Calculating the Elop Effect: He's already destroyed a company the size of Oracle, and profits the size of Google

I coined the term 'Elop Effect' this past summer, as the height of management incompetence, combining the ruinous path of the Ratner Effect, with the calamity of the Osborne Effect. I called it then also the costliest management mistake of all time. Now we have data and can evaluate that bold claim. I urge you the reader to consider carefully - can you recall - or discover - any management error by any global corporation that has ever existed, in any industry, ever, that has achieved this level of wanton destruction of the company, by a CEO gone berzerk.

IS NOT ABOUT SYMBIAN

Some come to this blog and say that I want Nokia to set back the clock and that somehow this is about Symbian. It cannot be. The decision to move Nokia smartphones away from Symbian was taken long before Elop had his first interview at Nokia. I have been writing on this blog about what will become of Symbian in that transition to MeeGo and what role Ovi store and Qt the app development tools were to play in that transition. The Elop Effect had nothing to do with the decision to end Symbian. Elop brought the end date somewhat earlier, and then fired Symbian staff boldly, but the fate of Symbian was sealed long before he came to town. This has nothing to do with the end of Symbian.

IS NOT ABOUT MICROSOFT

Also this is not about Elop's choice to replace Symbian and MeeGo with Microsoft's OS for smartphones, now called Windows Phone (WP). It has been reported in the public domain, that Elop went through a meticulous process of considering all viable options, Symbian, MeeGo, WP, Google's Android and even spoke to RIM about Blackberry OS. He did the right moves and in the end, it is his right to make the call, which OS Nokia will use in the future. And he convinced the Nokia Board that Microsoft was Nokia's best option. That was no doubt a difficult call, between Android and MeeGo and WP but it was his decision to make. That decision was not what caused the Elop Effect.

WHAT IS THE ELOP EFFECT

The Elop Effect is similar to the Osborne Effect and the Ratner Effect. Both of them were COMMUNICATION errors. Not errors of management decisions. Errors of communication. Osborne Effect bankrupted the Osborne Computer Company in Britain, and the Ratner Effect almost did the same for Ratners Jewelry Store also in the UK, but they survived only by firing their CEO and changing the name of the company. Imagine how severe your troubles have to be, if you are a retailer and have to change your company name and branding. If Walmart was so poisonous as a brand, or Tesco or Ikea, that they can only survive by changing totally their corporate identity and trying to convince consumers that they are now somebody else. Ouch indeed. Stephen Elop caused the modern version of the Osborne Effect, when he announced that Nokia would switch from Symbian to WP, while at that time, he had no Microsoft WP based Nokia smartphones to sell, or even to show.

That is exactly what Osborne did with his computers. Osborne saw its sales collapse overnight. So did Nokia too. We have now seen Nokia lose more than half of its market in a matter of months - a world record destruction of a global customer base. Elop actually even made matters worse than what Osborne had done. Elop not only announced his current smartphones are instantly obsolete on that fateful February 11 day, he then told the world, that Nokia under his leadership would boldly release dozens more new smartphones on that suddenly-undesirable Symbian OS for more than a year to come. He in fact committed to 150 million more Symbian phones - which would take us to about the end of 2012 before Nokia would stop peddling new Symbian phones at us. And this, when in February he announced to the world that Nokia's own Symbian was to be terminated. What a fool! So Elop looked at the most damaging management communication about new products ever, and decided he can do better. He actually out-Osborned Osborne.

Yes. That alone would qualify us for creating a new word in his honor to commemorate this disgrace. But he was not done. Elop wanted to guarantee he will end up in the Guiness Book of Records for the most incompetent management ever, he compounded his error by replicating the Ratner Effect, except that too, he did with his Microsoftian style.

So just before his big Microsoft announcement, Elop decided to issue an internal memo to all staff, about his thoughts. This is the infamous Burning Platforms memo, the costliest management memo ever written. A memo so toxic it not only wiped out Billions in sales and profits at the smartphone unit - it even caused severe loss at the supposedly unrelated featurephones unit of Nokia (ie dumbphones). The Burning Platforms memo was so devastating it gives new meaning to the term 'poison pen'.

Again. Please do not misunderstand me. I said when I first read the memo, that I AGREE with its sentiment and I agreed then and agree still now, that Nokia had then (and still has now) severe problems that the top management has to deal with. But those problems were not with 'innovation' or 'ecosystems' or 'falling behind the USA' etc. Those problems - as previous Nokia management had admitted before - most obviously Anssi Vanjoki - and Elop himself has admitted since - were about 'execution' not about 'innovation.' This is what Elop said on June 2: "Mismanagement - not a lack of innovation - is what ails this company." I have discected the Burning Platforms memo for its factual mistakes. I have even gone to the trouble of collecting Stephen Elop's own statements later that correct 11 of the most glaring mistakes in that memo. We do not need to go into that now. Because I have said, I agreed with the sentiment, yes Nokia needed to hear that there is a new guy in charge and he will be shaking things up, and that Nokia needed to prepare for more competition. That is all good.

Whether you or I happen to agree with finer points of that memo is neither here nor there. The Ratner Effect was not about 'misanalysis' of a management challenge. The Ratner Effect was a communication problem! Remember Ratner called his jewelry 'crap'. That destroyed the customer confidence in his jewelry. Stephen Elop did the same in the Burning Platforms memo. Regardless of whether I can prove to you that Apple is indeed lagging Nokia in innovation, and that all dozen of the first changes to the original iPhone from 2007 to 2010 were all copies of older Nokia innovations that existed on Nokia phones before the first iPhone was sold. And that Apple which likes to sue everyone from HTC to its parts supplier Samsung for iPhone patents infringements - actually had to settle with Nokia and pay Nokia, because Nokia is ahead of Apple in smartphone innovations. Elop himself said this of Apple vs Nokia on June 14: "We are very pleased to have Apple join the growing number of Nokia licensees. This settlement demonstrates Nokia's industry leading patent portfolio." It doesn't matter - in Ratner's case his jewelry was in fact inferior to the competition.

But the Ratner Effect was not about quality of the product, it was a communication error by the CEO who called his products unfit for sale. MBA students learn never to repeat the Ratner Effect because if your CEO calls your own products bad, the customer will believe it. And Elop called his products crap. Not just that the phones were crap (which he said) and the operating systems both Symbian and MeeGo were also crap (which he said) but he even went so far as to say the ecosystems of Nokia (Ovi store, Qt etc) were crap (which he said) and even that the very style of doing business at Nokia was crap. Elop was so extreme in his view, that he argued that Nokia was beyond salvation - it could not be fixed - and the employees were advised to jump off the platform into the freezing sea and risk drowing, risk freezing and to seek another platform to try it there.

Obviously just like with Osborne Effect, also with Ratner Effect, Elop decided he wants to out-Ratner Ratner. Ratner at least was truthful in his commentary that his jewelry was bad. Elop actually made numerous false statements in his Burning Platforms memo that made Nokia seem worse than it was in reality. So much so, that in eleven cases, he has already had to walk back those statements and retract major points of his memo. By now he has retracted almost all that I found initially objectionable in that devastating memo.

And I should make one more point. This Ratner Effect side would damage Nokia's sales efforts in its reseller channel to a disproportionate degree. I have been chronicling the issues about sales in the mobile space including Elop's subsequent mismanagement of his sales channel like on this blog last week. So the Elop Effect is a communication error by the CEO that combines the worst new product announcement communciation ever - the Osborne Effect - with the worst own product endorsement communication ever - the Ratner Effect. I said it was the costliest management communication ever uttered by a CEO of any Fortune 500 sized company and that the Elop Effect would cost Nokia billions and ruin the once proud profit-generating giant of the mobile industry. And that was quite a severe indictment clearly. So now we can start to measure the early results of the Elop Effect. Lets take out our calculators, shall we.

WIPING OUT A WHOLE BLACKBERRY SIZED MARKET

Just before the Elop Effect, at the end of Q4 of last year, Nokia's market share was 29%. Now, the latest quarter for which we have data, Q3 of 2011, Nokia's market share has crashed to 14%. Yes. In a very real sense, Nokia has voluntarily gifted away more than half of its market! How much is that in terms of smartphones? That is the equivalent now of 11.5 million smarpthones (46 million annually). That is almost exactly the size of RIM ie Blackberry! RIM sold in Q3 10.6 million smartphones, and last year in 2010 for the full year, RIM sold 48 million Blackberries. Think about that. Nokia's CEO has just in this year, amputated a Blackberry-sized hole out of Nokia's smartphones unit! The evidence is carnage everywhere.

Lets start with China, which has just overtaken the USA as the world's biggest smartphone market. Just a year ago Canalys reported Nokias's smartphone market share in China was 76%. What a brilliant long-term strategy by Nokia to embed itself into what was becoming the most important market, and building factories there and nurturing the carrier relationships. Nokia had even secured China Mobile's support as a partner in the MeeGo ecosystem. The Elop Effect wiped all that out. Nokia's market share was down to 22% in Q2 of this year according to Analysys and Morgan Stanley reported that only 18% of the Chinese smartphone owners want to buy a Nokia branded smartphone. Total utter complete collapse in the biggest market. Its so bad, that we hear news stories that Nokia flagship phone stores have started to sell phones by other manufacturers!

Lets go to the UK, a major European market where Nokia had a strong presense and a leading European major market by smartphone penetration rate. Nokia's market share in 2010 was 33% according to Kantar. Canalys just reported that the Q3 market share for Nokia in the UK was.. 2% !!!!! The same total collapse. The Nokia hype-machine, well-trained by Microsoft has been out trying to create a false impression - so extreme that Nokia Sales Director Niels Munksgaard was trying to convince journalists that theUK youth has grown tired of the iPhone and Samsung Galaxies. But again, the truth is brutal to Nokia. The first market survey by Gfk after Nokia's massive Lumia launch in the UK, found that right now, the UK's bestselling phone was not Nokia branded, it was still the iPhone. And at number 2? Samsung's Galaxy. Nokia did not even get its Lumia800 - even when giving away free Xbox360 gaming consoles to entice sales - did not get into the top 10 bestselling phones in the UK. And Europe-wide, research by BNP-Paribas found that in the countries where Lumia has launched, only 2% of smartphone buyers are even intending to go for the newest Nokia smartphone. Last year at this time the Nokia N8 was roaring to the top of all European sales charts. Now after the Elop Effect nobody wants a Nokia.

What of North America? Elop promised he'd work at a Nokia come-back in the USA. The most bizarre thing is, that Elop had actually received that, as a gift from the long efforts of Nokia sales in North America, who landed nothing less than AT&T to be the launch customer of the X7 Symbian phone, a deal announced in January. Who killed that idea? Stephen "North America is a critically important market" and an "area of emphasis for Nokia" Elop that is who (Elop quoted on September 9, 2010). At Q4 of last year Nokia's North America sales were 2.6 Million total handsets (mostly dumbphones, not smartphones). That has fallen to 0.7 Million total handsets by Q3 of 2011. Elop had the chance for AT&T to sell and subsidise the X7 and have a genuine comeback. Instead, he has obliterated Nokia sales in North America. No wonder Nokia North America sales President Mark Louison resigned in protest. What Moron Elop did however, was he replaced the most challenging Nokia sales position with a total mobile industry novice (but former Microsoft cronie) Chris Weber. I think we have seen enough of the carnage done to Nokia market share.

I do ask you, the reader, seriously - can you recall any global major brand, in any industry, that was leading its market - and lost half of it in only 8 months? This did not happen to Coca Cola with New Coke. This did not happen to Toyota when it had problems with faulty brakes. This did not happen to British Airways with the disasterous move to Terminal 5 at Heathrow. This did not happen to BP with the oil spill, nor to Exxon with the Exxon Valdez tanker disaster. This did not happen to Ford with the Pinto with its 'exploding gas tank' etc. Please do post here in the comments if you can find any example in any industry where a market-leading brand had destroyed half of its market in less than one year. But lets move on. Market share is only one way to calculate the Elop Effect.

DEMOLISHED AN ORACLE SIZED COMPANY

Then lets look at Revenues. The last full quarter before the Elop Effect was Q4 of 2010. That is our comparison point. Note that Nokia had seen 7% unit sales growth - yes growth - from the previous QUARTER - in smartphones. Yes. GROWTH with its 'so-called obsolete' Symbian S^3 based smartphones. And Nokia saw a 14% rise in Nokia smartphone ASPs (Average Sales Price) which had reversed Nokia's previous trend which was down by 7%. A major positive development at Nokia. And Nokia had increased revenues from the previous quarter, in its smartphone unit by 22%. And Nokia's profits had jumped 64% in just one quarter.

By any reasonable analyst, the trend would then follow into Q1 of this year with more growth on those metrics. Nokia had dramatic new phones coming such as the E7 flagship phone (essentially an N8 with the QWERTY slider, costing even more than the hot N8). And later the X7 still on Symbian, and then the new MeeGo based superphones, the N9 and N950, all coming for later in the Spring and Summer of 2011. Meanwhile in the Spring if you remember, Apple's iPhone 5 was delayed, HP's Palm based WebOS smarpthones faltered and Blackberry stumbled. In many areas Nokia would have faced less-than-severe competition. And for Samsung? At that point, Nokia was almost three times as big as Samsung in smartphones! The smartphone global industry grew by about 60% this year. Any reasonable analyst would look at Nokia's all-growth numbers in Q4 and would have projected some degree of continued growth into this year. Probably not as strong growth, but would project growth.

I am not going to do that. I will set the base comparison point as 'Status Quo'. Lets take the extreme pessimistic view, that all the growth Nokia had achieved in Q4 would suddenly stall and even with all the new hot phones, and the rivals stumbling, Nokia would only stay stable this year. And then lets replace Elop (or his mad Microsoft Strategy). If Nokia only held onto its Q4 sales from last year, in smartphones, it would currently be making 8.3B Euros (11.2B US dollars) per quarter in its handset unit (smartphones and dumbphones added together).

The reason I have to add Nokia featurephones is that the Ratner Effect side of the Elop Effect has also caused a catastrophic decline in Nokia dumbphone sale prices and thus total revenues. Nokia's featurephone average sales prices fell by more than a third in the past 8 months, and when coupled with a decline in unit sales of featurephones too, the total revenues of the dumbphones unit fell by almost 40%. So today, the combined smartphones and featurephones handset units produce revenues for Nokia of 5.1B Euros (6.9B US dollars) per quarter.

The direct damage of the Elop Effect to Nokia revenues has slashed 3.2B Euros (4.4B US dollars) per quarter or yes, on an annual basis - Elop has wiped out Nokia business worth 20.4B Euros (27.6B US dollars). I think nobody could possibly grasp that point without me repeating it. Elop has wiped out almost 28 BILLION dollars of Nokia revenues on an annual basis. Wiped out so, that they cannot be recovered with his mad Microsoft strategy either. They are gone, wiped out, destroyed. How can I put it into context that makes sense. 27.6 Billion dollars is so huge in global business, that alone would be a Global Fortune 500 sized giant corporation, at the rank of 349 !

Or lets put some names. Bigger than say Mazda Cars. Bigger than Philip Morris. Bigger than Time Warner. Bigger than Oracle. Bigger than 3M or L'Oreal or Rite Aid. Its almost the size of LM Ericsson the world's biggest telecoms infrastructure maker. Thats bigger than total sales of International Paper or Staples or McDonalds. Yes. The value of the Elop Effect is as big as McDonalds global sales. That is what he's destroyed. If you remember the 1970s TV series '6 Million Dollar Man' - Elop is not a 6 Million dollar man. He's not a 60 Million dollar man. He's not a 600 Million dollar man. He's not even a 6 Billion dollar man. Elop the Colossal Flop is the 27 Billion dollar man - and has single-handedly caused the biggest revenue-assassination to any corporation in a one year period - ever.

Every day that the Nokia Board now waits in firing Elop - costs Nokia another 75 MILLION dollars of abandoned revenues EVERY DAY. I mean, even the US Congress cannot destroy money at this rate haha. If we look at the biggest corporate collapses like Worldcom or Enron or Lehman - these were caused by genuine systematic mismanagement and actual fraud etc. I cannot recall any Global 500 sized company to make one single action (or two related communications within two days) by one person that so totally demolished so much business revenue.

Note, obviously this has real concrete business impacts. Elop came in firing 1,800 people. He's since been terminating thousands more in several orgies of layoffs. He's also been selling Nokia assets like the highly trained and rare smartphone software programmers related to Symbian. He's sold parts of Nokia's patent portfolio and closed one of Nokia's biggest handset factories (in Romania). He's tried to sell the NokiaSiemens Networks unit and is currently trying to sell one of Nokia's 'crown jewels' the highly profitable Vertu luxury handset unit. And we heard from Danske Bank that Nokia is expected to sell the smartphone unit to Microsoft early next year.

If Elop was replaced by a monkey. Literally a monkey from the zoo. Who was utterly and totally unable to enact ANY decisions for Nokia. If Nokia's CEO did absolutely no decisions from February 8 - Nokia would be 28 Billion dollars bigger as a company today. Elop is the biggest management failure of all time. But at its heart, business is not about market share or revenues. It is about profits.

OBLITERATED GOOGLE SIZE PROFITS

Yes. Profits. Again using not the realistic scenario of some growth for Nokia, but just the truly 'even a monkey could achieve it' level of status quo - no growth whatsoever when this industry grew by 60% this year, how did the Elop Effect impact Nokia profits. Funny you'd ask. Lets count the ways.

The profits like the revenues were damaged again on both the smartphone side and the dumbphone side. So we count the two units together to see the impact of the Elop Effect to total Nokia branded handsets. In Q4 of last year just before the Elop Effect, Nokia handsets were generating 2.0 Billion Euros (2.7B US dollars) of profits per quarter. The smartphone unit was plunged into deep losses by the Elop Effect but even the featurephones unit has seen profits dive by 60% Yes. And overall, the combined handsets unit saw profits crash by 87% in the first eight months from the Elop Effect.

But thats just math. Lets do the relevant number. On an annual basis today, if there was no Elop Effect, Nokia's handsets divisions would be making 8.0 Billion Euros (10.4 Billion US dollars) of profits. But now instead of that, Nokia only manages annual profits at the level of 1.8 Billion Euros (2.5 Billion US dollars). So the Nokia CEO has permanently ELIMINATED 6.1 Billion Euros (8.2 Billion US dollars) of PURE PROFIT per year. Even if his Microsoft Madness might somehow succeed, the revised starting point for Nokia is the current level - that abandoned profit is gone forever and cannot be recovered even if his Microsoft strategy pans out. Wow. 8.2 Billion dollars of profits. Money that belongs to Nokia shareholders. Voluntarily set on fire by Mr Burning Platforms Elop.

Oh my gosh. 8.2 Billion dollars would rank all by itself as the 45th biggest profits of any Global Fortune 500 sized corporation - just behind Google's profits! Yes. You read it right. Nokia's CEO has wrecked so much of Nokia's pure profit as Google made all last year. See how crazy this is. The company he took over was ranked 143rd on the Fortune Global 500 list by revenues, but only ranked 193rd by profits in the current July 2011 issue of Fortune which uses 2010 financial data. So Elop took charge of a company that was ranked 193rd in profits. Then he found a profit miracle in his in-box (called Nokia Symbian S^3 and the N8 smartphone) which was powering Nokia far up the charts of profits. If he had done nothing, Nokia would be about in the top 30 in profits. And was he happy to perform such a 'miracle' ? No. He rather DESTROYED so much of the profit, that the abandoned profits alone would rank 45th most profits earned by any company in the world last year. Or yes, profits as big as all of Cisco. Or just less than all profits earned by Google last year.

This is how Elop described his job on September 9, 2010, at the press conference where he was announced as the new CEO. Elop said job to be: "My job is to ensure that we are meeting the needs of our customers, while delivering superior financial results." How can this guy be allowed to run Nokia still? He is the biggest fool of any company ever, isn't he? He wiped out 8.2 Billion dollars of profits in only 8 months! He is destroying even more as we speak. He costs 22 MILLION dollars of PROFITS to Nokia every single day he is allowed to remain on the Nokia payroll, including Saturdays and Sundays. He costs Nokia shareholders almost a million dollars of pure profit every hour including when he's asleep! But even profits are really not the final measure of a CEO. It is shareholder value.

NOKIA SHARE PRICE AT ALARMING LEVELS

Yes. The previous Nokia CEO had seen the Nokia share price fall to half its value over a three year period - and was fired. He did not plunge Nokia into loss-making. Elop has achieved the same loss - from its peak on February 10, since then Nokia has lost more than half of its share value - but Elop didn't have to wait 3 years for that drop, he achieved it in ten months. And he did compound his damage by plunging Nokia Corporation from very healthy profits to loss-making. This is independent reason to fire the CEO immediately. He has lost the confidence of the market. He is no longer believed. He is seen as a Microsoft crony. He is not acting in Nokia's best interest. He has seen the value of Nokia cut in half in barely more than half a year.

Elop is utterly incompetent and must be fired for cause - and sued by shareholders and then investigated by both the New York Stock Exchange and the Helsinki Stock Exchange. He is not fit to run any publically traded company and must receive a lifetime ban of holding corporate office of any business on the stock exchanges. He is a disgrace to all of business management and must be exposed and held to account, so others learn not to try the Elop Effect.

If the Nokia Board is not firing Elop soon, the Nokia Boardmembers and Chairman will also have to be investigated for collusion or incompetence or neglect of fiduciary duty or all of the above.

Why do I say 'alarming level' for Nokia share price. The reason is that Wall Street analysts have already calculated in June that Nokia has passed the danger level, where the value of Nokia is more if broken apart and sold for its parts, than Nokia Corporation as a whole. So someone might buy all of Nokia today, and then sell off Navteq and NokiaSiemens Networks and Vertu and the Ovi Store and the dumbphones unit etc.. And end up making a profit by splitting this sick company apart. That is what was the fictional character Gordon Gekko played by Michael Douglas in the movie Wall Street and its sequel. Or from real life, that is part of what Mitt Romney did in his previous life at Bain Capital. Find bloated poorly-run companies, buy them, split them up, sell the parts for a profit. Nokia has entered that danger-level. It is a sure sign that the CEO has passed the point of recovery. He is now a danger to the very survival of Nokia the corporation as we know it.

And its not idle gossip anymore. There have been several press reports in the summer and autumn that buyers are sniffing around about Nokia, including Sony, Samsung, Google and Microsoft. Google obviously then decided to buy Motorola instead. And we're again hearing now from Danske Bank that there are fresh rumors of Microsoft buying part of Nokia, while Nokia has admitted it has tried to sell NSN and is actively now attempting to sell the Vertu unit. This is a sick puppy. Unfortunately, it was poisoned by its CEO.

But perhaps there can be a rainbow at the end of this storm? Elop wrote in his Burning Platforms memo about how vital it was for Nokia to have a good outlook in the eyes of investors and especially ratings agencies. He wrote this on 9 February: "Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness."

Well, how did that go for Elop? Nokia held an A rating before the Elop Effect. Nokia was known for very solid and 'Finnish' reliable and profitable management. In fact, since it entered the US Stock Market, Nokia had not seen a ratings cut. Since the Elop Effect Moody's and Standard & Poor's both downgraded Nokia in April. And downgraded Nokia again in July - Moody's a full two points that time. And both downgraded Nokia yet again in August. Both ratings agencies have Nokia's outlook as negative still today. This is catastrophic! The man is a menace. He has to be fired so that Nokia can be rescued. Three separate ratings downgrades? How can he remain in office still today? No matter how beautifully he can spin stories and sell is poison as the ultimate Microsoft-trained con-man, the facts speak for themselves. He's a fraud. He's a fool. Yes, perhaps, he is a silver-tongued fool. But he's a fool nonetheless. He's the Microsoft Muppet.

AND BRAND IS BURNED

So one more measure. Nokia has been consistently in the top 10 most valuable brands on the planet ever since the Interbrand global brand rankings were published a decade ago. Nokia was ranked 8th most valuable brand in 2010. The new results came out in October and the Elop Effect did severe damage here too. Nokia fell out of the Top 10 for the first time ever, and the biggest drop it had ever seen, falling to 14th. The calculated monetary loss of that drop was 15% !

The total value of the most used brand on the planet - the only brand that has ever reached 25% of the total human population - yes a Nokia handset is more widely spread today than Levis jeans or Nike sneakers or Toyota cars or Microsoft Windows PCs or Marlboro cigarettes or Coca Cola has ever achieved in their best years. Even the 'Nokia tune' has become the most recognized piece of music that is known in literally every country. This iconic global brand, built over three decades of steady reliable work, has seen the brand devalued by 15% in a matter of months because of the Elop Effect.

THE ELOP WAY TO DOUBLE DOWN

There is a betting term in Blackjack which is called 'double down'. It is when the person gambling will double his bet on the same hand. I have explained to you what is the Elop Effect and I have calculated in this update blog what is the value of the damage he has done so far. You would think, that an intelligent person would learn from his or her mistake(s). Elop doesn't. He prefers to repeat his mistakes. There is a SECOND Elop Effect already by yes, done by the master himself, Stephen Elop the CEO of Nokia.

MeeGo. The Nokia N9 and N950. We have now seen that the N9 is a fantastic superphone, a genuine iPhone-killer candidate. The only Nokia phone ever that has been considered (by many tech analysts in many countries) better than the iPhone by its user interface - what is usually Apple's strongest suit and was Nokia's weakest. MeeGo was not still-born as Elop claimed in some very self-serving article in Business Week or some such periodical early in the year. MeeGo has received enormous praise the world over as a revolutionary and incredibly user-friendly touch-screen smartphone OS. The N950 is the QWERTY variant to the N9.

Elop repeatedly delayed the MeeGo launches and its handsets including killing the first MeeGo phone, with the internal designation of N9-00 (this is different from the N9 that we now know). The N9-00 was ready to launch for February and would have been ready to sell in April or May. So today we'd have three MeeGo devices if Elop was any normal and reasonably intelligent CEO. A whole slew of consecutive heads of the MeeGo project have resigned in protest against Elop's actions, as well as the Nokia CTO.

So the Elop Effect? On June 21 Nokia announced the N9 and showed the prototype to the world and started its launch efforts. The tech world was so amazed and astonished, that the N9 became the most talked-about and most-desired new Nokia phone ever announced. It was the first time Nokia had a global 'must have' phone that would have become a hit phone. So rare is a hit phone in the world, that Nokia has never actually had one. Motorola had one hit phone - the Razr, which propelled Motorola up 14% of market share over two years until others started to catch up. Apple had a hit phone with the original iPhone in 2007 which for two years seemed to have no close rivals (until the Samsung Galaxy came along) and propelled Apple up 16% in the smartphone market. Did you notice that since 2009 Apple has only managed to pick up 2% more in its market share haha. A hit phone is very rare in mobile. Obviously the Lumia800 and Lumia710 are very far from hit products.

But the N9 had the biggest warmest and most excited reception of any Nokia new phone announcement ever. Ever! Both the N9 smartphone handset and its MeeGo operating system. And all reports from those countries that have been lucky to get the rare handset, have reported that the N9 is indeed a superior smartphone (while obviously lacks apps because the whole Ovi/Qt/Symbian/MeeGo/S40 ecosystem had already been destroyed by Elop).

If you are a competent manager of a company that is struggling to generate a profit - and you find your company has produced a highly desirable device at the top end of the price range and a global demand for it - you release that phone everywhere. So. Elop Effect number 2? He sabotages the N9 and MeeGo. First, lets take Osborne Effect part of Elop Effect. Immediately after the the N9 was shown to the public, Elop gives Finland's biggest newspaper, Helsingin Sanomat, an interview where he states very clearly, that no matter how how good the sales of the N9 might be, there will be no further MeeGo based smartphones from Nokia. What? Is this man soft in the brain?

But yes, then the Ratner Effect part of the Elop Effect. He won't let the N9 be sold in any of Nokia's big markets for smartphones except China (that because China Mobile, the MeeGo partner, insisted). So in Europe, the biggest markets for Nokia like France, Germany, Italy, Spain, the Netherlands and the UK have all been craving to get the N9. The CEO refuses to give it to them, forcing them to take the inferior Lumia800 instead. Same for the big Asian markets like India and here in Hong Kong. Even the USA doesn't get the N9. Only very small markets by population (like New Zealand, Singapore and Norway) get the N9 or else larger countries that have small smartphone sales due to low income levels (like Kazakhstan and Nigeria).

It is extremely rare to have even the potential for a genuine global hit phone in this industry. Elop was gifted that in the N9. The N8 last year, without this level of interest had achieved 4 million sales in Q4 alone. If Elop had any inkling to do what is in Nokia's best interest (rather than what is in Microsoft's best interest) he'd immediately launch the N9 everywhere!

Even if it only did the same level of sales as the N8, that would bring 1.8 Billion dollars of bonus revenues to Nokia and get this - even if the profit margin was only that of the N8 - instead of the Nokia smartphone unit today reporting a loss of 130 million Euros - it would report a PROFIT of 310 million Euros! Just one MeeGo device, the N9, selling only what the N8 did last year this time when the global market was far smaller than today and only at the same level of revenues (the N9 is more expensive actually) and the same level of profits (because of high demand, Nokia could ask for a higher price still and boost the profitability even more) - Nokia would now make 548 million Euros (740 million US dollars) of more profits per quarter - ie 2.9 Billion dollars of pure profits. Pure profits that Elop prefers to not give Nokia shareholders, to protect his own ego. Elop doesn't want the world to see he made a mistake about MeeGo and the N9. So what does Elop's ego cost Nokia shareholders? A cool 2.9 Billion dollars - at a minimum. No wonder Stephen Elop has such a high impression of himself. His ego costs 2.9 Billion dollars.

In reality, the damage is far worse. Nokia has four - count them four - actual handsets today it can manufacture and sell today - that can run MeeGo. The N9 has its sister product, the N950, a QWERTY variant (even more expensive and profitable). While Nokia factories actually are producing this phone as we speak, it is not sold anywhere. Nokia is keeping the run very limited and only giving away a few of the handsets for some developers. So Elop gets all the costs of actually producing a complete new handset model, but none of the benefits of selling it. What a moron.

And there is the previously-killed N9-00. No matter how 'inferior' that smartphone might have been by Elop's evaluation - remember, this is the man who thought the Lumia800 would set the world on fire and thinks the N9 is not worth selling globally - so I don't put much weight in his own opinion. I do however, trust long-term Nokia execs including all who were involved with the early MeeGo project who all wanted to launch and sell the N9-00, from Anssi Vanjoki on down. That phone should be sold. It was ready to go in February! And as a gimmick, the older Maemo-based handset the N900 can also run MeeGo. So while its hardware is older, its camera smaller etc, that could be sold as the 'entry-level' model into the MeeGo line, like the older Apple iPhone 3GS is the cheapest model in Apple's iPhone range.

Any clown with half a brain, would look at the global hatered of Nokia brand today, and the global carrier boycott and the dismal consumer response to the current Lumia phones, and then see the massive appeal for the N9 and MeeGo - and release the N9 everywhere. And then that same half-wit would understand to rush into mass production the N950, the N9-00 and the N900, all with MeeGo. And if the CEO bothered to give this phone serious marketing support and attention - Nokia would face a true hit phone (line of phones) and if the Razr could resurrect Motorola and the iPhone could propel Apple to become (albeit briefly) the worlds' biggest smartphone maker - only a total idiot would refuse to sell the N9 and its siblings in every Nokia outlet.. NOW !

If the MeeGo unit was separated from Nokia and these four smartphones were all released, the minimum revenues that MeeGo/Nokia smartphone company would earn per year would be 14.1 Billion US dollars and that company would report annual profits of 5.9 Billion dollars. That MeeGo-powered superphone company would not be quite in the Fortune Global 500 yet, but would be more than 3/4 of the way into it. And by profits? This company would be ranked the 20th most profitable company on the planet!

Anyone out there? Hire Anssi Vanjoki and let him run that company for you, and watch the dollars stream in. How can Stephen Elop refuse to sell the N9 and the other three MeeGo phones in most major markets? This is the pinnacle of pigheadness. Elop is the epitome of corporate incompetence. He actively takes decisions that go against the best interests of Nokia where they serve the interests of Microsoft, like a Microsoft mole at Nokia HQ. He is the Microsoft Muppet and must be fired. Today!

SOME LAST THOUGHTS

I have to stop here because I am growing ever more despondent re-writing and re-reading and redrafting this blog article. I love Nokia and Elop is destroying it.

But any journalists out there? Here is your Pulitzer prize, isn't it? The evidence is overwhelming, Elop is currently on a killing spree destroying the company that was the 8th most valuable brand on the planet. He has already set the world record for the biggest destruction of market share, and has also caused probably the biggest fall in revenues and profits ever witnessed in any 8 month period. And he is not done. He is still costing the Nokia shareholders one million dollars of pure profit lost ever hour he is allowed to continue as Nokia CEO, Saturdays and Sundays included, and including the time he spends sleeping. He is the ultimate symbol of corporate failure. The evidence is overwhelming. Please, some 'real' journalist, take this idea and do research into this area and write your story (likely it will become a series stories) about the management lunacy that is Stephen Elop. (and if you do, please also do mention the Elop Effect somewhere, ok?)

So all of my friends over at the Financial Times, and Wall Street Journal, and the Economist, and Business Week, and Forbes, and Fortune, and the Guardian, and the Times, and the San Francisco Chronicle, and the New York Times and the Washington Post and the Seattle Times and Kauppalehti and Taloussanomat and Helsingin Sanomat and Wirtschaftswoche and Finanstidningen and Nikkei and Le Monde and CNN and CNBC and the BBC and Bloomberg and Euronews and France24 and Channel News Asia and YLE and on and on and on. Please, my journalist friends - this has to be at least the story of the year for 2012, it probably is the business story of the decade, perhaps even the business story of the century. Please research it and write it and go interview Elop for all his management madness and get his quotes on the issues so we get a record of what all he is saying, etc. I am tired telling this sad story and I am always deeply demoralized when I find myself having to write another chapter into this sorry saga. Its time some professionals start to cover the full fiasco as well, isn't it?

And you random visitors and readers of this blog? Please do contribute a comment here with me, especially, please tell me what other companies, CEO's come close to something as stupid - and specifically - as costly. I am pretty sure this is a world record in the level of corporate destruction by the CEO.

Comments

[darwinphish]

Tomi:

Please do not take this a defense of Elop, but there is a serious problem with your analysis. This and other posts you have made on Elop assume his actions and decisions are the only or prime reason for Nokia's decline. There is certainly a strong connection between Elop and the Nokia's recent troubles, but not everything is attributable to him.

In the 3 years preceding Elop's hiring, Nokia stock dropped about 80%. This suggests the market was already significantly discounting Nokia's future. That is, the market anticipated Nokia losing market share and profits even before Elop was hired. During his reign, the stock has dropped another 50%, but the real damage was done before he showed up.

It is not entirely Elop's fault that much of Nokia's collapse has occurred under his watch. Yes, Elop has made horrible mistakes and his performance has been bad. I even think its more than fair to say he has accelerated Nokia's decline. But when he arrived, neither Nokia's position nor its future where as strong as you imply.

I say all of this because I think you lose a little creditability (or appearance of objectivity) with what is ultimately hyperbole. Again, I agree Elop has done a very bad job. But focusing almost exclusively on Elop and his actions creates a very incomplete analysis of Nokia and its collapse.

By the way, there have been many collapses like this before, especially in the tech and consumer electronics industries. Yes, Nokia was very big and is crashing very fast. However, I think the speed of their decline is as much a reflection of how quickly markets move these days and the nature of the mobile industry, perhaps more so than the failings of one CEO.

[Tomi T Ahonen]

darwinphish

I hear you. First, so you know, I have a policy here on my blog, that if my response requires me to write 'as I wrote on the blog' ie if the person leaving the comment didn't read my full article, those comments are removed. I decided to maek an exception in your case because you did take a moderate view on your point so you're a kind of borderline case in my book.

I very clearly wrote early in the blog at part about Burning Memo "I agreed then and agree still now, that Nokia had then (and still has now) severe problems that the top management has to deal with" - so for you to say that I somehow am living in an alternate world, where Nokia had no problems and Nokia's troubles started with Elop - is patently not true. But now I have to waste my time - and the time of my readers - repeating what I said because you were too lazy to read the actual article I wrote. Next time you do that, your comment will be deleted without mercy. This serves no value in debate.

Onto your other points. So yes, Nokia lost value in its share price prior to Elop arriving. That also cost the previous CEO his job. What Elop HAD to do is stablize and turn to growth the price of Nokia shares - as he did. In his first 5 months, the Nokia share price turned to growth - growing 11%.

It was explicitly February 11, the Microsoft announcement date, when the growth trend of Nokia's share price broke and turned into a severe dive. The only modest recovery came after even worse news for long-term Nokia viablity - that Nokia had become a take-over target in July (the trend has returned to its decline since).

There are many things wrong with Nokia, and many things that Elop has done wrong besides this blog article. This article is about the Elop Effect. I argue it is the costliest managmenet error ever and I argue no market-leading global company has ever lost half of its market in one year, under any circumstances, in any age, in any industry including this 'fast-moving' high tech. You claim there are others. I give you the benefit of the doubt - please list at least one such company. Else we must continue with the premise that Elop is currently establishing a world record for destruction of a global market leader - and in my book, such an action is fully cause for being fired.

Thank you for writing, come back..

Tomi Ahonen :-)

[don_afrim]

Nokia is done. Elop has succeeded or failed depending on his intentions. And Microsoft can't' even profit from this, cuz Nokia will be dissolved. Even if MS buys Nokia's smartphones, they won't succeed and probably will bring MS down the rabbit hole as well.

Right now if Nokia would fire Elop and I mean like immediately, hold an announcement tomorrow morning that Nokia will bring back MeeGo as their future platform releasing all MeeGo handsets as soon as possible and making the N9 and N950 globally available I think Nokia has still a chance of turning this sinking ship around.

Otherwise, nice knowing you Nokia.

[AtTheBottomOfTheHilton]

I don't understand why Tomi claims that Stephen Elop is incompetent. So far he has succeeded with his mission, very well I would say. What is his mission? Destroy a competitor of course. Microsoft has always had problems with getting into the mobile market. Just look at previous attempts with Windows Mobile and Zune, which didn't attract many people.

So what do you do? Well obviously the desirability for Microsoft mobile products is still very low but you can still be a contender if you beat your opponents to death. Create a monopoly sort of speak, even if they will never reach it, they might reach an oligopoly situation which far better than being the loser on the block among many other contenders.

I could be wrong but from what I've understood, there was already some MS ownership in Nokia. Nokia was weak and an easy prey. They strengthen their shareholdings in Nokia and force Stephen Elop as CEO and they cannot get rid of him because of MS shares in Nokia. They quickly kill anything that could compete with Microsoft, force Windows Phone 7 to be their main OS. How obvious could it be really?

From my point of view, this is a textbook assault, very classic and this is not the first time. This has been done to many other companies before. However, why does this particular case stand out? I will name a few.

It's obvious that Stephen Elop constantly lie to consumers and the press about his ambitions. He doesn't care about Nokia, he's there to save Microsoft.

Nokia was a good company with many great products. I think they had a temporary dip and given some time they would have rehashed both Symbian and Meego. They would have to downsize in order because of increasing competetion from cheap Androids but their would still be Nokia.

Nokia constitutes about 25% of the Finnish BNP. Since much of the development is now moved to the US, the question is what are the Finns going to do?

The big bully stigma. I think this is what makes people angry. Microsoft, the producer of less desirable phones, kill their competitors by buying up shares to destroy them. Consumers want competition and that companies should compete with products. What's the next step? Ballmer holding a gun to our heads until we buy their products? I liked Nokia phones and I don't want to be forced any MS product.

In short it's nothing odd about this, a regular buy up shares and destroy mission. Nokia is over. What do we learn? I'd say that we should have stricter legislation preventing these kinds of manoeuvres in the future.

[Flavio Noschese]

Hi Tomy,
This isn't about that specific December,21 writing, but I couldn't find your E-mail.
I read your blog since a long time ago, and like very much the way you put things.
But a few days ago, I was thinking about something that you never discussed in your blog.
I think that there is one more reason to the Symbian failure.
Let’s see: Nokia tried to copy IPHONE.
It was a new paradigm of interface and there isn’t other way to proceed. Everybody did it.
You know, I really think that “Symbian Belle” in the Nokia device is OK. Not a disaster!
But the huge mistake done by Nokia was to try copy ITUNES !!!!
Very ambitious and Nokia was not capable for sure !
Android didn’t and today is in a very good shape!
That was the “technical disaster” from Nokia!!! (We know that the hardware is fantastic)
The Pc software’s from Nokia are a great trap.
I think what made Nokia Symbian’s Phones almost unusable as smartphones is: OVi, PC Suite, Music Player, Map loader, software updater, etc, etc.
All of them are unfunctional !!!!
They often severely damage Windows (worst sin)!
Crash all the time and fight against each other.
So buggy! So cranky!
Have you ever try to put a single music in a playlist with OVI?
Have you ever try to find your music files in your PC, after the Nokia Music Player job mess?
Duplicate files? Wait! There will be more!
Very simple jobs that “NOKIATUNES” (OVI, Nokia Music Player,etc) never done well.
Well, I think that those softwares built the undeserved Symbian’s bad name.
The PC interface was the most severe problem and Nokia didn’t understand it.
After a single Windows disaster (so common in OVI’s world), 90% of the people will not use anymore those softwares (and the phone as a smartphone).
And then, Elop abandoned the plataform. (A drunk one but not in fire)

Regards,

Flávio Noschese

[Will Morley]

A fascinating article and compelling reading, with some inspired illustrations - e.g. the 'Google-sized' hole in Nokia's profits.

However, regarding the killing off of the N9 and MeeGo - have you considered that Elop was in fact avoiding yet another 'Elop effect', this time on Nokia's WP handsets (in which Nokia has vested its long term interests)?

Powering on with selling the N9 and MeeGo in the biggest markets would have significantly eroded the strength of Windows Phone as Nokia's flagship product. The CEO would have effectively been communicating that he had such little confidence in WP that he needed to run a similar offering alongside it. Moreover, it would have created a confusing brand message for consumers, further eroding the 'brand equity' you discuss later on. Surely this would have been an indirect Ratner effect (implying the main product is crap) and a very short-termist solution to profits?

Elop has made dubious decisions - most of which we are yet to see the full outcome of - but he must stick to his guns and show full confidence in WP to secure Nokia's long term future.

Will

[JS]

Playing armchair quarterback is always easier than being in the game, right?
ELOP Effect, 100% correct and unfortunatley cost Nokian's 20% in market share and untold profits.
Yet moving forward what would you do to seccure the future? iOS apps & cloud services along with Androids army of apps & same services... Jorma was caught flat footed, no? And that begs the question, who's head are you calling for? Come on, Jorma has been running this ship since the early 90's, he brought Elop in and has overseeen it all. Having worked for KP in the States for a decade and seeing how we dominated the wireless world with great products and execution makes me sick to watch what is happening. Yet, Elop was hired by Jorma and the board. I would throw some attention on how they thought through the transition to the windows/phone strategy from Symbian/Meego

[Tomi T Ahonen]

I removed a few longer comments with good points that went into that Symbian nonsense. They were veteran visitors to this blog and know better. I CLEARLY said at the top of this blog that I was VERY clear that my view has been long before Elop appeared that Symbian has no long-term future and will be replaced. If you waste your effort trying to bait me to argue Symbian then in the comments, your effort utterly wasted. You know better. Stick to the topic - Elop Effect. You made good points that are now deleted. Perhaps you should post with more relevance again? I wont tolerate abuse of this space and waste of the time of those who come here often to debate.

Feel free to repost but staying on topic and NOT getting into stuff I have already conceded in the original posting.

Tomi Ahonen :-)

[darwinphish]

Tomi:

Thanks for responding and not deleting my post. I did read the entire blog entry as well as every one of your other blog posts on what is happening with Nokia over the past 10 months or so.

You have devoted 10's of thousands of words on this subject, the vast, vast majority of which were about Elop. I know you know there have been and continue to be non-Elop related problems at Nokia. My point is simply that you have focused far too much on Elop's actions. By focusing so much on Elop I believe you actually detract form your overall message. I have a great deal of respect for your work and analysis, but you lose me a bit when you suggest, for example, Nokia would be better off with a monkey instead of Elop.

As for other examples of catastrophic corporate/brand collapses, there are lots of examples. To name a random few: Commodore (out sold Apple 3-1 and dominated the home PC market for 7+ years), Atari (once the fastest growing US company of all-time), Word Perfect, Palm, Motorola, soon RIM and perhaps even Microsoft one day. Companies that do not adapt as markets shift fail, often very quickly. What makes Nokia's collapse so spectacular, as you have said, is their size and reach at their peak. However, I would argue 1: size doesn't matter (unless you are a bank) and 2: when you are fighting in a market that grows as fast as this one, a collapse can happen very quickly.

One last note. The Osborne Effect tale does not really tell the whole story about what happened with Osborne. It was not just that they announced a new, better model before it was ready. Their big mistake was they kept buying parts to build a product that was not selling. As a result, they quickly ran out of money. If they had the resources to make it until the new product was ready, Osborne may have survived (or at the very least, been judged differently). I am willing to bet that when Elop issued the "burning platform" memo and announced the move to Windows Phone he believed Nokia had the resources to make it through to their next product cycle (which , it turns out, they did).

[karlim]

Tomi,this comment may not be about Elop Effect per se, but I think it's about the key reason for most of the heated arguments we have here in comments.

I have a feeling that we have two camps here, shouting at each other in post after post after post, not listening to each other and not addressing the main difference.

Here's how differently our camps look at things:
____________________________________________________
We - of the "Nokia was sinking already, so WP strategy was the best Elop could do" camp:

We see all that happened to Nokia through Clayton Christensen's "disruptive innovation" theory prism.

In fact, despite the same name, we do not even see smartphones before 2007 - phone centric devices with computing capabilities tacked on top - as the same category device as what we call smartphones today - true mobile computing devices, with phone/voice (and SMS)as one more app among many.

And, no, despite Nokia inventing the term "mobile computer" and using it to describe its smartphones years ago, they never were true computing devices. Even N8 suffered from phone centric paradigm - and the only devices Nokia built on new mobile computing paradigm were N900 and N9.

Looking from disruptive innovation POV - everything that happened to Nokia in 2010 and 2011 looks logical. During the period of the disruptive change - incumbents are always slow to react. And, right until almost the end - the numbers they watch and care mostly about - usually look pretty good. Until the tipping point when the game/market expectations change, most of the incumbents go into a rapid, very often terminal decline, and disruptive challengers take over.

In periods of sustaining innovation - incumbents live and thrive by their numbers. In periods of disruptive change - they die by the same numbers, because those numbers stop to matter.

For Nokia the tipping point was 2010, when Android growth exploded and it started rapidly moving down market to the price points held by Symbian devices. The number of phone centric smart handsets on Symbian^1 or even Symbian^3 (e.g.N8) Nokia shipped, mattered as much as the number of feature phones Nokia shipped. Very little. The market moved on - to true mobile computers and Nokia had none. N9 was too little too late, and Elop, with full support of Nokia board, decided that their only option was to move to third party OS for variety of reasons.

The Elop Effect, if there ever was one, had much lesser impact then you insist, and a very big part of Nokia troubles this year can be explained through disruptive displacement by Android devices.
____________________________

You, and others in "Incompetent Microsoft Muppet Elop" camp:

You seem to completely ignore disruptive innovation angle/possibility. In fact, I don't think I ever saw you discussing disruptive innovation angle in your blogs.

Do you think disruptive innovation theory can not or should not be applied to describe what happened in smartphone market over the last 5 years?

I know you said that iPhone changed everything when it came out. But you seem to apply it more to the simple things like user interface, touch screens, etc; And not meaning that the whole way mobile device business works, changed.

All that is happening in smartphone market since its inception in early 2000's is a process of natural evolution/change. While Nokia had some problems, they could have solved them if only they stuck to business as usual and improved execution. Focusing on better texting phones, expanding its model range even more,improving marketing,etc;

Instead - Elop decided kill most of the things Nokia was strong in. Then made things even worse by disastrous "Burning platforms" memo, and Feb. 11th announcement. At the time when Nokia was already turning things around with N8 and N9. The rest, as they say, is history.
______________________

Now that I've put my thoughts into text - I am not sure there is a way to reconsile the differences between our two camps. Even if the ultimate outcome turns out to be as one of our camps predicted. Short of a lot of internal Nokia communication and numbers getting out into the public domain.

If some investigation or (wiki)leak reveals some e-mails were Elop is discussing with Ballmer the ways to take Nokia down for the best interest of Microsoft - it's clear your camp is right. If Nokia internal sales numbers and projections for Q4 2010 and Q1 2011 come out, showing terrible N8 end user sales numbers and piled up inventories; and we get to see some internal memo by Alberto Torres describing the terrible state N9 and Nokia Meego roadmap was in, in December 2010 - well, it will be hard to argue that we were wrong.

But short of that - I don't know.

If Nokia goes belly up, or is bought and divvied into pieces - we will continue to insist that it would have happened anyway, and it was mostly OPK's fault.

If Windows Phone strategy succeeds, and then Meltemi and the "Next Billion" part of the Nokia strategy works out - your camp will insist that it could have been much better and easier without Feb.11th. And that Meltemi success proves that Nokia could have done it all the same and even more with Meego, instead of Windows Phone.

[Tomi T Ahonen]

Ok now responses

Hi don, At, Flavio

don - first - I agree Nokia can be reasonably well recovered and restored if Elop is fired immediately and the WP strategy abandoned in favor of MeeGo. I am contemplating a blog and analysis of that scenario option but honestly, I have a ton of 'more important' blogs I need to write about non-Nokia stuff haha. And some more urgent Nokia blogs too still to come.

About Nokia done otherwise, not really. I think Nokia's major role as smartphone and innovation leader will be gone if Nokia doesn't have the presence and scale (and profit margin) but it will continue in low-cost dumbphones for a long time, even as with current trends Samsung will pass Nokia and become biggest handset maker in 2012.

The most likely scenario is a bidding war and Nokia split by whoever ends up buying it. I do have an inkling that one of the rivals to step up might be Intel, they have definitely raised their interests in mobile on a regular basis and could be one of the finalists in that race (obviously Microsoft will be fighting hard not to lose Nokia).

At - you make a good point that from Microsoft's point of view, this is well executed capture, about 70% or 80% completed as we speak. Only a spoiler rival hostile bid could spoil this party. But if so - and I think in any case if Nokia was ever sold to Microsoft - there would be a colossal case of 'an appearance of conflict of interest' in how Elop has acted. His every action can be seen as in the best interest of Microsoft and often against the best interests of Nokia. If he was found to be acting against his fiduciary duty it would not only jeopardize the take-over (both US and EU courts and New York and Helsinki stock markets) but also the principals involved would face investigations and even lawsuits and possible bans from holding public office. For Ballmer, Elop is a pawn he can afford to lose. But for Jorma Ollila and Steve Ballmer - I cannot imagine them being so stupid to have let this happen and place themselves in jeopardy.

But anyway, you make an excellent point - from Microsoft's view this is all gravy. They were out of the mobile races. After a decade, their peak market share for Windows Mobile was 12%. Their current Windows Phone markets share (Q3) is under 1 percent and falling. Ballmer already decapitated his President of Windows Phone so he is livid and knows WP is dead without Nokia.

When Elop and Ballmer made their first calculations of how to sell Microsoft to Nokia last summer (informally, before the official bidding started) they were counting the prize to be 35% Symbian market share plus 5% Windows Mobile + Windows Phone market share and looked at Blackberry and iPhone and Android and thought they would be gaining the number 1 position. That is how the calculations were made and why Ballmer was able to 'overpay' for Nokia.

By the time the deal was consumated in late January, Nokia's market share was 29%, Symbian about 34% and both Windows OS market shares were down to about 3%. They still could hope to see 37% out of the partnership.

Today the Symbian market share no longer matters because NTT DoCoMo was so infuriated by being screwed by Nokia, they went Android. So no gain from the last bits to WP. So they only have Nokia 14% and Microsoft both OSs combined at 1% to aim for. That is 15%. This is only a third from what they hoped for a year ago. But - it is FAR better than what Microsoft ever achieved alone.

And then my projection. I expect Nokia to be down to a bottom of 6% next summer, recovering to 8% by the end of the year 2012. Even at that level - Nokia and Microsoft would be 8 times better performance than what Microsoft has managed alone without Nokia. So no matter how you spin it, the Nokia way for Microsoft is better than without it.

Tomi Ahonen :-)

[Tomi T Ahonen]

Ok now responses

Hi Flavio, Will and JS

Flavio - yes, I really do agree with your point. I have written before on some Nokia and iPhone type of topics that Nokia has made big mistakes trying 'to become' Apple or copying the iPhone etc. Nokia should - yes SHOULD - learn from Apple but Nokia is totally different from Apple and serves different customer segments, and lives in totally different scale. Its the classic Porsche vs Toyota comparison. Porsche cannot become a Toyota global rival any less than Toyota can become a valid Porsche rival. Both can make individual cars to compete against one another but only in very few overlapping areas. Same with Nokia and Apple.

Will - yes, that makes some sense but note first, that MeeGo was designed to be a top-end smartphone OS, specifically for Nokia to migrate its top-line N-Series (that traditionally have had phones far more capable than say the iPhone) like the successors to iconic Nokia flagship phones of the past like the N93, N95, the N900 and now the N9 (and N950). Also the E90 Communicator. Phones far far more advanced than ANY other phones on the planet. WP7 was not designed for that. Microsoft has spoken in public that WP7 is intended to be mid-priced smartphones to help push prices near the 100 dollar level for smartphones. So of the two, clearly MeeGo is the flagship OS, not WP. And we can see it from the very basic functionalities like WP doesn't support two cameras, doesn't support NFC, doesn't have full multitasking etc etc etc. MeeGo does of course (as does Symbian).

Now, about Elop sticking to his guns. Yes, I see that Elop believes that, because he likely does believe that WP is a winning strategy - or has a chance to win for him - and even if he did not believe that, he is so arrogant and so 'confident' and said in public that the leader's perception is part of leadership, he has to convince people so they can believe - he will never quit the WP strategy. That is why I say he has to be fired.

But for the strategy. I have become convinced that WP is no longer viable as a strategy. I have mentioned many problems in it here on the blog and on Twitter but haven't explained it fully so you don't really know why I have become convinced but I do honestly think so. The WP strategy with Nokia as an 'independent' company whether led by Elop or anyone else - will fail. And Nokia will abandon WP sooner or later and switch to MeeGo or Android, the only choices left. (where Tizen is a variation of MeeGo). But if Microsoft bought Nokia or even bought only the smartphone unit - even then the WP story is doomed. The carriers HATE Microsoft, globally. Everywhere with the massive Microsoft dollars the launch is a dud. The performance of WP will never reach the peaks that Windows Mobile achieved (12%). Will not. And if Nokia is taken over by Microsoft, then what remains of carrier 'trust' of the untrustworthy Elop and the suddenly 'we cannot trust their promises' Nokia - will evaporate. Micrsoft with an 'independent' Nokia will sell more WP phones than Microsoft that controls formally Nokia. Thats my personal view, I have not yet explained all of it, but do come back to the blog, I will be getting those thoughts out sometime in the next weeks. This strategy was plausible if unlikely, when announced in February. It is untenable today. It was killed when Microsoft bought Skype.

JS - haha, 'playing armchair quarterback' sure. But honestly - go back and read my February blog about how to fix Nokia (and the related posting about Nokia smartphone OS strategy). Then see a) how much of what I said Nokia has been doing. And see b) what of the parts I said, Nokia 'really' should have done. And keep in mind, that Elop himself is now admitting, Nokia's problem is not innovation or ecosystems - it is execution. And see how much I talk about explicit exectution issues in those two blogs. And haha, think how much more damage Elop has added to the execution of Nokia this year.

Of 'how to move forward' - I DID write how to fix the mess in the summer. To recover from the dead-end path that became out of the Microsoft strategy. I even calculated how much Nokia could recover with that strategy. Every week that Nokia waits in firing Elop, the level that can be recovered will diminish, obviously - but the Microsoft strategy will never pan out for Nokia. It is now a lost cause. The sooner it is abandoned, the more of what we used to know as Nokia can still be salvaged.

Thank you all for writing, come back with more!

Tomi Ahonen :-)

[@rodrigottr]

@Karlim

I believe is tottaly fair to argue from the POV of disruptive innovations theory but I believe it is deffinetly not the case here.

Elop Effect, which is deffined by the worst self endorsment plus worst way of introducing a new product, is an event of completely independend relation with disruptive innovation.

Ok, the market analists are togheter saying your products are obsolete (from the SW point of view because all them togheter also sair the HW was better so it can't be completely obsolete) but there is no reason for the CEO to state the same publicaly if there still people buying your products and you have not a new product for substituting it.

Elop effect is about self inflicted damage made by poor communication in a organization.

Even if you argue that the damage isn't as big as Tomi is stating, it is undeniable that there was a self inflicted damage.

Steve Jobs never came publicaly saying:

"hey people! spot buying the iPhone 3GS because this is obsolete crap! Buy this brand new beautifull iPhone 4!"

And thus, the iPhone 3GS still sells in the same time the iPhone 4S...

What Elop did was like "hey people! stop buying symbian because this is crap! Wait 10 months and buy a wonderfull windows phone!"

Thats what people did. The stoped buying imediately.

Tomi's attempt to calculate the size of the Elop effect is an attempt to show that, besides MeeGo x Windows discussion, besides Apple x Microsoft discussion, besides USA x Finland discussion there is an undeniable fact that Elop did something stupid that costed Nokia billions.

And because of that, he desarves to be fired.

[@rodrigottr]

@Tomi

I have questions for you, Tomi.

1 - Is there a reason maybe many people could be ignoring this disaster with Nokia now? Is there people who hate Nokia? And why?
2 - Who are the stockholders of Nokia and why aren't they doing nothing about it?
3 - Who are in the board now?

I'm gonna try to answer 2, 3 and 4 with my thinking then you could come with yours.

1 - Is there a reason maybe many people could be ignoring this disaster with Nokia now? Is there people who hate Nokia? And why?

R: Nokia is like Michael Jackson and Britney Spears. Once a King, but then when they got weak they get a reaction of hate like if everybody was enjoying to see its decadence. No matter if Nokia, Michael Jackson or Britney Spears has ever done you a harm. You hate it because it was on top.

How strange and bizarre human beings are, right?

Of course those who where competidors of Nokia should have reasons to hate it but there should be many neutral people on media watching and taking part of Nokia. Where are them?

2 - Who are the stockholders of Nokia and why aren't they doing nothing about it?

R: Nokia has not physiscal personas as stockholders and probably most stockholders are institutions like banks and funds who could:

A - be wrongly convinced that Nokia had no chances in the way it was (Qt, MeeGo)

This is a hipothesys that doesn't sounds real because if the Market had perceived Nokia as uncapable to do it without the help of Microsoft then stocks shouldn't had felt, right?

B - be intereseted on Nokia's changing of strategy. Maybe funds who also have stocks over Microsoft.
C - could be big investors of software companys and could be too much afraid of an open source ecosystem do become popular and strong.
D - could be investor who where interested on profiting on the way ecosystems are closed.

this hypothesys links me to this guy:

@davidascher
"we're heading towards a world where who you get your phone from will determine way too mcuh about how you experience the internet"

http://blog.ascher.ca/2011/12/19/you-knew-the-old-mozilla-meet-the-new-mozilla/

The way the big media has worked in favor of Apple and its closed system capable of saving the press media makes me wonder if the big media couldn't be ignoring Nokia because a open source, open web system like MeeGo could put their intentions in danger.

That links me to this:

"6 media giants now controla a staggering 90% of what we read, watch and listen to"

http://frugaldad.com/2011/11/22/media-consolidation-infographic/

3 - Who are int the board now?

A - Guys who didn't worked for Nokia and don't know its values and are only interested on money
B - Guys who worked for Nokia but where extremely evolted with it to the point of wanting to destroy it
C - Guys who where bribed with money or power in the Nokia that would come after Elop.

[incognito]

Just a quick note about 'failing ecosystems', with 'ecosystem' being the most favorite word Elop is uttering (something along the lines of Jobs' 'HTML5 is the future' before realizing that they DO need 3rd party apps on their platform which made the iPhone the success it is today) - Nokia Ovi Store is/was doing quite admirably from the 'ecosystem' perspective: http://www.distimo.com/appstores/app-store/21-Nokia_Ovi_Store .

That's more than double the amount of apps available for the WP7 'ecosystem', and with the number of downloads rivaled only by the Apple App Store (up until recently at least, I think that Android Marketplace has leapfrogged the Ovi Store in the meantime), that Burning Platforms memo must have been the biggest BS memo any CEO has ever sent out to his employees. Sure, not all apps on the Ovi Store are for the S^3/Qt platform so you can't really count on the shear number alone (then again, Nokia platforms allow for sideload so you can't really count the actual amount of apps available out there), but with the brilliant transition strategy in a time window of couple of years that number would become the sole Qt realm (and available across the whole of Nokia offer), right up there with Android and iOS - or the actual third ecosystem that Elop likes to blabber about. I can't see WP7 achieving that in any similar amount of time, and even if it does one day, Nokia will not be able to survive until that day. What I find the most surprising that Nokia, not even before Elop, and especially not after he became the Nokia ship's captain, never monetized nor advertized on the fact how Ovi, with all its problems and nuisances, is actually quite a success.

Just another nail in the coffin of Elop's competence, or rather lack of it. I'm not ready to call him a Microsoft shill or a trojan, purely because Nokia was already in trouble when he stepped in, but the way he executes 'his' strategy screams one massive, neon-glowing, ears-bleeding INCOMPETENCE.

[Terence Eden]

I have to (ever-so slightly) disagree with you Tomi. Although your analysis of the numbers is undoubtedly correct, I don't think that this is a PR mistake.

There's a difference between Ratner announcing his products are crap, and Elop telling the world that Nokia's products aren't good enough.

Firstly, I don't think the average consumer cares whether Symbian will be available in 18 months. And, even if they do, I don't think what the head of Nokia says will be heard by even 5% of the customer base.

Secondly, it was refreshing to me to hear a CEO so clearly articulate the problems with his company. For too long we've heard meaningless platitude "we are a world class leader", "Our EBITDA showed organic growth", "we're entering a new phase".

Finally, we have someone saying "what we've done so far has been shit. This is where we are failing and it's not good enough."

To me, it shows that he understands the problems and isn't afraid to articulate that to the market and industry analysts.

Now, personally, I think that his "cure" is wrong. Were I Elop, I'd have done the following.
1) Android. There are $80 Android phones available - it is perfect for porting to low end devices in developing markets.
2) Partner with or buy a firm that understands the parts that Nokia simply can't do. Take Nokia Music (I don't know how much of a success Nokia Music really is - I assume it isn't) - drop it and buy / partner with Spotify. Same with Ovi Suite.
3) Innovate in form factors. Nokia's strength was always that there was a device for you - no matter what shape you wanted it. Play on that industrial design strength.
3) Buy T-Mobile USA - or some equally radical action to get in to the important US market.

[Matthew Artero]

@Your in denial

Just today cnet reported that although RIM has lost over 75% market share this past year it still grew its subscribers by 35% up to 75 million. 6 days ago Cnet reported that RIM's revenue is down only by $320million. This is different from Nokia's more than 50% unit sales loss. Therefore RIM's problems are not proof that disruptive technology devestates as quickly as the Elop effect.

[n900lover]

I don't think Elop is doing it on purpose, in the sense that he intents to destroy nokia and transfer what is usable (patents, market share, ...) to ms and other wp manufacturers. I think he really believs that wp is the way to go on smartphones, he probably got it at these long nights in seattle golf clubs where they debated the future with windows being in fridge, tv, doors, heaters, controlling whole home, in phone, car, etc., in essence really everywhere with similar dominance as ms has on desktop. In future like that his strategy of total support for windows&ms now is actually smart thing.

Just take the february announcement. Although it was immediately obvious to everyone how absurdly one sided the deal is, no doubt for him it was huge success that nokia can now participate in the ecosystem of future, and he probably doesn't regard things like being locked up in wp as something useful for negotiation. After all windows is going to be everywhere, so I'm not giving anything, right? It's like promising release of nokia pc suite for windows 8. I bet he was really really suprised by the uproar when he was forced to rush back and try to mitigate it by telling the world that ms is giving nokia 1 billion.

It would be interesting to know what is ms position. Right now they have everything they could get from nokia for free, but if nokia goes under I'm not sure they would want to buy nokia, or just their smartphone unit. Imo the plan always was to copy situation on desktop - lots of hw manufacturers in fierce competition driving prices hw price down and on top of them ms with windows monopoly commanding big premium.

Although there is lot of talk about nokia being preferential partner, the deal doesn't give nokia nothing specific or tangible, whatever wp changes ms approves, it will be available to everyone else. Even Elop himself stated he don't want to differentiate outside the case design, hw quality and nokia apps, the os must be the same for the ecosystem to work. He also wished samsung success with their line of wp phones, because it will broaden the wp "ecosystem".

And remember, ms attacked google for purchasing motorola, suggesting that google wont treat others equally and with their ability to control both sw and hw will eat hw manufacturers. Although google can legitimately claim motorola was just about the patents, in ms case nobody would doubt the reason for acquiring nokia is to go directly to manufacturing&sales.

So with all this, are they really going to purchase nokia directly? Also bear in mind that another mobile failure can spell end for Ballmer as ceo, so maybe he wont be the one to decide this.

[michael]

Tomi over here in Croatia we have following situation.

Our economy is a mess, due to 8 years of mismanagement and corruption in all parts of life. Our GDP, unemployment and everything else is falling for last 3 years in a row. We are in a position that our credit rating will be proclaimed junk in the following three weeks. Just to name few of our problems.

Tomorrow new goverment is sworn in. They will have to take serious measures in order to avoid economic meltdown as seen in Greece.

Now Mr. Tomi Ahonen you tell me:

Whose fault it is? The goverment which led the country for the last 8 years, or the goverment which will be sworn in tomorrow and which will have to make hard decisions.

[Matches]

@n900lover, MS would purchase Nokia smartphones to protect their investment. Without Nokia, MS is left with basically only Samsung to make their WP7 phones, unless the new phones get traction and some of the other smaller players join Samsung with a split of Android/WP offerrings. If a potential buyer of NOK would not continue the MS strategery, but instead switch to Android or, what I would love to see just from a pure spectacle standpoint, do what Tomi suggests and return to the Meego/Harmattan platform to reap those $2.9 billion of profits that Tomi claims are being squandered, then Microsoft would be theoretically be forced to come in outbid. I wonder if there's really $2.9 billion of yearly profit to be had, with Nokia share price so low, why hasn't someone swooped in already to do this? The company as a whole is only valued at what, $18-25B?