the higher ranks that they can risk their icon and win. Unlike a company like Palm who didn't have the means to fund their risk, Nokia folded theirs. That speaks of something that new blood, and probably a decline to the pack, can only rectify - if at all.

*I resent the comment about the N97's keyboard - though I know where others are coming from in not liking it. It really was a risk - and a good one that works nicely.

[Mick]

I worked as a small worker bee in software for Nokia until I had enough and quit last year. Even in their dumbphone department - which was considered to be one of the most agile in the company - there was one thing middle management avoided like the plague: taking risks. There was absolutely zero point zero room for innovating at anything. The best they would come up with was to copy some competitor's existing concepts because they thought that what was working for them would also work for Nokia and that they could forgo having to take the innovator's risks but profit from them at the same time. Of course, the result will be a constant catch-up race which cannot be won. I see parts of this reflected in your highly accurate article.

As part of what you proposed, in my view, Elop should do one thing quickly: In Steve Jobs' style, give every department 10 minutes of presentation time to show the best product they have to him. If it is not convincing, give them a second chance a few weeks later. If they still cannot show anything worthwhile, fire them all. When I left, there were massive numbers of employees who had no clue whatsoever that their incompetence or inaction was just more inert mass which was dragging down the sinking ship that is Nokia. In fact, I had colleagues who would run their own personal business while sitting in a Nokia office and pretending to work for the company. If this was the case in my department, I can only imagine that there were many other people like that in other departments in this huge company. They should all be gotten rid of as soon as possible and never be hired there again (i.e. none of the musical chairs Nokia likes to do).

It truly saddens me that this company which has done so much positive for so many people in the world, is falling behind so badly.

[kevin]

Tomi, thanks for this piece. You seemed to have reached a good understanding of Nokia's faults, but your prescriptions show that you still don't understand Apple and it's game (or it's war strategy).

As I said a year ago here, market share isn't a very good indicator, because it's not forward-looking. It's backward-looking; it tells you where you are at that particular moment, being the sum of all your choices in the past. So six months ago, market share had already indicated trouble for Nokia, and using other indicators (like profit, ASP, and executability), I said here that Nokia and RIM were dying in the smartphone/customer satisfaction battle, and to use your words, the do it right/do it fast front. (However, I was mistaken in thinking Nokia would hold onto the do it cheap front. Nokia's goal there is to win less affluent customers in hopes of converting them, via customer satisfaction, to Nokia smartphones in the future. Apple does the same thing but with iPod, iPod touch, and iPad.)

Like a small startup, Apple chooses to fight on only one cell phone front, preferring to battle in and strongly hold adjacent non-cell phone territory, where it can leverage its resources and where there are few competitors (iPod, iPod touch, iPad). By leveraging its resources, it can do it faster and cheaper, but still do it right and establish solid customer satisfaction. Apple knows that winning territory (market share) with poor ability to hold onto it is a very hollow and misleading victory. And customer satisfaction is how you hold onto territory.

So Apple will not stupidly make a quick QWERTY version or nano version or dumbphone version. Apple will not so stretch its R&D and production resources that it needs to engage C-team personnel and processes and thus, wind up failing to do it right. It will stick to A-team caliber personnel and production processes, even if it means it will give away many battlefields today.

There's no need to gain a large and deceptive market share rapidly; this is a long war. There are 6 billion customers (or pieces of territory), where each customer (or piece of territory) can and must be won over again every 12-24 months. If only 1 billion people are affluent enough to buy a smartphone, and if Apple can only win 30% of those battles, that's 300m $625 sales over 2 years, or almost $100B a year in revenue. For comparison, all of Apple, which is the 2nd largest company in the world by market value, had revenue of only $76B this past year. So there's plenty of time and customers to keep Apple growing for the 5-10 years.

[Marc Aurel]

Nice post Tomi, although I think that you concentrate too much on the details like the battery and MicroSD thing. I am also not deeply convinced that the Communicator or N93 form factors were that great. They were both quite bulky and probably not very suitable for today's markets. The real problem for Nokia has been execution for the last two years, and also some downright poorly designed products like the N97, which had a couple of very critical flaws, although the weird but ultimately quite usable keyboard was not one of them.

I do agree that Nokia needs more innovation and truly high end products similar to the E90, but even more than that it needs to deliver the phones on time with no critical bugs. Fixing the remaining problems of Symbian is also important as well as delivering a convincing high end MeeGo device as soon as possible, but not before, because a buggy product could be potentially even worse (example: N97).

[Tomi T Ahonen]

Hi enyibinakata, MeeGoUser, Antoine, Mick, kevin, Marc and Leebase

Thank you all for the comments. I kinda expected this blog posting might stir up some emotions haha.. As usual, I'll reply to everyone individually

enyibinakata - thank you! It did come from the heart and I was quite stunned reading those disasterous Nokia results where I honestly expected an N8-propelled recovery in Q4. As to Nokia HQ, I do know that my blog is rather well read - but also, I know it is but one outsider's view, and because I am so far removed from what is going on inside, I am increasingly also seen as out-of-touch haha.. Thats life. I give what I can, I am as loyal as is possible to the Nokia brand and I can only hope for their recovery but - nobody rules forever. Nokia owned a decade, and that is a massively long period in high tech.. and yes, we both agree Nokia still has all the ingredients, and could (should) be able to turn this around. And while I admire both Apple and Google, I agree with you that I wouldn't trust a tech world run by Apple - they are a nice 'niche thorn' to the side of the industry but personally I do not like their refusal to conform to industry standards; and Google, I think they skate dangerously close to the line between 'do no evil' and 'we are really evil' haha, several mis-steps that to me say, they are not quite 'meticulous' about not doing evil, not even today, what happens when the founders get fed up with Google and semi-retire and the next managment team takes over and perhaps doing some evil will be tolerated even haha.. If they then own half of all computers (smartphones) and half of mobile phones - both obviusly only on the OS level but that is where the control would be, it would be quite a platform to rule the world haha.. Not that Nokia are angels, just that Nokia has at least consistently preached and practised open standards, and has continuously attempted to work with rivals..

MeeGoUser - thank you so much. In all honesty I was pursuing very hungrily a career of growth and higher positions at Nokia HQ, but was also becoming disillusioned by all the internal meetings (which are a necessary evil, obviously in large organizations) and found to my surprise that I far more enjoyed the public speaking opportunities on behalf of Nokia at the time. Soon as the book project was nearing, I was understanding that I'd be far more happy with my career as a 'pundit' and 'expert' on the 'outside' with my strong opinions, than play the politics and being 'nice' to be able to rise on the career ladder. If you think Anssi Vanjoki got a bum deal being a bit too flamboyant and outspoken - if I had risen to VP level, I probably would have been the most outspoken (and therefore most unacceptable) of my peers haha.. But once I discovered my freedom as an independent outsider, writing my little books and my little blogs, I am the happiest I have ever been in my career. I think I was destined to do this, its for the corporate types to conform to expectations and run the big companies haha.

On Galaxy S, the 10M sales were over 7 months, and in Q4 Samsung sold a little over 5M Galaxy S smartphones, so the comparison is valid. On the US tech blog hostility, I think its rather strongly associated with Apple, those that are strongly fans of Apple tend to be very negative about Nokia, those more neutral about Apple (honest, seeing both the good and bad) tend to be reasonably fair about Nokia. But you make a good point, that the US market has not seen top line Nokia smartphones so they don't really know the top end, not even from years ago when Nokia's top phones were quite magnificent.

But the point about US carriers - that is the main reason why Nokia's US share is so lousy - and I do not mean this is only the side of the carriers, Nokia has done just about everything badly in those relationships, pretty much poisoning them at Nokia's side, from being the leader in the GSM vs CDMA battle, to Nokia's insistence to not cripple its phones (something US carriers have typically demanded for premium phones) etc. Looking at the latest announcements that T-Mobile is after all not going to launch some Nokia smartphones, speaks loudly of how bad the relationships are. T-Mobile is owned by the Germans, and in Germany, Britain, other T-Mobile European footprint countries, the Nokia phones are fine, but their US affiliate doesn't want to sell them. This is very bad for Nokia.

Antoine - Great point about believing in that vision. That is exactly what Stve Jobs did with the iPhone, and I respect his view enormously for that, even if he felt Apple won't bother with a QWERTY iPhone haha.. Steve has a clear view of what it is to deliver an Apple product and he won't let a device be sold that doesn't satisfy his opinion - and for that, he would not bother to run any focus groups etc. The Apple new product has to be satisfactory for one person - Steve Jobs - and he wouldn't care if a million consultants sing another song haha.. Nokia did have that kind of belief early on - so many wild, weird choices - like music as ringing tones, like putting a videogame (snake) on a business phone, etc. But that belief has died a slow death, I think. Perfect contrast with Palm. Totally agree.

On the N97 keyboard, I think its a couple of things, the layout is part of it, but also the tactile feel of the keyboard is very poor (I never owned that phone but tried it out quite a lot, as I had wanted to love the phone, but decided it was not worth having, it was not worth replacing the E90 for many reasons, the keyboard as one vital one - haha, for me and my use of SMS haha)

Mick - thank you for your personal viewpoint. EXCELLENT point about taking risks - and no, I did not even elude to it. I was writing fast, I should go add a paragraph or two about it. That is so true, and it was so different a decade ago when I was still employed at Nokia. We had a culture that understood the role failure in innovation, allowed experimentation, and the mantra was to learn from failures. But along the way - I think the N-Gage experiment was the most painful I think (and quite costly) - suddenly top management became allergic to failures and yes, I hear it from many of my sources, that Nokia middle management today is paranoid about failures, and the organization is thus paralyzed. Very good point.

I understand the sentiment, 'fire them all' for those who are clearly not pulling their weight, but that is not quite feasible in Nordic countries haha. It would more work in the USA. But he might ask senior management in such 'incompetent' units to volunteer to resign, to seek alternate employment - and to disolve the departments that are left over. Nokia does need new staff in many units, most of the staff is competent, so they'd soon find internal employment, but yes, the malaise of risk-aversion is poisoning lots of middle and senior management.

I also feel the same, but I am confident, now looking at Q4 data, the signs leading to this would have been visible (customer satisfaction surveys, feedback from carriers/operators, return rates for phones, etc) already in the summer when the Board decided to fire OPK and hire Elop. I felt - when I wrote about rumors that OPK might be fired - that it was too early, that he was not doing that badly - but obviously we are still seeing results of OPK's management, this Q4 is not really 'accomplished' by Elop, he is still running a company that is mostly running OPK's decisions and strategy - and if it was this disasterous - remember Nokia was on the brink of reporting its first-ever operating loss of the handset unit - and the total corporation did report one quarter of a loss last year - the decision by the Board was right. Nokia was on a disasterous course earlier this year and the decision to fire OPK was the right one. Its too early to know if Elop is the right guy - but he is a significant change from typical Finnish managers, that is at least different from the management style that got Nokia to where it is now, thus it may be good - and my insider gossip says that Elop is good at listening and brings no baggage of the internal politics or pet projects, so he should be able to make very fair and unbiased strategy choices. We should know much more when he delivers his Strategy speech in a few weeks.

kevin - we agree very much. I have said time and again, that Apple cannot become a mass market juggernaut in handsets in the style of Nokia or Samsung today, or Motorola of the recent past. They do not have the DNA to do that, just like Nokia could not hope to compete for the extreme customer-satisfaction niche where Apple rules. What has been my beef with Apple, is that right now, from about 2009 on, definitely in 2010, they could have captured far more of the market share - without any loss to their profitability (you know i outlined my ideas of the iPhone Nano for example). And that the time to do that would have been last year the latest, when Apple noticed their market share growth had stalled. Now every quarter they delay, is market share that is lost, because the market grows so fast, those customers will be with HTC or Samsung or Motorola or RIM or Nokia or whoever grabs them. That is my beef but Apple is obviously executing very well - considering their self-imposed handicap of offering only one new phone model per year.

If they are able to offer many Macs and many iPods per year, they are certainly not too dumb to do the same with iPhones. To me, it makes no sense whatsoever, that they do have many price point iPods with differing form factors (including full video player/WiFi web device iPod Touch) yet only one iPhone per year. To me thats madness. But - for the rivals - every quarter that Apple delays a QWERTY version is good night of sleep at Nokia E-Series and RIM. Every quarter that Apple delays a Nano version of iPhone is good night sleep at Samsung's bada division etc.. Apple is doing just fine - they could be doing far better.

And mark my words, kevin, when the history of smartphones for this decade is written at the end of the decade nine years from now, a famous 'obvious' strategic mistake that Apple will be seen to have made now, is to delay the launch of their product portfolio and abandon several points of market share. If Apple ends up with 6%, they could have had 8%. If Apple ends up with 10%, they could have had 13%. And my point is that this - in the case of Apple now in 2011, would not be at ANY cost to profitability. But we agree, its a long war, for this decade, so there is plenty of time to revise strategies. Unfortunately for the 'incumbents' like Nokia, Apple and RIM - there are hungry newcomers. Look how rapidly Samsung sprung from the pack and leaped into the Top 5. This year we could just as well see someone like Sharp or Lenovo or ZTE making a similar move. It will get more competitive, not less competitive in smartphones.

Marc - fine, I was writing off the top of my head, I had not planned this kind of blog - I had totally expected very different results from Nokia and was more expecting to write a blog explaining why we should not be surprised that Nokia was doing so well in the Christmas quarter haha... On the bulkiness of the Communicator and N93 - obviously any of those phones if released in newer versions would be slimmer/smaller. I am not suggesting to make those phones today in the same size haha, but in the same form factor, but slimmer/smaller/narrower/less heavy..

I do agree that execution has become an increasingly sore problem for Nokia recently - when they announce a second delay like for the N8 - that is a sign things are very much a mess internally. I also totally agree that they need to restore trust in delivering goods on time, and without bugs. I think Nokia has become the kind of new Microsoft for mobile haha, it used to be that every announced Microsoft Windows Mobile version was delayed, disappointing and buggy haha.. That should 'sting' inside Nokia HQ haha, Nokia is the new Microsoft. Ouch!

Leebase - haha.. No, I don't wait, I am way too impatient, so if I had seen this before, you can be sure I would have written it then. No, this is pure shock response from reading those Q4 numbers, and straight from my heart. I think you should have known for years, that I have been saying again and again, that Apple is doing the right strategy, focusing on the top end and its user-friendliness, and that they are performing admirably. I have said that it is inevitable that Apple will split its product portfolio - I doubt you can believe Leebase that Apple never will offer versions of iPhones (Nano etc). We have had the discussion about QWERTY - and I have said time and again, that I think it would be great extra profitable sales for Apple, but also that I acknowledge that at least as long as Steve Jobs is in charge, they probably won't give us a QWERTY version - but even if Apple had both a QWERTY and Nano iPhone - that is not 'being Nokia' because even Apple's cheapest iPhoen would cost more than the average of Nokia's SMARTPHONES - and many times more than Nokia's dumbphones. Apple has absolutely no viable way to compete for Africaphones... But Leebase, you have heard me say that many times here, so its not quite fair to suggest that suddenly now in 2011, I have discovered this truth haha. I said so in 2007 and every year since, that Apple is not Nokia and Nokia is not Apple, Nokia's primary competition is Samsung blah-blah-blah, you've heard me say that so many times..

On the Corvette - its true that Corvette never has a big market share - but partly powered by the image of the Corvette, the Chevrolet brand was GM's biggest selling brand and GM for most of the past century was the biggest car maker on the planet. That is to me the relationship of say the Communicator to Nokia. Having an aspirational phone (or car) helps sell to masses the cheaper phones (cars). And again, the Corvette perfectly supports the market share issue that I insist on focusing here on this silly blog haha.

On that original iPhone article and the 10M sales - remember - the original iPhone 2G was not a smartphone! It WAS a music phone. That is what CFO Oppenheimer told us in 2009, the iPhone was released by Apple as the answer to SonyEricsson Walkman phones and other musicphones cannibalizing iPod sales. Not my words, Oppenheimer's. When I wrote that blog in 2007, nobody at Apple had admitted it. But that is exactly what Oppenheimer said in 2009, you know this, I blogged about it here. And exactly what was the original end-user price in the USA? 599 dollars! It was dropped to 199 dollars. Exactly as I predicted.

As to Nokia 'about to add' Android or Phone 7 - don't hold your breath, Lee. I am very VERY convinced that will not happen, it is silly speculation by US pundits, there is no sign whatsoever from Nokia that they would be doing this, on the contrary, since Elop took over, Nokia has several times re-iterted its strategy around MeeGo. No, there won't be Android or Phone 7 smartphones in Nokia's future. That would be sheer madness. If nothing else, the success of a major handset maker's new Linux based OS, bada - is proof that MeeGo needs to be done, and the poor performance on Phone 7 is proof that it shouldn't be considered.

Thank you all for writing

Tomi Ahonen :-)

[Bob Shaw]

Tomi - Great Analysis. I think it will be read very well by folks at Nokia. I think Nokia will need to find a way to speed up product introduction without compromising on quality. Since the product evolution in this mobile phone segment is occurring at a rapid pace, a delay of one or two quarters is all it takes to destroy the potential of the product.

[Pete]

If I were Nokia, I'd be crapping myself right about now of the obvious long term implications of the Sony NGP/Google Android announcements. Either that or offering free access to patents in return for creating a 3G DS or something equally bizarre.

[Randall Arnold]

Nokia started forgetting how to be Nokia around 2007. If they don't get that back, down they go.

[Nikhil Pai]

In my opinion, the biggest mistake Nokia did in the last couple of years was to waste time in migrating from Maemo to MeeGo. Nokia got it almost right with the N900 & it was a big mistake not to release a N900 successor soon thereafter. As they say "You shouldn't fix it if ain't broke". Maemo wasn't broken, just needed a few fixes. MeeGo will have to be 10 times as good as Maemo to justify the shift & the loss of precious time in which it lost a majority of its Maemo target base to Android.

[Manu]

Very well said @Nikhil Pai

It was indeed a disastrous strategical choice to freeze Linux based offerings at a critical juncture.
Even if #Meego is great or "Perfect", it won't recover losses incurred due to bad choice. They just didn't lost out on 3-4 quarters but the move severely dented the morale of potential Nokia buyers & enthusiasts alike. Plus, few tech blogs got license to dig at Nokia (Symbian) stuff as Maemo/Meego was not around.

[Mark]

Yup, these numbers aren't great. I was expecting over 30 million so less than that number is an obvious disappointment.

Recently I've been playing with a custom ZTE Blade - it runs a 2.2. ROM - and I have to say the difference between that and an equivalent Nokia come down to:

1) UI. The Android UI - especially with Launcher Pro - is simply smoother, more modern and nicer.
2) The keyboards are better.
3) The browser is better than the N8 but on a par with Opera Mini.
4) More apps and the common ones are more polished.
5) The Gmail client is light years ahead of Nokias's.

Now don't get me wrong, I still go back to the N8 because of the feature set is better but it looks like I'm in a decreasingly small pool of people. I keep thinking "if only the UI was fresher" and "the mail client and messaging is so slow!".

Nokia need to enable this quickly. No, I'm not talking about moving to Android as it has its faults - the UI is a bit confusing at times, the lack of an exit option in function to the point you need a third party task killer is stupid and, Gmail aside, setting up and e-mail account is stupidly difficult.

I've been a staunch supporter of Nokia for a long time, only moving to a Samsung Omnia when the N97 came out, and still think the 5800 was a wonderful phone that changed the budget smartphone game in a way that it doesn't get credit for (it was the progenitor of all the 5xxx series which still sell like hotcakes) and I still think the N8 is the best phone for me by a mile.

But...

Six months ago I said I would give Nokia six months to turn things around. I think that transformation is happening but it's not happening quickly enough. There are green shoots - Elop's appointment, the cancellation of a potentially disastrous US campaign, the promise of software updates, etc but it's not clear if it's spring or just a brief let up in winter yet.

That said, it isn't all doom and gloom and I think Nokia do have a chance to recapture a large part of the market by doign some relatively simple things. Firstly, the UI needs a polich - ditch the traditional font, remove the redundancies and make it 2011, not 2005. Secondly, they need to put better CPUs in, not because they have to technically, but because the market expects it. That's just the way it is. Thirdly, higher resolution screens for the same reasons as higher rated CPUs. Fourth, an absolute marketing blitz selling Nokia's ecosystem - which also needs polished and can be done (Ovis Suite 3 is awesome, Ovi Suite 2 sucked).

They need to target Western Europe and the US because that's where the market is dictated and where what's cool is decided. Sorry, but it is.

This is all achievable. It really is and, frankly, it's not even that difficult if Elop can overcome the corporate culture and wield the axe. Fashions change very quickly and there is always a way back if you offer the right product - we've seen that in fashion: brands on the way out suddenly become hot again (Barbour) and brands that are hot get overplayed and become undesirable (Burberry). I think Nokia have less than a year to execute though.

So kudos to kevin, and Lee and Baron for some parts of your analysis. You were right on a number of counts. I still remain unconvinced about the iPhone's long term prospects (it may end up doing a Burberry) but you were spot on about this one.

Sad but times move on and expectations do as well. Like I say, the N8 is still the best phone for me, but if an Android comes out that has a sensible battery life, FM Transmitter, great camera and doesn't bugger up my e-mail it's going to be a harder choice to justify.

[Hoi]

I worked on the Communicator, N93 and N95. I was there at the beginning of the N97 project, but left during this phase. After I left, everything has been downhill :D .....

Some of Nokia's recent mistakes have been the Symbian furore. Many hours of wasted engineering time making it Open Source, only to take it back in. All that effort could have been used to help develop the OS transition to Meego and to improve UI integration for Symbian which would have improved the product line. I also agree that "Copying" Apple is not the way to go, it will always be a game of catch up. A lot of focus moved to playing catch-up and made Nokia vulnerable at the low end.

The mantra is essentially the same for start-ups, keep an eye on the competition, but your strategy and product decisions should not be based wholly on what your competitors are doing. You also need to focus on executing your strategy and tweak where necessary.

[alexis garza]

tomi, i just read about you via a retweet of stevelitchfield and i must say... very interesting article, i think the same way as you do, i sold my nokia n900 today, my last nokia dissapointment of all time, and i wont look back nor look for future nokia devices to dissapoint me over and over, after the n97 i had to get a n900 because it was faster and mostly because it was almost the same form factor, but poor app support, ovi store for maemo is almost empty, im an old symbian user and i dont like android and its fragmentation, so i dont know what i might be buying as my next device because the iphone is too much overpriced where i live (mexico) almost 800us dlls locked to telcel's network.

I hope someone at nokia is reading this and could change the future of nokia and save the few loyal brand customers out there, because they lost me, and they lost my girlfriend too because im the one who gives her the phones :P

[Tomi T Ahonen]

Hi Bob, Pete, Randall, Nikhil, Baron, Manu, Mark, Hoi

Bob - good point about product development cycle

Pete - I think thats probably one announcement to create just about the least crap in their pants haha, due to the mess that the Nokia mobile gaming platform, N-Gage, created. So the least of Nokia's worries is if Nintendo or Sony PSP or whoever (Xbox maybe) might do a mobile gaming phone. Nokia got its fingers burned badly and is not afraid that a giant market will suddenly emerge from gaming any time soon haha..

Randall - haha, yeah, and the iPhone appeared around that time haha 2007

Nikhil - good points and I can see it from both sides. Maemo perhaps should have been given more life and the N900 seemed to deserve a worthy follower (an N710 or something haha). And no doubt a lot of time - extra time - was wasted in the transition to MeeGo. But Maemo today would not be significantly competitive by itself - a tiny developer community and small number of apps and no evolution path from Symbian. Then yes, Nokia would have / should have done what its doing now with MeeGo ie Qt and Ovi - but that would have caused delays to Maemo version 2... So its not quite that clear-cut. And currently in almost whatever mix of products, Nokia would not be having a majority of its smartphones on the new OS, whether rapid or slow transition. So it would still be mostly Symbian now, and the current disastrous market situation even if they had stayed with Maemo (most probably, while perhaps a couple of hundred thousand units of smartphone sales more, perhaps. Not enough to change it from bad to good).

But with MeeGo, Nokia gets an independent partner owner/developer - this makes MeeGo more palatable as a future OS platform when the attrition starts to hit and some OS's will cease to be. If it was just Maemo, I think it would be near impossible for Nokia to attract new manufacturer-partners, but with Intel via MeeGo, they already have third party manufacturers and can get some major handset makers (maybe). That in turn would help give MeeGo more of a promising future than Maemo as only a Nokia platform. That seemed like an 'opportunitistic' move that I think was smart of Nokia to do, but its benefits will not come until years later, and like you said, they took a short-term hit because of that decision. I do think its a wise decision, on balance, but not overwhelmingly so haha (vs sticking with Maemo).

Baron - first, thanks for the spell-checker service - you are part of the family here aren't you haha. I had spotted the 'Desided' and had just decided to let it be, but when you pointed out I wrote 1994 when I meant 1944 - then I had to go correct that - and so funny, I really didn't catch that. Thanks for both (fixed both now).

Now on the OPK posting - good catch, yes total change of tune. I recall considering carefully the numbers at the time last summer and I could not see 'significant' signs of trouble - that were in any way out-of-the-ordinary except the lack of US market success (OPK breaking his own promise). I thought that considering the huge economic crisis that pushes most of Nokia's traditional rivals to making losses - yet Nokia managed to keep its handset unit profitable and even was able to turn loss-making Siemens into a modest profit - that against its rivals, yes Samsung, Moto etc - Nokia was doing the best of the Big 5 - under difficult economic situation.

Now, as the world economy is recovering, and Nokia's delays with some software and hardware - especially N8 - have been passed, then if all was well, Nokia should be 'back to normal'. If all was well last summer, and the company was as healthy and well-managed as I though it was. Clearly things are not that good. But honestly, even with hind-sight now, if I look at the external signs, I don't see reason to fire OPK last summer. I also fully acknowledge, that it was the Board's decision and they clearly came to the opposite conclusion, which may be more due to politics and internal morale and leadership and perhaps vision differences with the Board and its Chairman, former CEO Jorma Ollila. I can't guess about those. But also, what we know now, is that clearly Nokia was in worse shape than what I had thought - perhaps hidden in the overall bad economic times. And the Board would have seen far more of that reality - see my reply in the first set for more - and thus the decision to fire OPK was even more the right thing to do at the time.

But then to the strategy - haha - I have NOT changed my mind on it! I told you when we discussed this back then, and I am in total conviction about it still today, that Nokia's main rivals are Samsung, LG, Motorola etc - not Apple, RIM, HTC etc - and of the main rivals, Nokia has the best smartphone strategy. It has been executing it poorly, but it has the best strategy. Of the Big 5 handset makers, only Nokia and Samsung control their own destinies, by owning their OS. The two have different challenges. Samsung has to establish bada as a viable global smartphone OS with app store and developer community etc. Nokia has to migrate its developers and apps from Symbian via Qt and Ovi to MeeGo. But if you owned Symbian, Ovi, Qt and half of MeeGo, then the right strategy definitely last summer - and today - is to do what Nokia is doing. And specifically not abandon that path and try to join Android or Phone 7 etc. I do think Nokia has the right strategy still today, my mind has not changed about that. What has changed, is that the execution is far worse than I thought before.

Of what changed my tune, you speculated that Nokia losing 9 market share points may have done it. No, remember at the start of the year I said Nokia would be losing market share and I expected it to be about 5 points but could be as bad as 7 points. No, that difference is not what changed my mind. Its the recent performance over more than one period (quarter). One quarter can be an anomaly and I was expecting a below-par quarter for Q3, that is typical to Nokia's pattern. The first half of the year was fine (remember, Nokia got that unanticipated strong China bounce like Apple did in Q1). If Q3 was the off quarter and Nokia returned to more-or-less normal Christmas Q4, then I'd be ok. But the bad Q3 follows up with an equally bad Q4 - this to me is the start of a pattern - a bad pattern.

In large corporations such patterns are very difficult to reverse - look at how rapidly Motorola went from number 2 to number 9 in handsets. Or how quickly Palm went from number 2 to extinct. That is why when we see two consecutive quarters of bad performance (and you know, this does not apply to Apple because of their peculiar sales pattern) - I feel the need to panic and truly do think the sky is falling for Nokia. I think its VERY likely that this is a sign of systematic problems that will cause things to go far worse, before they can be fixed and get better again. Make sense?

You see Android on top of MeeGo and Phone 7 as the strategy forward. That to me is a totally suicidal move and would mean abandoning strong Nokia assets and utterly demoralize the organization as well as loyal Nokia developers etc. And it would mean very costly redesign of handsets in the pipeline etc. No. It won't happen. Nokia's strategy is Symbian and MeeGo for its handsets, nothing else. The development environment is Qt that serves both and the store is Ovi that will sell apps for both (as well as for S40). This is the strongest strategy option for Nokia and the one that gives Nokia greatest freedom and control and ability to differentiate. And as they have invested heavily in the development of this migration solution, they are not going to abandon it now. They just need to look at bada to see how promising MeeGo can be for them soon - both are open source Linux based brand new smartphone-optimized operating systems.

I'll be here, you know Baron, after we hear Stephen Elop's strategy speech. Mark my words, there will be no Android phones and no Phone 7 phones either. Its Symbian and MeeGo, you better get used to that. But I'll be here to eat humble pie in case that is not what he says haha..

Mark - interesting about the ZTE, thanks. I agree its not all over yet, there is a lot of good in the company and with the right moves, Nokia can bounce back, but they now need to do something like 90% right moves where normally they'd only need 60% or 70%. Its not in death-spiral where they'd need 100% right moves haha, but two quarters of very bad results means they are now headed disasterously in the wrong direction, on very many cylinders and this ship needs to be turned 'violently' into another direction... The best single chance is Elop, he is the new guy, he is 'the boss' and he has one big chance to do a massive move now, which could be as much a message to outsiders as it could be leadership for the employees. But it does need to be the 'right move' haha.. A very clear position on Symbian & MeeGo is needed to stop the continuing speculation about Android/Phone 7 - which is sapping morale and causing delays in the Nokia developer community to commit to Symbian and MeeGo (and Qt) development projects. And some good news about a hot phone (in the class of a superphone) and some US carrier news would be very welcome.

Very good point about the fashions - we all remember Razr the must-have phone and then Razr the - what was it, last year's phone, haha..

Hoi - yeah, the Symbian mess was no doubt bigger a headache than Nokia could have imagined and it was also not managed/executed well. Totally agree what you wrote about copying and execution.

Thank you all

Tomi Ahonen :-)

[Moin]

My complaint with Nokia is simple.

I bought N85 phone for 25k rupees (app 500+ dollars) early 2009 but found this.

1. The Ovi store is horrible, no app for fb or twitter even till now. After spending more money if I cant get basic apps, its horrible.

2. Nokia decides to make the maps free but only for some models, N85 was not one of them. Why this step motherly treatment.

3. No updates at all even tho there were some issues.

4. OS was very slow, RAM was horrible.

So I dumped the phone and now am a very happy Samsung Galaxy S customer. I vow to never go back to Nokia and till now successful to change my family/friends mobiles to non-nokia mobiles.

ps: Was never ashamed of having a nokia phone, but thot that there was not much diff compared to low cost phones of other companies which had better apps and costed 100 dollars and I had wasted so much money on this.

[Alex Birkhead]

;-)

Oh Tomi, I'm so sorry to read of your terrible loss. If any consolation at all, it is better to have loved and lost than never to have loved at all.

Actually that's a big lie, I think your post could just be terrific news for Nokia -- many of the best readers of markets are contrarians (and, ironically, I consider you one) so I suspect you may unknowingly have just called the bottom. Kudos again for your honesty. Perhaps we should lay a bet on whether you've inadvertently called a bottom to NOK's travails, and meet at MWC in a year or three and compare notes with a markka to the winner?!

We both know that NOK overhauled its strategy over a year ago, and from my understanding that thinking remains smart, if execution disjointed. Let's see what Elop is about to unveil and find out if he is a winner -- could NOK really embrace Android (my long-term tip that you continue to poo poo) or Windows Phone (my enemies' enemy...) but I agree with your previous opinion that neither of these are obvious long-term solutions.

Great critique, of course, and in the simplest of terms, Nokia's brand and fanbase clearly offer a route to salvation. I'd hazard that many of Nokia's old fans retain affection, but are like voters too ashamed to own up to pollsters. I think NOK also has under-appreciated strength in emerging markets (with value-added services, i.e. beyond dumb and featurephones) and through its operator relationships (e.g. NOK Messaging tie ups) -- i.e. outside of the US...

It's easy and fair to criticise lack of innovation, but the old guard has had suffered a terrible decade here; with m-payment, navigation, music, tv, unified messaging, convergence, etc. all so far largely failing to commercialise and/or monetise to much significance and sometimes commoditising even before adolescence -- while at the same time being blindsided by internet players, Apple, touchscreens, app stores. This has hurt operators as well as manufacturers.

Am I allowed to rub it in a little and say '...told ya so'?! No, that would be ungentlemanly when you you're in mourning, but I will remind you that I've argued that Android and iOS will break the enterprise far quicker than you thought possible, i.e. rapidly, and my belief that market segmentation should now be mobile computers (Android/iOS), featurephones (Symbian/Android/bada/BlackBerry/Etc.), and dumbphones (S40, etc.). All your points apply to the low- and mid-market, but Nokia's absence at the top is crippling financially and fashionably; hence the allure of an Android or Windows Phone band aid. I also see RIM in a fairly horrible place (aside from owning a great enterprise franchise), but they look nimbler than I expected, with the PlayBook showing promise as the first step in a aggressive new high-end play. Nevertheless, I personally see a huge opportunity in the mid-market, particularly for Nokia (but also Android...), with your post doing a grand job as a roadmap.

It really is sad to see you feeling obliged to lay into Nokia like this, but I reckon your reading of supertrends remains good. It won't surprise me if Apple tops out this year (it can live off that position for years, of course), with Android the obvious call to mature into its successor as market dominator. However, I also respect your argument that Android may be very exposed to the whims of HTC, Samsung, etc., should they switch allegiances to Windows, bada, etc.

The game-changer might be Apple introducing new formats (a $100 nanoPhone) or slashing iPhone pricing...that could really shake things up as we both know...

[dotpeople]

Maemo on N900 provided the existence proof for free (not beer, the other kind) and usable mobile devices. It was successful in selling Nokia customers and OEMs on the strategic potential of an open and modern OS.

But Maemo also stalled consumer investment in Symbian. Meego then emerged, stalling consumer investment in Maemo. Without a customer base of Qt-enabled mobile devices (Symbian, Maemo, or Meego), developers watched and still wait.

This developer deadlock can be broken by any manufacturer (need not be Nokia) who can deliver:

* strong sales of one Qt-enabled device (any OS)
* easy purchasing of mobile apps (with non-trivial DRM)

It will take just one successful Qt-enabled device to kickstart the developer ecosystem, buying time for Meego to bring up the strategic rear. This device need not come from Nokia and it can run any OS which can be targeted (soon) by the Qt SDK.