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Mo Mobile mAdness - Ecosystem-Elop Sells Nokia Mobile Ad Unit (??? - True!)

This makes NO sense. Nokia CEO Stephen Elop himself has said that the war in mobile today is one of ecosystems, not of mere handsets or their software. Elop himself has explicitly mentioned advertising as one of the key components of a mobile ecosystem. If Elop practised what he preached, he would not be selling his mobile advertising unit, he would be nurturing it, growing it - not selling it.

Google believes so strongly in mobile advertising, they bought Admob. Apple's Steve Jobs believed so strongly in mobile advertising, he launched iAd. The company that invented the cellular telecoms industry - and launched the world's first mobile internet service, NTT DoCoMo of Japan believes so strongly in mobile advertising, they created D2C the world's biggest pure mobile ad agency. Even Stephen Elop's past employer Microsoft believes so strongly in mobile advertising, they bought ScreenTonic, and today have mobile advertising a central aspect of the Windows Phone ecosystem. And what does Elop do at Nokia? He just sold Nokia's mobile advertising unit on Friday to a company previously known as Matchbin and now renamed Radiate Media.

CENTRAL TO ECOSYSTEM

I don't want to make this blog a monologue about Nokia. But if Elop does something this mad, at this time, then I do have to observe it. As it is Stephen Elop who has been lecturing the world about how the race in mobile phones is no longer one of hardware or software, it is about ecosystems. And Elop himself defined ecosystems as they relate to mobile handsets in general and Nokia explicitly, as: "Ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things."

Advertising! One of the key components of a mobile ecosystem. And Elop has tried to rally his Nokia employees to engage in a battle of ecosystems. He warned that Nokia's competitors "are taking our market share with an entire ecosystem." He claimed last year in his notorious Burning Platforms memo that Nokia had fallen behind on this ecosystems war. He said that Nokia had "lacked accountability and leadership" and that Nokia "had not delivered innovation fast enough".

OBVIOUS MAJOR GLOBAL TREND

Apple decided to launch iOS in the summer of 2009, at a time when the total global shipments of all iOS based devices, iPhones, iPads and iPod Touch'es had not passed 50 million cumulatively (including devices no longer in use). Yet Apple felt mobile advertising was that important to the Apple iPhone and iOS ecosystem. Steve Jobs himself explained why the ecosystem would be stronger with an ad platform explaining that "developers have to find a way to make some money" and that the iAd platform was a way Apple could help its developers in its ecosystem.

Google decided to buy Admob in December of 2009. At that time, there were far less than 10 million Android smartphones in use worldwide. By 2011, Google's Chairman Eric Schmidt was saying that mobile advertising was delivering 2.5 Billion dollars of ad revenues to the company.

I mentioned that NTT DoCoMo created D2C together with the Japanese advertising giant Dentsu. Microsoft got into mobile advertising years ago with the purchase of ScreenTonic. Major mobile industry players from carriers/operators like Vodafone and Telefonica to equipment makers like Ericsson and Alcatel-Lucent offer solutions in the mobile ad space.

Mobile advertising (roughly) doubled in annual revenues in the year 2008 when the world economy crashed. Mobile advertising almost doubled again in 2009 and 2010 yet again. Early numbers say mobile advertising had again roughly doubled in 2011. By 2011 the global advertising industry had embraced mobile ads from Ford saying that mobile ads will be integral to every ad campaign they run on any medium, to US food giant Kraft saying 'no mobile left behind'.

If you believe in growth opportunities coming from those sectors of the industry that expanding most strongly, mobile advertising is that right now. Certainly Google, Apple, Microsoft, NTT DoCoMo, Vodafone etc see this and invest heavily in it. Is there any doubt, that mobile advertising is a key component in any ecosystem in mobile? None whatsoever.

WHEN DID NOKIA GO mAD

I happen to know the mobile advertising side of the mobile content and media industry quite well, as I was the first person to discuss commercially launched mobile ads at any international conference (in Austria) literally within weeks after they had launched (in Finland in year 2000). And I was honored to chair the world's first mobile advertising conference in London the next year. That conference had many pioneers of mobile ad space, presenting, as were some big advertising companies who had launched their mobile advertising units. But there was only one handset manufacturer presenting at the two-day conference on mobile advertising. That handset manufacturer was ...Nokia.

Nokia was studying the mobile advertising opportunity more than a decade ago, so much, that they had an internal unit looking at it (modest in size at the time) and Nokia had commissioned a global study about mobile advertising in 2001, long before most thought that ads served to our pockets were even commercially plausible.

Nokia monitored the space, and as mobile advertising slowly achieved acceptance beyond some of the most advanced markets like Japan and South Korea (and Scandinavia) Nokia then got serious about mobile advertising when it bought Enpocket. When was that? In 2007 ! Two years before Apple and Google got serious about mobile advertising. And since then Nokia had developed the mobile advertising arm at its Navteq unit, and bought other mobile advertising companies such as Acuity Mobile in 2009.

 

So is it factually NOT true (once again the Elop delusions) in this empirical case about fighting in ecosystems rather than handsets, that Nokia supposedly "fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind."

In reality, as it relates to mobile advertising (just like in mobile payments, location and mapping, app stores, videogames, music etc) Nokia caught the big trend, were indeed making the right decisions, and with the benefit of incredibly accurate foresight, once again, found itself years ahead. The truth is 100% diametrically opposite of what Elop has been saying (once again). Nokia was not years behind, Nokia was literally years ahead of all its rivals in this space.

BATTLE OF ECOSYSTEMS

Elop preaches about the battle of ecosystems. The Nokia Symbian platform, one of several Nokia technical platforms, and the one most suited for mobile advertising today, is not just the world's biggest smartphone operating system by installed base - and advertisers will equate installed base with 'audience' rather than new sales, where last year Elop's mis-management of Nokia smarpthones saw Symbian sales fall behind Google's Android and Apple's iPhone iOS. But lets just examine that potential advertising target audience a bit more. Here are the world's twenty largest countries by population, and the biggest smartphone OS as of November as measured by statcounter:

COUNTRY . . . POPULATION . . . BIGGEST SMARTPHONE OS

China . . . . . . . . 1.3 B . . . . . . . . . . . Symbian
India  . . . . . . . . 1.2 B . . . . . . . . . . . Symbian
USA . . . . . . . . . . 310 M . . . . . . . . . iOS
Indonesia . . . . . . 220 M . . . . . . . . . Symbian
Brazil . . . . . . . . . 190 M . . . . . . . . . Symbian

Pakistan  . . . . . . . 170 M . . . . . . . . . Symbian
Bangladesh . . . . . 160 M . . . . . . . . . Symbian
Nigeria . . . . . . . . 150 M . . . . . . . . . Symbian
Russia . . . . . . . . . 145 M . . . . . . . . . Symbian
Japan . . . . . . . . . 120 M . . . . . . . . . Android

 

Mexico . . . . . . . . 110 M . . . . . . . . . Symbian
Vietnam  . . . . . . .  90 M . . . . . . . . . Symbian
Philippines . . . . .   90 M . . . . . . . . . Symbian
Germany  . . . . . .   80 M . . . . . . . . . iOS
Ethiopia . . . . . . .   80 M . . . . . . . . . Symbian

Egypt . . . . . . . . .   75 M . . . . . . . . . Symbian
Turkey . . . . . . . .   70 M . . . . . . . . . Symbian
Iran  . . . . . . . . . .   70 M . . . . . . . . . Symbian
Thailand . . . . . . .  65 M . . . . . . . . . Symbian
Congo . . . . . . . . .  65 M . . . . . . . . . Symbian

(above adapted from statcounter data from November 29, 2011, as reported by browserrank.com)

 

Yes! Nokia's 'obsolete' Symbian is the biggest smartphone operating system in 17 out of the 20 largest countries on the planet by population. And its not just that Nokia has this incredible reach. Consider the other competing advertising mass media.

In the USA, the television market is the biggest advertising market and the biggest mass medium. In some of the more affluent markets on the above list, most households do have TV sets like in China and Russia. In all but one of the above countries, more people access internet content on mobile phones than on PCs (the exception being the USA where the half-point will be passed this year 2012). And in many of the less affluent countries on that list, even radio does not reach as widely as mobile phones. Like they say in Africa, mobile is not the 7th mass medium, its not the first mass medium; it is the only mass medium.

Nokia owns the smartphone OS platform that reaches the widest audience in 17 out of the 20 biggest countries on the planet. Where iOS and Admob and others face strong competition in advertising from legacy mass media like TV, newspapers, radio etc; and obviously internet advertising - Nokia's Symbian platform is the dominant smartphone platform in all countries where legacy media is not established as a true 'mass' medium reaching even half of the population and where mobile access to the internet exceeds PC based access to the internet.

Nonetheless, Apple's iPhone has an installed based (not cumulative shipments, but active users) of about 150 million smartphone users today. Remember, for any iOS media partner - including any advertising, we need to add the other iOS users, iPads and iPod Touch'es, so the total reach of the iOS currently is about 240 million. Google's Android reaches about 250 million active users today. Microsoft feels it worthwhile to continue building its mobile advertising unit even as its reach across both Windows Mobile and Windows Phone smartphones, currently, is less than 30 million. But Nokia's Symbian has currently over 275 million users worldwide. And the CEO who thinks its a war about ecosystems, and believes that advertising is a key part of ecosystems, doesn't want to keep Nokia's competitive advantage here, one that Nokia years ahead of its rivals in discovering and exploiting?

NOKIA TRUE REACH FAR WIDER

The above picture is not the full picture for a Nokia ecosystem. Nokia sells more S40 based featurephones, which use the proprietary S40 operating system (not part of Symbian) but which could be described as 'smartphone lite' - just like Symbian, S40 does allow full internet use, allows application downloads and the use of the Nokia (ex Ovi) store for content, apps and services. Nokia does not give us a breakdown of the S40 sales, but Nokia recently celebrated the 1.5 Billionth S40 cumulative shipment number. In rough terms the installed base of S40 currently is more than 700 million, so when added together, Symbian and S40 give Nokia an addressable market potential of 1 Billion mobile phone users worldwide.

(Note this does not include the ultra-cheap dumbphones that use the even simpler Nokia S30 OS, by which Nokia's total reach was last year estimated at about 1.7 Billion)

This ecosystem of Symbian and S40, plus Nokia's other current and past OS platforms like MeeGo and Maemo; plus Nokia's upcoming low-cost smartphone OS, Meltemi, are all supposed to be supported by the Qt developer tools of Nokia. So if we count Nokia branded Qt ecosystem potential reach, it is well in excess of 1 Billion pockets. And add to that the Android installed base (Qt supports Android) and potentially Blackberry (the new Blackberry OS will be compatible with Qt) - the Nokia 'first ecosystem' if built around Qt has a potential reach of more than 1.35 Billion mobile phone users (more than 5x bigger than the total iOS ecosystem or the Android ecosystem; more than 12 times bigger than the total Blackberry ecosystem and more than 100 times bigger than the Windows Phone). Yet Elop is doing everything he can to sink that Nokia-controlled first ecosystem and replace it with what Microsoft tries to call the 'third ecosystem' ie Windows Phone, which only reaches the pockets of less than 12 million people in the world, and is legitimately called at best, the 8th ecosystem.

 

ELOP DEFINITION OF LEADERSHIP

We have seen it time and again. We saw it with the Ovi store, we saw it with Nokia developer relationships, we saw it with mobile commerce and NFC (the Lumia series does not support NFC while Nokia's own MeeGo and Symbian both of course do support NFC). And now once again we see it with mobile advertising. Elop discovers a significant Nokia advantage in its ecosystem. Even as it is an element of genuine leadership, that is supported by essentially the whole industry as an obvious trend, Elop goes against the trend. He damages the Nokia version (or in this case sells it). This destroys a Nokia native advantage 'in a war of ecosystems' and instead brings Nokia ever more to the full control of Microsoft, as its slave.

Before this action, Nokia could control how advertising might appear on Nokia branded smartphones. Nokia could sell advertising to its own smartphones. Now Nokia branded smartphones, when using the Microsoft Windows Phone OS, will be subject to Microsoft advertising concepts and spyware. Microsoft will also be selling the ads irrespective of Nokia's own brand. Its quite feasible for Samsung or HTC to spam Nokia branded smartphones via the Windows Phone ad platform. Is this the sensible way to go?

ONLY BECAUSE OF ELOP

This desperation move is purely due to mismanagement and mistakes by Elop. I am not claiming all was hunky dory at Nokia prior to Elop. I have written time and again, that Nokia was struggling in 2009 to 2010, and fired its CEO Kallasvuo, replacing him with Elop. I am not in any way suggesting that all was perfect at Nokia when Elop took over. But the first five months at Nokia, when Elop was in charge, saw the Nokia smartphone unit sales grow strongly, Nokia smartphone sales revenues grow dramatically, and Nokia profits at the smartphone unit jump at a Nokia record level. Nokia overall corporate profits grew. In the first five months of Elop's stewardship, Nokia's share price had grown by 11%. I am not saying all was well, but Nokia had passed the worst part, and was on the road to better. Nokia was 'on the mend'. And Elop was hired - as then Chairman of Nokia Jorma Ollila said when introducing Stephen Elop - Elop was hired to fix Nokia problems in execution.

From February 2011 to today, Nokia has set a world record in destroying its market share. In smartphones Nokia's market share fell from 29% in Q4 of 2010, to 12% of Q4 of 2011. Nokia very literally scared away six out of every ten customers it had a year ago. For the full year 2010, Nokia was twice as big as its nearest rival. By Q4 Nokia had shrunk to nearly half the size of its strongest rival, Apple's iPhone.

This carnage has all been a self-induced wound, and it started with the Elop Effect, but Elop has added to the problems continuously ever since. Elop himself admitted the damage to Nokia market share took him by surprise and admitted later to more surprise that Nokia plunged from generating profits to generating losses. It did not surprise any real experts of the mobile industry, many of us said days after Elop announced his mad Microsoft strategy last February, that this would be the result, like I did on this blog, correctly forecasting that Nokia's market share would crash to 12% by the end of the year, and Nokia's strongly growing profits in its smartphone unit would reverse into loss-making, and the damage to all of Nokia would be so severe, that all of Nokia would generate a loss by the end of the year.

Elop had a company that had growing sales, growing revenues, growing profits, and a growing share price - and turned that to losing sales, losing revenues, generating losses and a massively crashing share price (Nokia's share price fell to less than half in the next five months). This damage is not only the world record crash of market share of any mobile phone handset maker. Its not only the biggest fall ever witnessed in any one year by a global brand leader in technology such as computers or home electronics etc. It is literally the biggest fall of a global customer base, in any one year, of any company, in any industry - ever.

And Elop did not see it coming, and did not manage his company wisely. That is all water under the bridge. Yes it was the biggest management failure in the economic history of humankind, that we witnessed last year. Because of it, Nokia now is in deep trouble and has to try to sell assets just to remain alive. Elop has been trying to sell the NokiaSiemens Networking unit and is currently trying to sell the Vertu luxury phones unit. He has sold various Nokia assets from several sets of Nokia's prime patents, to a whole handset factory in Romania. And now he sold Nokia's advertising arm.

I can understand that the CEO of a company that is massively generating losses (no matter what the cause) is now resorting to desperate moves such as firing tens of thousands of employees and selling assets.

RATHER THAN SELL AD UNIT, WHY NOT ALLOW SALES OF N9

What I cannot understand, is if Nokia is in the business of selling mobile phones, and its most profitable smartphones are currently on the undersirable Lumia brand (where sales representatives at stores find that in 11 cases out of 12, a customer who buys a Nokia branded smarthpone refuses to take a Lumia) and the highly desirable MeeGo platform (where sales representatives find that one in four customers who buys a Nokia smartphone, will buy an N9 which uses the MeeGo operating system) - why is Elop not willing to sell the N9 (and its sister phone the N950) in every market!

Elop would rather sell Nokia assets, such as Nokia's patent portfolio, its factories, its staff, and now, its mobile advertising unit - than allow the MeeGo based N9 (and its sister, the N950) to be sold worldwide!

Elop's priorities are wrong. He looks at global trends where the whole industry is in agreement - like now with mobile advertising. And he goes against it. He finds a genuine Nokia asset where Nokia was years ahead of the rivals - like now with mobile advertising - and rather than fix that unit's execution to deliver massive profits for Nokia, he prefers to sell it. Google just told us last year that Google makes 2.5 Billion dollars of advertising revenues out of its mobile advertising arm. Why doesn't Elop fix this at Nokia, Nokia has a far wider reach in countries where mobile advertising is often the only mass market advertising medium.

The decision to sell the mobile advertising unit at Nokia may have been necessary because Nokia is so badly generating a loss. That loss is solely due to Elop's mismanagement of Nokia last year. Before February, Nokia's profits were growing strongly. And Elop himself admitted he miscalculated how badly Nokia smartphone sales would collapse, and he also admitted surprise to the sudden massive losses that obviously resulted. The reason Nokia is now conducting a fire sale of its best assets is only due to incompetent management by its CEO, causing self-induced damage to Nokia, its products, its carrier relations, its customers and its brand.

Nonetheless, to sell a mobile advertising unit for a major handset maker goes totally against the grain, where rivals are investing more in advertising, not less. And this is how Nokia's CEO actions speak the opposite of his words. This selling of a key Nokia ecosystem component is how Nokia's CEO communicates to his staff how his new management stops the competition from "taking our market share with an entire ecosystem." This selling of the mobile advertising unit is how Nokia's new CEO indicates "accountability and leadership". This sale of Nokia's pioneering mobile ad unit is how the CEO rewards those parts of Nokia that did indeed "deliver innovation fast enough". 

The decision to sell the mobile advertising unit at Nokia was certainly not to the best interests of Nokia and Nokia's ecosystem. But the decision to sell away Nokia's own mobile advertising arm, and turn Nokia hostage to Microsoft's advertising, is in the best interests of Microsoft.

Nokia CEO Stephen Elop is once again acting in the best interests of Microsoft, and against the best interests of Nokia. He is in breach of stock market regulations and clearly has acted with a confict of interest. His actions must be investigated as a breach of his fiduciary duty to Nokia shareholders. He must be fired for cause and any Nokia Board Members who do not support an immediate investigation of Elop should be themselves investigated for collusion, neglect or incompetence.

Gutenberg is a moblogger, Martin Luther is coding and the Medici are using MPesa

In No Straight Lines there is an entire chapter devoted to all things mobile. It is called Gutenberg is a moblogger: economic, organisational and societal transformation through mobile communications.

It maybe that a certain Mr Ahonen - has much of this covered on the CDB blog.

I explore mobile from the perspective of what it can do at an organisational and at a societal level.

From the Achuar tribe in the Amazon rainforest using mobile and GPS enable digital technologies to challenge the Peruvian government and the mining companies trying to exploit their habitat and way of life to children using iPhones at school for learning in new exploratory ways - I make the point that mobile plays an important role in the evolution of every aspect of our society.

So NSL looks at education from Africa and India to the western world, it looks at how bricks and mortor organisations can become platforms and become part of a global economy, we look at how people living on $2 a day could be doubling their daily income by working on their mobile phones – we look at the politcal consequences of rapidly shared knowledge and information, we look at data and the impact on how commerce per se will evolve enabled by mobile. And we celebrate organisations like Ushahidi that are showing us the way in how innovation really works. In Japan we look at ground breaking business models that are already nearly 10 years old and we wonder why the fashion industry is not fully up to speed, nor indeed the media industries either.

Why? Because they fail to see what is right in front of them - they are stuck in an ambiguous world.

I also argue that if organisations are not able to really design with mobile they could be missing a significant opportunity and this is NOT about apps.

It just might get you or your clients thinking differently about the future potential of our mobile society

No Straight Lines on Amazon UK. Amazon US.

 

Related articles

• 6 challenges for a non-linear world (no-straight-lines.com)
• The last of the Kodak moments (no-straight-lines.com)

Last in my Trilogy of Nokia Numbers postings re Q4. The Regional Split. What do you do if 92% of your loyal customers reject your new toy (Lumia)

This is the last of the trilogy of Nokia numbers postings related to the Q4 results. The first looked at the overall market performance of Nokia smartphones (world-record crash). The second posting gave the best calculations of how well Lumia and N9 sold, because Nokia CEO Stephen Elop is too much a coward, and ashamed to reveal the numbers. Now we dig into the numbers for one more look. How did the regional markets split, smartphones vs dumbphones. This will be interesting and we have some devastating news coming out of that analysis.

For those who can't bear to follow written explanations of mathematical calculations, here is the big picture. I calculated through a multi-dimensional optimization equation, what were the regional unit sales of smartphones (and dumbphones) based on the average sales prices. The accuracy is between 3% and 9% of any one region, so this is accurate to about +/- 100,000 units when Nokia total sales were in the many millions per region. Its not perfect, but it is VERY close. So if I said 3.2 million, the truth is most likely between 3.3 million and 3.1 million.

Based on that (see below), I found that the European market for Nokia smartphones was 9.7 million smartphones in Q4. That gives Nokia a Europe-wide market share of 26%. That is not the relevant finding. Take that 9.7 million actual smartphone units sold. I calculated that the 7 countries where Lumia has been launched, have 63% of the European mobile phones and thus the population of the countries where Lumia launched, produced 6.1 million Nokia branded smartphone sales. In the previous blog article, I calculated that in the 7 Lumia launch countries, a total of 466,000 units of Lumia have been sold in Q4 (this is the Europe part of the end-user sales, that is why it is less than 600K). 

Now it gets truly interesting. In those 7 countries where Nokia launched Lumia (and where the installed base of smartphone owners had a Nokia already in their pocket in 46% of the time) - only 26% were willing to buy a Nokia branded smartphone. Nokia lost more than four out of every ten existing loyal Nokia customers. But what of the customers who actually were happy enough to buy a Nokia branded smartphone.

In the countries, where Lumia launched, in Nokia's strongest market, where nearly half of consumers already have Nokia branded smartphones - when they walked into the store, and were shown Lumia smartphones - out of all European customers who ended up buying a Nokia smartphone in those countries where Lumia was available - only 8% were willing to buy the Lumia.

Only 8% of smartphone buyers, in Nokia Lumia launch countries, who actually ended up buying a Nokia branded smartphone - were willing to take a Lumia. The marketing push was so loud, certainly every customer knew of, and saw Lumia marketing. Yet 92% of customers who actually bought a Nokia smarthone: refused a Lumia.

Do not delude yourself. Lumia is a dead end. If 92% of your most loyal customers will refuse your newest and greatest flagship, and take an 'obsolete' Symbian smartphone instead - the Lumia is a comprehensive failure and the fantasy of the Microsoft Windows Phone 'third ecosystem' is utterly completely busted.

THE MATH

That was the big picture. I have more for you, if you are mathematically inclined. So first, the methodology. As we know the average sales prices of smartphones and dumbphones for Nokia (and as these are quite far apart from each other) and we have Nokia's regional breakdowns of total handsets sold (smartphones + dumbphones) in units, and in revenues - we can calculate the 'average sales price' per region easily. But with some multidimensional optimization we can actually model the actual unit sales of smartphones, and dumbphones, per region. I did it until I arrived at errors of less than 9% in every region - between 3% and 9%, and all errors in the same direction. So this is about an accuracy of +/- 3%. In practise, it means that the numbers I report here of unit sales of smartphones and dumbphones should not be off by more than 100,000 units, or 0.1 million.

Do the math to double-check me, multiply each of the smartphone units by 140.2 Euros, and each of the dumbphone units by 32.4 Euros, and add all those together, you should find the smartphone sales total 2,748 (vs 2,747 as reported by Nokia) and for the dumbphones sales 3,042 (vs 3,040 as reported by Nokia). Very close. Add the totals across, smartphone revenues + dumbphone revenues per region, should come close to (but always a bit less) than what Nokia reported for that region. For example Europe region by my method gets 1.87 Billion Euros where Nokia reports 1.92 Billion. Its not perfect, but it is yes, close enough. Here is what I found:

REGIONAL SALES NOKIA HANDSETS BY TYPE IN Q4 2011

Europe . . . . 9.7 M Smartphones . . . 15.6 M dumbphones
MEA . . . . .  1.8 M Smartphones . . . 24.1 M dumbphones
China . . . . . 4.5 M Smartphones . . . 10.2 M dumbphones 
APAC . . . .  1.3 M Smartphones . . . 33.4 M dumbphones
N Am . . . . . 0.3 M Smartphones . . .   0.2 M dumbphones
LatAm . . . .  2.0 M Smartphones . . . 10.4 M dumbphones
TOTAL . . . .19.6 M Smartphones . . . 93.9 M dumbpohnes

I have then calculated the regional market shares based on the above and the rough number of 37 M smartphones per region China, Europe, North America and Rest of World. Thus Nokia smartphone market share for Q4 in the four regions was (roughly)

Europe  . . . . . . 26%
China . . . . . . .  12%
N Am . . . . . . .    1%
Rest of World . . 14%

There you go (you're welcome, haha, I love this stuff, I do this anyway, but am happy that you followers and readers like this stuff too and that we now have a good way to share this kind of stuff)

WHEN 92% OF YOUR CUSTOMERS REFUSE YOUR NEW PRODUCT

So, the above is very solid numbers and the errors are only modest. But as we start to parse those numbers further, we get to the problem of estimate, of an estimate, of an estimate, and even modest margins of errors can grow to be unmanageable. But we can study two markets where we have large enough regions to make further analysis. Lets start with Lumia.

Lumia was launched in Europe, and as I said, 63% of the European subscriber base lived in those 7 countries where Lumia launched. Now when we take 63% of the European market for smartphones, we have a potential market size of 23.3 million smartphones. And obviously as Nokia sold 6.1 million smartphones in those countries, the European market share continues to be 26%.

So about 46% of Europeans own Nokia smartphones currently. Europe is the oldest and most mature region for smartphones. European consumers have had smartphones the longest and the average European smartphone owner is on their 5th or 6th smartphone already. And this being Nokia's 'back yard' its no surprise Nokia had the lion's share of the market. Out of those customers who now come to stores to buy a new smartphone (the smartphone buyer at Q4 in Europe typically was replacing an existing smartphone from about summer or autumn of 2010 with the current replacement cycle) who own a Nokia, only less than 6 out of 10 were willing to buy another Nokia. So under current Nokia branding and marketing and product portfolio, already in the store, more than 4 out of every 10 existing Nokia customers was churning away from the brand. For many of them, a Nokia using Symbian was the only smartphone brand they had ever used.

Thats bad. We already lost 45% of the loyal customer base in the store. Now what about those who are convinced to yes, buy another Nokia. What about this cool new Lumia then? Aha. Out of all smartphone buyers, in those countries where Lumia had launched, who actually agreed to buy a Nokia smartphone - 92% refused a Lumia. In the face of the biggest marketing blitz in European smartphone history, with overpowering Lumia advertising and promotion - including those free Xbox gaming consoles at some operators for buying a Lumia 800 - still only 8% accepted a Lumia! Yes. 92% of loyal, Nokia-owning, European smartphone buyers, who actually DID buy a Nokia smartphone - ended up selecting one of those 'obsolete' Symbian smartphones as described by Elop in his Burning Platforms memo a year ago. Yet European customers will prefer an obsolete Symbian smartphone over the brand-spaking-new cool 3rd ecosystem Windows Mobile Lumia smartphone by a ratio of more than 11 to 1 !!!!!

Twelve customers pay money to buy a Nokia smartphone - not a dumbphone, a Nokia smartphone. All are offered a Lumia. Eleven out of those 12 refuse the Lumia and take an 'obsolete' Symbian smartphone by Nokia instead.

This Lumia is so dead its not even funny. I explained why it fails as a flagship phone on its design and features. I explained then why it is failing based on actual consumer preference science in Europe. I know this stuff, I have written 12 books about mobile that are referenced in over 120 books by other authors! So it was pretty obvious and I knew that it would be bad. But even I could not imagine it to be this bad. So here is the evidence. 92% of new Nokia branded smartphone buyers in Europe in countries of Lumia launch, refused the Lumia. This horse is so dead I should not keep beating it anymore, haha..

LETS COMPARE TO N8 ONE YEAR AGO

Maybe this is 'normal' for Nokia and Europe. Yeah, that sounds reasonable. Except that I did the same analysis for the N8 launch (more expensive at the time than the Lumia, with far less marketing support a year ago) and guess what. In Europe, 22% of European consumers who bought Nokia smartphones in Q4 of 2010, selected an N8. This is not a question of price, it is not a question of touch screen form factor or anything - the N8 won awards in Europe as phone of the year etc. No. The Europeans know what they like in a smartphone, and the Lumia 800 fails them. Don't take my word. The tech writer at Guardian in Britain said he's returning his Lumia. The Germany newsweekly Der Stern advised its readers to drive to Switzerland and buy the N9 with MeeGo instead of the Lumia. In Finland Tietoviikko is just now full of complaints about what all is wrong with the Lumia. Etc. This is a dead phone. Do not delude yourself, the Lumia (and Windows Phone) will never be a success. The sooner Nokia accepts the facts, the sooner Nokia can pursue some other path be that Android or MeeGo or whatever.

WHAT ABOUT THE N9 NOW?

So we have the numbers on the N9 at about 1.75 million units sold in Q4. Those are spread across five of the six Nokia regions and very splintered. We can calculate that the average market share of the N9 sold in all the countries where it had launched, was 3%. This is quite impressive as it is significantly more expensive on average than the Lumia pair, and sold in mostly countries of far lower income levels than the mostly very affluent European and Asian countries where Lumia launched. But still, it is an imperfect measure for sure.

The only region where we have otherwise very solid numbers, that this can be used, is China. The N9 launched in China. And as it alone forms more than half of the total N9 launch country footprint, we can use the 3% as a reasonably accurate measure for the China market and do a similar analysis. For China Nokia smartphone market share, we obviously can use the whole China market. So out of about 37 million smartphones sold in China in Q4, Nokia sold 4.5 million units and achieved 12% market share. When we calculate 3% out of the China smartphone market of 37 million, we get 1.1 million units of N9 smartphones. How many is 1.1 million N9 MeeGo devices out of Nokia's total China smartphone sales of 4.5 million? Yes. 24%

So in China, where incomes are far lower than in Europe, and for the N9 which is more expensive than the Lumia phones, when a Chinese smartphone salesperson has gotten a customer to buy a Nokia, in one case out of every four, it is an N9 !!!!

A year ago, Nokia's genuine flagship smartphone, on Symbian, N8 achieved 22% of every Nokia sales in Europe. Now in China, Nokia's current genuine flagship smartphone, the N9 on MeeGo achieves 24% of every Nokia smartphone sales in China. But the Lumia 800, the fake flagship, on Windows Phone, achieves only 8% of Nokia smartphone sales in Europe. What is wrong with this picture? Is it just me? Or is the mathematics not compelling.

And don't take it from me. Think only from the angle of the sales rep. These premium smartphones carry higher commissions of course. So. With the N8 a year ago, if a sales rep saw a customer walking into the store asking about Nokia, in more than one case out of five, the salesguy achieved a sale of the premium N8. Today, if a customer walks in, in an N9 country, and the customer asks for Nokia, in one case out of every four, the sales rep gets a sale of the N9! But in the Lumia countries, if a customer asks for a Nokia, the sales rep has to push the Lumia to 12 customers who all will buy Nokias, to find one willing to take the Lumia. This is an utterly lost cause. The sales reps are nothing if not money-driven, and they learn very soon what is futile sales. They learned in Europe already that the Lumia is a dead dog. They are learning it now in the early Asian markets and the US sales reps are shortly learning that on T-Mobile and AT&T as well. If you have to push the device to 12 promising customers and 11 of them refuse the model, but accept the brand, you very soon find out what other (Symbian OR MeeGo based Nokia branded) smartphones those customers would rather prefer. Salespeople are not stupid.

11 OUT OF EVERY EVERY 12

So moral of the story. 11 people out of 12 who buy Nokia smartphones in Lumia massive marketing launch countries, will refuse the Lumia and pick another Nokia smartphone instead. And don't forget, we already lost 45% of those Nokia loyal customers who had the Nokia preference before. So if a customer walks into the store holding a Nokia phone, nearly half won't buy a Nokia anyway (if the options are what Nokia now is offering).

So the reality actually is, that out of any customer who currently owns Nokia and wants to buy a smartphone - and will probably look at a Nokia (and compare to iPhone, Samsung etc) the sales rep has to take the time to push the Lumia at 21 existing Nokia customers to land one Lumia sale. But Samsung and the iPhone were selling about 25% total market share - so half of the buyers of smartphones will be happy to buy either an iPhone or a Samsung. What do you think the sales rep will show when the customer mentions 'Lumia'...

(and Elop has to be fired, he is incompetent) 

UPDATE APRIL 11

For anyone still reading this blog, Nokia just issued its profit warning today and I have commented on it and crunched some numbers. The Q1 Lumia sales were disasterous too, at only 2 million - which means that as China had its New Year's gift-giving sales and the iPhone 4S had severe launch problems (some shops shut for several days fearing riots) - the N9 may have outsold all Lumia also in Q1. Read my view of the Nokia Profit Warning and why things are even worse. 

How Many Lumia Sales? As Nokia (and Microsoft) ashamed to reveal number, lets count - and compare to N9 MeeGo sales

Nokia CEO is a coward to not give the exact count of Lumia sales in his Q4 results, the launch quarter for Lumia. So lets do some math based on the available info, to count exactly how many it was.


(Note an update added on April 11 - an update at the end relating to Q1 Nokia profit warning and published Q1 smartphone numbers)


When Microsoft launched Windows Phone a year ago, Microsoft proudly told the world that they shipped 2 million Windows Phone smartphones by HTC, Samsung and others. They soon were spooked, however, when the sales dwindled and dried up and stopped giving the sales breakdown. By the Spring, Microsoft insisted all Windows Mobile smartphones be counted together with Windows Phone - even as these two platforms are incompatible. And still the sales of 'the third ecosystem' kept falling, down to about 500,000 units by Q3. And early numbers from Q4 from Microsoft's best market, the USA, reveal that even more than a year after its launch, Windows Phone sales are still severely lagging its older and obsolete cousin, achieving only 1.4% or about 520,000 units. Windows Mobile meanwhile refuses to die, and in the USA achieved 2.4% market share of new sales according to Nielsen or about 890,000 unit sales.

Thus if you remember seeing a 'Microsoft' market share in smartphones somewhere near 2% for Q3, that includes the better-selling Windows Mobile, and the newer and supposedly better so-called 'third ecosystem; Windows Phone has far less than 1% market share globally.

So with that context, the analysts' consensus estimate for Lumia launch quarter sales was 1.3 million units. We know that didn't happen. Nokia would have proudly celebrated if it had at least matched the expectation, or exceeded it. I explained on this blog why the real comparison target should have been 6.4 million for the first quarter of Lumia sales, and the minimum barely acceptable level was 4 million. But thats neither here nor there. Lets now see what we know, to try to get to the bottom of what Nokia is hiding.

Nokia told us in the Q4 results published January 26, 2012, that Lumia sales 'to date' had passed 1 million. We know its well below 1.3 million. And we know that it includes January sales with nearly a full month of sales of Lumia 710 in the five expansion markets (Hong Kong, India, Russia, Singapore and Taiwan) who only got the Lumia a few days before Christmas in mid December. Also the T-Mobile USA Lumia 710 was never sold in December. For these cheaper Lumia 710 unit sales, the vast majority of their sales will have come after Q4.

The early Lumia markets of Europe that got the Lumia 800 (Austria, France, Germany, Italy, Netherlands, Spain and the UK) received their Lumias from November. As Christmas sales is a peak period, its fair to assume most Lumia sales in these markets did happen in Q4, not Q1.

Lets measure the maximum potential market for the Lumia, based on market measurements. Kantar Worldpanel kindly gave us a summary statement about Lumia sales in Q4, saying that in every market that they follow, which includes most of the big European markets where Lumia had launched, Kantar found that Lumia did not exceed 2% in any single country. 

Kantar reported from September 2011 market shares (and looking also at September 2010) that in September 2011, in the five biggest European markets, Nokia's market share in smartphones was 46.7% (as calculated on the basis of a weighted average per capita). So almost half of European consumers today will come to a store selling mobile phone handsets, with an existing Nokia smartphone in their pocket and would expect to replace it with the newest Nokia model.

Remember that Nokia did not have a broad portfolio of new rival smartphones to offer as a rival to the Lumia in these countries. And when 47% of customers walk in asking for the newest Nokia, then try the Lumia, and only (less than) 2% walk out with one - it means Nokia has managed to disappoint 94% of its existing customer base! The Lumia smartphones are so undesirable that more than nine out of ten currently Nokia-owning consumers will try it but reject it. (I said this would happen, especially in Europe, especially with existing Nokia users, but even I could not imagine it would be this bad). That is total comprehensive market failure - even where Microsoft will toss in a free Xbox gaming console to try to entice sales. No wonder Apple's iPhone and Samsung's Galaxy have had a stellar quarter.

These numbers are consistent with Nokia Q4 results (which do not break down the smartphone sales per region - I will do a calculation estimating that mix later on this blog). The overall Nokia handset sales declined 8% from the same quarter a year ago. But in Europe the handset sales (smartphones and dumbphones) declined 24%. Nokia in Europe is suffering far more than globally. And the most revealing number comes from handset revenues by region - which fell by 38%. So where Nokia was gaining revenues by sales of its premium smartphones like the Lumia and the N9, that was spectacularly not happening in Europe in Q4.

LUMIA ESTIMATE Q4

So lets take the European market. Kantar said no more than 2% in any market they measured. Lets forget about 'less than' and use the highest number, lets say every European market achieved 2% Lumia sales. You can't accuse me of trying to suppress the 'success' haha..

We have a convenient point in the global smartphone market to help us with this estimate. In Q3 China passed the USA as the single biggest smartphone country by volume. Europe has sold slightly more than the USA. When we add Canada to the USA to make a 'North America' market, we get actually four almost exactly even sized markets for smartphones - Europe, North America, China, and Rest of World. The total global market for smartphones for Q4 was about 148 million units, so each of these four markets has an individual market size of about 37 million smartphones. Lets do some math!

The 7 big European countries where Lumia 800 had launched in Q4 account for 63% of the subscribers. When we take 63% of the European 37 million market, we get 23.3 million for the countries where Lumia launched. Take 2% of that and we have 466,000 Lumia smartphone sales.

Then the expansion countries where Lumia 710 launched in mid December are Hong Kong, India, Russia, Singapore and Taiwan. These countries account for 26% of the mobile phone subscribers of the 'Rest of World' market so 26% of that 37 million gives us 192,000 smartphones. Except that Lumia had nearly two months of sales time in the first European markets, and only two weeks for these expansion countries, and only days before Christmas, it is definite that if Nokia Lumia can achieve 2% market success across those first 7 countries in about 2 months, it cannot even achieve half of that in only two weeks. But again, lets be generous to Nokia, and lets say that in these next five countries, Lumia achieved half the performance it did in the longer time in the first countries. So we cut the 192,000 in half, and thus Nokia sold 96,000 Lumia smartphones in the next five countries.

We have a total Lumia sales estimate for Q4 of 2011, in 12 countries of Europe and Asia of 466,000 + 92,000 = 558,000 units. Then to add the sales to the stores (there will always be some units in inventory not yet sold) we can call it roughly 600,000 total sales of Lumia during Q4, when measured as Nokia sales. No wonder Elop didn't want to mention the number. And yes, obviously, the Lumia sales account for 0.4% (not four percent, but zero point four percent) of all smartphones sold in Q4. Note we have to add other Windows Phone sales to that number and we'll have about 1% total global market share for Windows Phone the so-called third ecosystem haha..

LUMIA SALES EARLY PROJECTION Q1

And then we can see that if Nokia did about 1.1 million Lumia sales 'to date' - it would mean so far 500,000 more sales in January. Multiply that by 3 to get a full quarter, and we have 1,5 million sales. Add more growth or some more countries and in rough terms, expect Q2 sales for Lumia 800 and 710 to sell approx 2 million units in Q1. Pretty pathetic actually (especially if you are still holding your breath, that Nokia somehow matches that Morgan Stanley projection of 37 million Lumia sales this year haha).

HOW COMPARES TO N9

So Nokia did 600,000 Lumia sales in the most important new smartphone launch in Nokia history. The launch where all factors were totally in the control of the new CEO, without any limitations. He could decide what form factor the new phones would have, what countries to launch in, WHEN to launch the phones, when to ANNOUNCE the phones, when to demo the prototypes, who to receive samples to try them, etc. He had the biggest Nokia launch promotion budget ever, and that was then added to by literally several hundred million dollars of Microsoft marketing money to push the launch - inlcuding those famous free Xbox gaming consoles that you would receive if you bought Lumia 800s with some carriers/operators.

The Lumia first launch countries were not only markets where Nokia was exceptionally strong (having like I said, 47% market share in the installed base ie return customers) - they also were some of the wealthiest nations not just in Europe (UK, Germany etc) but in Asia (Singapore, Hong Kong etc). And they achieved 600,000.

How did this compare to Nokia's N9, where Nokia only had one handset to sell (vs 2 with Lumia). Where Nokia had almost no meaningful marketing support, and selling in many countries of very modest income levels like in Europe Romania, Turkey, Hungary, Slovakia etc - and in the rest of the world such less wealthy nations as Russia, Brazil, Mexico, Vietnam, Bangladesh and Indonesia.

Luckily I didn't have to do the math for this, the nice people at All About Symbian had tracked the numbers (read through the comments) and calculated the limits, finding N9 sales to be between the level of 1.5 million and 2.0 million units in Q4. Wow! Nokia specifically excluded all of its richest and biggest traditional markets where it tried to sell the Lumia, and these countries achieved - lets call it the average, 1.75 million unit sales of the N9 in Q4. So the one N9 outsold both Lumia handsets by almost exactly 3 to 1. And the average price of the two Lumia handsets is far less than the price of the N9.

Obviously MeeGo on one handset alone, with no Nokia support, is outselling all Windows Phone smartphones by Samsung, HTC and Nokia, with the massive Microsoft marketing effort, globally, by about 2 to 1. MeeGo does this in its first quarter when it was not sold for the full quarter. This compared to Windows Phone that is well into its second year of sales. What is wrong with this picture? Did I just see the 'Third Ecosystem' fall from 7th to 8th? Behind Android, Symbian, iOS, Blackberry, bada, Windows Mobile, and now even MeeGo? Why isn't Elop and Ballmer calling it what it is. Windows Phone is the 8th bestselling ecosystem, ie it will never succeed.

But lets go back to MeeGo. So you have cheaper smartphones, sold in the most affluent markets, with the biggest marketing support by Nokia ever, and with massive multi-hundred-million dollar marketing budget by Microsoft. And you get 600,000 unit sales for Lumia.

Then you have the more expensive smartphone, sold in far poorer markets, with minimal Nokia support and visibility, and no partners to toss in dollars, and you sell 3 times more? What is wrong with this picture?

WHY IS ELOP NOT FLOODING THE PLANET WITH MEEGO

The total footprint of the countries where the N9 now sells, covers a smartphone market in Q4 of 59 million units of smartphones sold. And Nokia did 1.75 million sales in it. If Elop had bothered to launch the N9 in all markets, rather than 1.75 million unit sales, he would have achieved 4.4 million unit sales just using this one handset. But there is a second MeeGo smartphone also manufactured today, that Elop simply refuses to sell. Understand, Nokia currently has a second MeeGo superphone, that it has not just designed and tested and put into production. All the big costs are now done. And Nokia refuses to sell this second MeeGo device to any markets! It is the N950, the sister phone to the N9, the QWERTY variant of the N9, much like how the E7 was the sister to the N8 last year. The N950 would sell well in all markets. If we assume it only sold 50% of the level that the N9 is selling now, Nokia would have MeeGo sales of 6.6 million smartphones globally.

Note, I set my target 6.4 million before we had this data. And if only Nokia release the N9 globally, rather than bizarre distant lands like Kazakhstan and New Zealand - and offered the sister phone N950 - even before any real strong Nokia support, the math suggests Nokia would have easily cleared the target I said what Nokia should be able to do today, when launching a new smartphone platform and device. Why Elop only managed 600,000 in Q4 - yes, only one TENTH of what any reasonable expectation would have been - says less about how bad Elop is as a manager, and more about how much the carriers and retail channel hate now Elop, Nokia as it currently is seen, and especially Microsoft, and Windows Phone.

But yes, 6.6 million unit sales is what Nokia had in its hand for Q4 if any sane manager had been in charge. This is BEFORE we consider Elop's personal support of MeeGo and any reasonable marketing support by Nokia, which would boost those sales considerably! Remember, the N9 already is being called superior to the iPhone 4S by some comparisons (the Lumia 800 and even Lumia 900 comes nowhere close to such comparisons). Remember the German newsmagazine Der Stern endorsement that was so glowing, they urged Germans to drive to Switzerland to buy an N9 rather than buying a Lumia 800 today.

HOW MUCH MONEY 

The profit margin for the Nokia smartphone unit a year ago, when it was selling the N8, was 11%. As this was the flagship phone, a very conservative estimate is that the profit margin for the N8 was twice that, at 22% (probably far bigger at the time). If we use a 400 Euro price for the N9 and N950, and we assign 22% profit margin - provocativcely now - the total revenues that Elop is now abandoning out of not selling his MeeGo smartphones is ... 6.6M units minus 1.75M units = 4.85M units of abandoned sales to loyal Nokia customers who are yearning for a new Nokia flagship smartphone they can love.

How much is that? 4.85 million MeeGo sales (N9 and N950) at 400 Euros per handset = 1.9 Billion Euros of revenues. Rather than Nokia reporting a 1.6 Billion Euro decline in sales revenues in Q4, with 2.7 Billion total revenues in the unit, Nokia's CEO could have proudly reported an INCREASE of 300 million Euros above the revenues a year ago in smartphones and total revenues now of 4.6 Billion Euros.

And profits? The extra 4.85 million MeeGo sales that Nokia had in its palm, but refused to take, would have generated at only 22% profit margin, additional profits to the smartphone unit of .. 426 million Euros !! So the smartphone unit, rather than reporting a loss of 190 million Euros, would have instead reported a profit of 236 million Euros ! 

That not only would have been the biggest profit in the smartphone unit of any of the Nokia quarters in 2011, it would have even pulled the Nokia smartphone unit into the profit column for the full year 2011 !!!!

What is wrong with Stephen Elop? How incompetent is he, to take a highly desirable product he has, and refuse to sell it broadly, now when it still is reasonably hot and in demand. This opportunity will vanish in only some months. He is a criminal for not selling the MeeGo handsets broadly now. He is acting against the best interests of Nokia (out of some mis-placed loyalty to Microsoft). Elop must be fired, now! 

PS - I have now added the regional split calculation and some stunning findings about Lumia and N9 customer acceptance. 

UPDATE APRIL 11

For anyone still reading this blog, Nokia just issued its profit warning today and I have commented on it and crunched some numbers. The Q1 Lumia sales were disasterous too, at only 2 million - which means that as China had its New Year's gift-giving sales and the iPhone 4S had severe launch problems (some shops shut for several days fearing riots) - the N9 may have outsold all Lumia also in Q1. Read my view of the Nokia Profit Warning and why things are even worse.

Nokia Q4 Results: Now Official, Elop has Created World-Record Destruction of Market Share in One Year

The Nokia results are out and they are brutal. It ended up being almost exactly as I predicted back in February. Nokia smartphone market share has crashed to 12% from 29% exactly 12 months ago. As I said, Nokia's smartphone unit went from generating growing profits, to generating increasing losses. And yes, just like I predicted, all of Nokia Corporation was pushed into loss-making.

For 2010 Nokia sold twice as many smartphones as Apple, and by Q4 iPhone was outselling all Nokia smartphones almost exactly by two to one. This is a historical moment. We have witnessed the establishment of a humiliating world record. We have a new definition of colossal corporate incompetence. Mark this day. We can now evaluate the full effect of the Elop Effect.

Here are the Q4 final numbers for the Bloodbath analysis. Nokia sold 19.6 million smartphones for the Quarter and 77.3 million for the full year. A year ago Nokia grew smartphone sales by 45%. Under Elop's management, Nokia replaced the strong growth with a massive decline, dropping 25% when the industry itself had a massive year growing by over 60%.

The market share exactly a year ago at Q4 was 29% and yes, Nokia was so dominant in smartphones, it was not just the biggest smartphone maker, it was literally more than twice as big as its nearest rival and obviously also bigger than its two nearest rivals combined. Nokia was not fighting its rivals like in most businesses where the top 2 players are close in size, like Coke and Pepsi, or like Toyota and General Motors, not like Boeing and Airbus etc. Nokia was TOWERING over its rivals. Literally, more than twice as big as its nearest rival, just 12 months ago!

Since then we had the new CEO Elop on a Rampage of Ruin, starting with the Elop Effect, where he combined the biggest management mistake ever of current product endorsements of the Ratner Effect, with the biggest management mistake ever of future plans of the Osborne Effect. His Elop Effect alone has cost Nokia billions in revenues and profits. I calculated in December that the Elop Effect had already wiped out from Nokia Corporation revenues as big as those of the total revenues Oracle Corporation, and worse, the Elop Effect had destroyed profits as big as the total profits of Google! The equivalent damage was as if a whole RIM ie Blackberry sized hole was cut out of Nokia, just due to the Elop Effect.

Then he continued feuding with his distributor channel, angering Nokia partners and frustrating Nokia supplier chain. The sales not just crashed for Q1 from 29% to 24% but due to Elop's continued mismanagement, Nokia smartphone sales fell throughout the year, down further to 16% in Q2, then 14% in Q3 and now 12% in Q4.

THIS IS A WORLD RECORD OF MISMANAGEMENT

This is not like New Coke. This is not like the BP Oil Spill. This is not like Toyota's problem with brakes. There have been huge disasters in business in history, but nothing like what we witnessed in 2011. Never in the economic history of mankind has there been a global market leader brand, that collapsed so totally in one year. Nokia was growing 45% from 2009 to 2010 in smartphones. Nokia was successfully migrating its 'dumbphone' customers to smartphones, by Q4 of 2010, Nokia had migrated 25% of its handset customers to smartphones while the world had only migrated 22%. All of Nokia's rivals were far behind in that transition, Motorola so badly, they had lost 8 out of every 10 customers they tried to migrate from dumbphones to smartphones. And how did Elop snatch defeat from the jaws of victory? Today Nokia's proportion of smartphones is down to 17% - while the industry has reached the point where 29% of all phones sold globally are smartphones!

I cannot emphasize how strategically moronic this is. Previously, up to 2010, Nokia was GAINING customers, as it migrated its customer base from dumbphones to smartphones. The fact was, that Nokia was so successful in designing desirable phones - for Nokia existing customer preferences - that it actually gained customers while migrating them to more expensive smartphones. As long as Nokia was doing that profitably - and it was - that was perfection in executing a transition from a legacy business of dumbphones to smartphones. Elop has now reversed that.

Now Nokia is on a Motorola trajectory, where Nokia customers are actually lost when shifting from dumbphones to smartphones - and alarmingly that rate has been increasing and is now at the rate of two lost for every one retained! Worst of all, now obviously Nokia is doing this generating huge losses in its smartphone unit. Really, readers. It is like Nokia looked at how Motorola collapsed, and Elop came in and said, lets do a Motorola for Nokia but lets just do it much faster. This is strategic: Elop not only destroyed Nokia's today, Elop is also destroying Nokia's tomorrow. And now Nokia is going against the global trend, where the world went from 21% of all new phone sales being smartphones in 2010 to 29% now. And Nokia is going against the grain, shredding its loyal customers as it peddles undesirable smartphones. Nokia's customers are so disgusted - they are more willing to buy a cheap non-smartphone, than a smartphone!

UNPRECEDENTED MARKET CARNAGE

In the past 12 months Nokia has shredded six out of every ten customers it had! This is comprehensive global collapse in the period of one year. Nothing like this has happened anywhere, in any industry. ANd look at past handset rivals. When Motorola collapsed, it achieved something like this, yes, but that happened over a three-year period, not in 12 months. When Palm died, it did it gracefully over a five-year period. Siemens did not collapse like this, nor did Microsoft's Windows Mobile.

From utter market dominance, literally bigger than its two biggest rivals combined, Elop exchanged 29% market share for 12% today. Both Apple and Samsung have already passed Nokia as bigger smartphone makers in Q2 and Q3. By Q4 Apple sold 37 million smatphones, which is a hair less than twice the number of smartphones sold by Nokia in the same period at 19.6 million. This has never ever happened before, in any industry, not in cars, not in TV sets, not in soft drinks, not in detergent, not in running shoes, not in airlines, nowhere! The dominant market leader collapsed in one year and has gone from more than twice the size of its nearest competitor, to about half the size of its strongest competitor. This is unprecedented market disaster!

I warned this would happen and while there were many points in 2011 where Elop could have saved Nokia, he refused to budge. He admitted the sales crash was worse than he expected. His partner over at Microsoft Steve Ballmer has admitted Windows Phone has disappointed dramatically. The past GM of Windows Phone who left Microsoft has admitted that carriers hate Microsoft's mobile activities and in 2011 Microsoft has only made matters worse. Now we have seen how badly Nokia has done with its Lumia strategy.

Note, one year ago at this time, when Elop had been in charge for about five months, Nokia shareholders had appreciated Elop's leadership and the strong performance in the smartphone unit so well, that the Nokia share price had grown by 11%. Since the Elop Effect, Nokia share price had fallen by more than half. Nokia's shares were rated one notch below perfect at this time last year. Since then all three ratings agencies issued a series of downgrades and Nokia is now rated junk. Nokia's brand was consistently one of the 10 most valuable brands on the planet. Elop's actions dropped the Nokia brand out of the Top 10 for the first time ever.

I am not suggesting that somehow Nokia was perfect - the previous management under Olli-Pekka Kallasvuo had damaged Nokia well from its peak value years ago. But that damage had been reversed, Nokia was strongly in recovery mode by Q4 of 2010. I am not attempting in the least to suggest Symbian was going to somehow save Nokia, the decision was taken long before Elop came along, that Symbian woiuld be replaced - and I had written on this blog many times why that was the right thing to do. Nokia's problems were with execution, not its smartphone strategy. I wrote for example this a year ago, about Nokia problems in execution and marketing. Elop was hired to fix execution problems, not to destroy its smartphone unit, as Chairman Jorma Ollila clearly stated when Elop was announced in early Autumn 2010. 

As Nokia was plunged into generating big losses last year, Elop has been since selling various Nokia assets to try to keep the company afloat. He has tried to sell the NSN unit and currently is trying to sell the Vertu luxury phone unit. He has already sold several batches of patents, and just sold Nokia's handset factories in Romania. He also has been firing staff, more than 10,000 were let go already, and we just heard another 13,000 will be fired next. This guy is destroying Nokia as we knew it.

COMPARE THEN AND NOW

One year ago, exactly this time Q4 results, this was Nokia smartphones, compared to today:

ITEM . . . . . . . . . . . . . . Q4 2010 . . . . . . . . Q4 2011

Smartphone unit sales . . 28.6 M . . . . . . . . . 19.7 M
Unit growth YoY . . . . . . 45% . . . . . . . . . . . minus 31%
Average Sales Price . . . 154 Euro . . . . . . . . 140 Euro
Smartphone Revenues . . 4.4 B Euro . . . . . . 2.7 B Euro
Smartphone profits . . . . 510 M Euro . . . . . . minus 190 M Euro
Market Share . . . . . . . . 29% . . . . . . . . . . . 12%
Smartphone migration . . 25% . . . . . . . . . . . 17% 

If you thought RIM was having trouble, it is nothing compared to this. In every way Nokia has seen an epic collapse and please understand, there is no bigger story in mobile, this is a WORLD RECORD in market collapse. Please also remember the recent analysis by Horace Dediu at Asymco blog, that in mobile, once your handset maker degenerates from profit-making into loss-making, there is no recovery. The history is clear about that from Siemens to Ericsson to Palm to Motorola. Not only that, we also see that Nokia's corporate loss of 1.1B Euros (about 1.4B US dollars) was actually 250 million dollars bigger in its operations - yes, the Q4 period included a 250 million cash payment from Microsoft to try to prop up CEO Stephen Elop and his mad Microsoft strategy. Yes, Nokia's losses in reality based on its actual market performance are far worse. And that loss goes to the smartphones unit which in reality generated nearly a 400 million Euro loss if this Microsoft cash injection is removed. And then, yes, the Microsoft 'strategy' - can it save Nokia? No.

LUMIA IS A FAILURE

Nokia refuses to give actual Lumia sales numbers. So does Microsoft. We can see from that, that both companies are ashamed about the lack of traction and fear reporting the number. Note, a year ago Microsoft proudly published its 2 million figure. Since then Microsoft has admitted that Windows Phone sales have declined from quarter to quarter. Now we know that 'to date' by January 26, Nokia's Lumia has sold 'well over 1 million Lumia devices to date'. That more than 1 million was achieved in the three months from November to end-of-January. The Q4 sales will be significantly below 1 million, and analysis of the Nokia launch markets for Lumia sugggest about 600,000 total Lumia sales in Q4. That compares to an equivalent launch of Nokia's then-new operating system, the S^3 release of Symbian, which sold 4 million units in Q4. When adjusted for the market growth in 2011, that would mean 6.4 million sales now. But under Elop's management his Microsoft Madness strategy has yielded a success rate of one TENTH of what Nokia did a year ago with the 'obsolete' Symbian and the then-flagship smartphone N8.

Note Nokia refuses to give us a sales number for N9 sales using the MeeGo OS. That means MeeGo has outsold Lumia. And we have an independent analysis which says MeeGo sold 1.4 million units in Q4. This is particularly relevant, as the MeeGo countries of N9 launch were selected to be very tiny smartphone markets like New Zealand, Singapore, Norway, Nigeria and Kazakhstan. I will do my analysis of what is the equivalent performance of the MeeGo platform vs Lumia phones by Nokia, in a separate blog shortly. It is disappointing to find that Elop refuses to celebrate the huge success that the N9 has been in horrid conditions and with no top management support.

WINDOWS PHONE WILL NOT SAVE NOKIA

First of all, I have of course given my review of the first Lumia smartphone and why it will fail as a flagship phone, whether Nokia intended it as such or not. Then I gave a detailed analysis of where and why Lumia is failing in the market once we had market data. I have given my forecasts of what the years 2012 and 2013 will look like for Nokia and Lumia. And of course, I will revisit those forecasts and give you my latest revised picture based on these latest Nokia numbers. But lets not use my numbers. We have seen now two forecasts for Nokia Lumia success potential, by Morgan Stanley and iSupply. Lets see how plausible these are and what they tell us.

The Morgan Stanley forecast is the one you may have seen promising 37 million Lumia sales this year. The iSupply forecast is the one that promised Windows Phone to pass the iPhone by 2015 and achieve 17% market share. Lets examine briefly these two forecasts.

MORGAN STANLEY SUGGESTS LUMIA ONLY 7% BY END OF 2013

The Morgan Stanley forecast from January 2012, said Nokia Lumia sales would hit 37 million this year 2012 and 64 million in 2013. They add also Symbian sales so total Nokia smartphone sales would be 77 million in 2012 and 80 million in 2013. Note - first of all, that Morgan Stanley clearly expect that somehow Nokia can stem the decline in smartphone sales last year (of 23%) this year to be flat sales this year, and a slight growth of 5% next year for all Nokia branded smartphones. Secondly, Morgan Stanley expects that Nokia can still sell 40 million Symbian smartphones this year 2012 and 16 million next year. I think these are very rosy expectations (especially, now in light of Nokia Q4 results, when Elop clearly said he no longer expects Symbian to sell those promised 150 million more units he committed to last February) but lets assume Morgan Stanley's forecast is close to accurate. What do these numbers mean?

Morgan Stanley's forecast of 37 million Lumia sales in 2012 means 5% market share this year and the 64 million Lumia sales for 2013 suggests 7% market share by next year! This is success? I fear not. What when we add in Symbian sales. Morgan Stanley's projection suggests Nokia total smartphone sales this year 2012 would see a further drop in market share to 11% this year and down to 8% in 2013. If you think Nokia who dominated smartphones last year, would have 8% next year, and thus according to this optimistic forecast, Nokia would have expelled three out of ever four customers it ever had - that is the very definition of corporate suicide. (and I think this Morgan Stanley projection is too rosy)

iSUPPLY EVEN BASE NUMBERS ARE WRONG

Lets turn to iSupply. Just now in January, IHS iSupply gives the projection for Windows Phone sales (remember, not only Nokia provides WP7 smartphones, also Samsung and HTC offer a token few smartphones in that space but both obviously give preference to Android). They project Windows Phone to have 1.9% in 2011, then 9.0% in 2012, then 15.3% in 2013, 16.1% in 2014 and 16.7% in 2015. They do not separate Symbian sales out of the numbers, but just to see how implausible these numbers are, lets look at the other 2011 numbers. iSupply has estimated the iPhone to be the 'loser' to Windows Phone. They start with iPhone to have 18.0% in 2011. The reality is, that Apple achieved 20% market share in 2011. So the difference in iSupply's forecast in 2015 is literally one tenth of one percent between iPhone and Windows Phone, but iSupply starts by punishing Apple by 2 full percentage points! Then the growth? Apple grew 2 points in 2011 and currently in Q4 with the new iPhone 4S, Apple is selling 25% of all smartphones globally! Meanwhile iSupply felt that that Apple would be flat in 2012? That is perhaps a fair projection if iSupply thought that Apple's sales were flat in 2011, but Apple grew 2 points. Why would the iPhone then fall in 2012?

But look at iSupply's number for Windows Phone in 2012, this year. Last year all Microsoft partners sold about 5-6 million smartphones in total (remember, MIcrosoft itself was so afraid to give the number they started to count both the new Windows Phone sales with the older and incompatible Windows Mobile sales last year - and still in Q4, Windows Mobile was outselling Windows Phone in Microsoft's best market, the USA, as we found from Nielsen Q4 new sales measurements). Now lets say it was 6 million in 2011. Then suddenly iSupply feels that this year 2012, that will suddenly explode to 63 million? TEN FOLD INCREASE IN ONE YEAR? On what planet? The only manufacturer who will focus on Windows Phone will be Nokia and Morgan Stanley in their optimistic view only counted about half that number for Nokia Lumia sales. Android did not explode 10-fold in the third year of its sales. Apple's iPhone did not explode 10-fold sales in its third year. There is no precedent for this outrageous forecast. And even if it were to be true, EVEN if it were to be true, then by the end of 2015, four full years from now, the total Windows Phone family of handset makers would have achieved selling one out of every six phones worldwide, and Nokia would have some slice of that pie. A year ago Nokia alone was selling one out of every three smartphones sold globally.   

We have seen that Nokia's biggest smartphone launch ever, with the biggest market support, with the biggest artificial creation of demand, as Nokia's Symbian based phones were almost extinct from handset stores; with the biggest marketing expenditure Nokia had ever done for smartphones; combined with hundreds of millions of more marketing support from Microsoft's deep pockets - to the degree that in the UK for example consumers got free Xbox videogaming consoles if they bought a Nokia Lumia 800 smartphone - yet the sales in Q4 were well below one million (and likely about 600,000). Kantar measured Q4 sales for Lumia and in no major market did Lumia pass even 2% sales of smartphones - these were Nokia's best markets where Nokia's market share a year ago was between 35% and 60%. Now the Lumia sales have failed to succeed, to the point that Nokia is already slashing prices to sustain what sales remain. Do not delude yourself, Lumia cannot save Nokia.

I will return with more Nokia analysis but these Q4 results are devastating. We did witness a world record in corporate management. Nokia's CEO Stephen Elop took the world's strongest smartphone maker brand and ruined it in one year. He replaced strongly growing sales and 29% market share with 12% today, projected to hit 8% next year. He took strongly growing revenues and profits, and replaced them with declining revenues and big losses. Most of all, he managed to reverse the trend of migrating Nokia customers from low-cost dumbphones to smartphones - now Nokia is literally bleeding customers when they come to replace a phone, for the first time ever, Nokia's market share in smartphones is worse than in dumbhones - and worse than the global migration to smartphones. Last year one quarter of Nokia's customer base had been migrated to smartphones, where the future of the mobile phone business exists. Today Elop has scared those customers away, and only one in six customers of Nokia phones select smartphones. He will be studied in MBA courses as the case study of the greatest management failure of all time, and no doubt, many will arrive at the same nickname as I use for Stephen Elop: he is the Microsoft Muppet. The Nokia Board must fire him immediately before he ruins what is left of Nokia.

PS - I have now added the calculation of Lumia sales for Q4 (600,000 units) - compare it to N9 MeeGo sales of 1.75 Million - both launched in the same quarter and you can sense my frustration with Elop. 

PS PS - I now added also the regional split calculation with some stunning customer acceptance findings. But read the Lumia sales blog first (the above link) 

Apple Results? Beyond Monster Quarter selling 37M units of iPhones to 25% market share

In Bloodbath news we expected a great quarter by Apple but the iPhone has simply blown everyone away including just about all analysts. Apple reported 37M unit sales of iPhones. This is up 116% from Q3 more than doubling sales in just 3 months. The unit sales are up 130% from a year ago. iPhone market share has hit about 25% for Q4 (obviously we don't know exact market share until all companies have reported and we have a full market size, but that is pretty surely within one percentage point either way). This is up from 15% market share three months ago. Wow. Wow-wow-wow. Apple has had a humongous quarter.

And for the full year? The iPhone hit 93.1M units sold. That number means a preliminary market share of 20% for the full year 2011. Very very good for Apple, congratulations! All this while selling the most expensive line of smartphones in the world, and making by far the biggest profits of the industry. Clear perfect quarter for Apple, total perfection.

In the Bloodbath battle it was already certain that Apple was the finalist for top honors both for the Quarter and the full Year title. Nokia was out of it, the only contender the iPhone now faces is the series of smartphones from Samsung. We now know the numbers. Samsung would need to do 37.1M units of sales in Q4 obviously to pass Apple and retain its title as the biggest smartphone seller for the quarter - a tall order, Samsung grew by 40% from Q2 to Q3. Now in light of this massive iPhone 4S quarter, Samsung would have had to increase its growth rate to 48% to achieve that level. And for the full year, the magic number is 37.7M for Samsung, any number lower than that, and Apple will get the annual crown as the first company ever with a name other than Nokia, to be crowned as the biggest smartphone maker in the world. Samsung numbers will come out in a week so now we wait.

PS that argument I made in 2010 that iPhone sales in market share had peaked on an annual level? Obviously I was found wrong this time last year as the iPhone did grow one percent in market share. But just like I wrote with the analysis of the Nokia collapse, that helped Apple resume strong growth and we have seen it now. Much of this growth for Apple in 2011 was due to the voluntary collapse of its strongest global competitor who just in 2010 sold more than twice as many smartphones as Apple in total. But don't take this as Tomi sour grapes about Apple. Apple had to take advantage of the Nokia collapse opportunity. Some of the rivals in smartphones managed that - like Samsung and Apple - others utterly failed to do that like Blackberry and Motorola. So this is also congratulations for Apple for being nimble enough to be able to capitalize when the biggest company in the industry suddenly stumbles and loses more than half of its market in less than a year.

One more note about Apple and Q1 (calendar quarter ie Januar-March quarter). Apple has established a good China quarter pattern after Christmas sales. It surprised every analyst in 2010 (including me) and in 2011 it still caught out many who reviewed Apple. The pattern for most industries is that after-Christmas sales in Q1 fall from the peak in Q4. With Apple having strong China sales, especially with the iPhone, Apple has produced slight growth from Q4 to Q1, so be prepared for that. However, this year 2012 we have two factors that may suppress the iPhone number for Q1 - first, the Chinese New Year came really early this year on 23rd January (ie the Gift-giving season, sometimes Chinese New Year comes well into February). Secondly, the iPhone 4S was not released for China until early January, and then it had that famous disaster in sales in its flagship stores, which closed for several days due to the riots. So Apple had less time to sell the 4S and even out of that, Apple kept some of its stores closed. We might see a slight dip in iPhone sales for Q1 rather than the usual growth from Q4.

Kodak Analogy is not Nokia, it is Motorola; Nokia analogy is not Kodak, its IBM

Alan wrote a great blog article here about Kodak last week (and its so delightful to come to the CDB blog and find a new article by Alan, isn't it? I always learn so much). His story was about the big picture disruption in the world economy and showed where a classic giant global corporation and brand like Kodak might die in the disruption but another giant global corporation and brand like Lego might survive. An excellent article about disruption.

In the article Alan quoted Om Malik who then mentioned Nokia vs Apple & Google in smartphones. I see a lot of that from mostly USA based writers. We also have some debate in the comments here on this blog. So let me make this observation about the Kodak death how it applies to mobile, where the right analogy is and why Nokia is not the right analogy. Similarly, where is the right analogy for Nokia now.

So Kodak was the world's biggest camera manufacturer at one point in time and for almost its whole existence, the Kodak corporation was the world's largest camera film manufacturer. Kodak actually invented the digital camera, which we now all know, has cannibalized more than 95% of the planet's photography business. And most of those digital cameras are now on mobile phones, ie cameraphones, no longer on stand-alone digital cameras although they too are still selling in large numbers. Film based cameras are a very tiny niche industry now, for the professionals and semi-professionals and some other industries like the movies and some medical instruments (X-ray machines) etc.

The point is, that Kodak was the world's biggest camera and photography company at one point in time. That industry has shifted almost totally to a new technology not compatible with film, and it is called digital photograpy. And Kodak actually invented that digital camera. Why isn't Kodak today the world's biggest digital camera maker or even one of the big camera or photography brands. Because Kodak did not pursue its invention and only made a very token attempt at digital cameras. So the issue here is that the shift in the camera industry was invented by Kodak but it did not significantly attempt to capitalize on it.

KODAK ANALOGY IS NOT NOKIA IN PHONES

The analogy Om Malik makes is about smartphones. That is not a valid analogy. Yes, just like Kodak invented the digital camera, so too Nokia invented the smartphone. But unlike Kodak, Nokia had pursued rigirously a shift in its handset prodcution from dumbpohnes to smartphones. Of all the mobile phone handset makers in existence when the smartphone was invented by Nokia, its major rivals all had to embrace this shift as well, into smartphones. It is not valid to compare Nokia's journey to someone who is new who only makes smarpthones (like Apple) or who only makes the software part of smartphones (like Google). That is not the correct analogy to Kodak. Kodak's migration to the digital camera world is correctly compared to Nikon and Canon and Polaroid and Minolta and Carl Zeiss and Vivitar and Takumar etc. The incorrect comparison is to compare Kodak to those companies that never made cameras before the invention of the digital camera like Sony or Samsung or Apple or Nokia etc. 

And of Nokia's biggest rivals in the dumbphone industry a decade ago, most of the big makers did not survive the transition. Motorola? Gone. Siemens? Sold its handsets unit. Ericsson? Tried partnering with Sony but quit that attempt just a few months ago. The only Big 5 handset maker from 2001 in the world who is still alive and now making smartphones, apart from Nokia, is Samsung.

Apple did many things in mobile and disrupted the world utterly, but Apple did not kill Nokia in smartphones. A year ago, Nokia was massively bigger than Apple in smartphones, massively. Nokia only in smartphones, was not only bigger than Apple, it was bigger than Apple and Samsung smartphones - combined. And Nokia's smartphone sales - contrary to myth - was growing strongly in 2010 - by 45% from the year before - and Nokia's diminshing profits in its handset unit, had been turned back into strong growth of profits by year-end. Nokia was not anywhere near its death-bed due to the smartphone revolution, nor because of Apple. And as to Google, yes, the Android OS did catch up to Symbian by the Spring of 2011 and is today bigger, but again, Symbian didn't die due to Android. Symbian was still growing (again by 45%) in 2010. Not growing as fast as the industry, so Symbian was losing some market share, but Symbian was nowhere near any threat of extinction.

No. Nokia did not die (or start to die) because of Apple and Google. Nokia's strong growth turned into catastrophic collapse of sales on February 11, 2011, when CEO Stephen Elop torpedoed Nokia's brand and sales and future. Kodak died because it did not capitalize on the invention. Nokia pursued its invention rigorously and remarkably successfully - remember, Nokia was bigger than Apple and Samsung smarthpones combined! That is not failure. 

KODAK ANALOGY IN PHONES IS MOTOROLA

No. Nokia analogy is something different. But before we go to that, let me show you the true Kodak analogy in mobile phone handsets. This will make you cry. Its Motorola. So in mobile phones (cellular phones) we have seen two full generations and the birth of the third. The first generation ie 1G cellular phones were on an analog technology basis launched first in Japan in 1979. The second generation ie 2G was digital and was launched in Finland in 1991.. The third generation 3G networks were launched in Japan in 2001; Motorola invented the portable cellular phone handset (while it did not launch the mobile industry, earlier mobile phones on cellular networks were carphones and briefcase phones). But Motorola did invent the digital wireless communications.

You didn't know that? Yes, Motorola had a very large part of its early business from the military. The original 'walkie talkie' military portable radios that the US army and marines used in World War 2, were made by Motorola. And then Motorola continued to provide ever more sophisticated and portable communciation gear for the military. They then found that wireless communciation was being spied on, so they came up with a way to disguise radio communication and make it undetectable, and safe from decyphering. They did it with a technology called CDMA. That is yes on the basis of the 3G technology we use in our 'UMTS' or WCDMA based GSM-compatible 3G smartphones used in all countries; as well as on the CDMA based 2G dumbphones and 3G smartphones used in the USA, Canada and some parts of Asia and Latin America.

So Motorola was truly inventing digital wireless communication technology, well before consumers were using mobile phones even on the 1G standards. This is VERY much like Kodak's invention of the digital camera. Motorola did produce digital radio gear for various armies of the world, and later that military technology was adapted for civilian use. Here is where Motorola lost the plot. It was Nokia who launched the world's first digital cellular phones, while being a tiny rival to Motorola. Motorola had invented the technology (in another unit) and didn't rush to bring it to mobile phones. Then, like Kodak, Motorola saw its rivals deploying this technology and was very late to get onboard.

In 1997 Motorola was by far the world's biggest mobile phone maker, and most of its phones were analog 1G phones. Nokia was rising on digital mobile phones. By 1998 Nokia passed Motorola. By 2006 Samsung had passed Motorola. By 2008 LG had passed Motorola. By 2010 Motorola was so bankrupt, it sold its networking unit to Nokia, and the rest of Motorola was split in two. Its handset unit tried to fight it alone, and continued generating losses, and was bought by Google last year. Motorola is the analogy to Kodak, in that it invented the new technology, but did not pursue it rigorously from early on, and when it finally did, it was too little and too late, and excepting for a last heroic hurrah with the Razr, MotoMoto is gone.

NOKIA ANALOGY IS IBM

The nearest tech analogy for what Nokia actually did in smartphones, is IBM. This is not a perfect analogy, but let me make it as close as possible. IBM once towered over its rivals as a computer maker, so much that in the 1970s and early 1980s the computer industry was called IBM and the BUNCH - with Burroughs, Univac, NCR, Control Data and Honeywell all essentially the five dwarfs on the feet of the global giant IBM and this is like Nokia was in the mid 2000s towering over its rivals as big as the next 4 biggest rivals combined (in terms of units of mobile phone handsets sold per year). 

Like IBM, also Nokia made both its mobile phone handsets and the software for it, both in dumbphones and smartphones. Same for IBM mainframes. Then came the PC. IBM didn't invent the PC and early PCs were seen by IBM management as toys not fit for proper business use. Apple came along and sold more actual computer units than IBM which shook the company (this was Apple 2, long before there was a Mac) and IBM decided they should get into the PC market. They created the IBM PC which was introduced with iconic advertising using an actor portraying the Charlie Chaplin character of the tramp. What IBM did however, was to still dismiss the relevance of the PC so much, that they didn't bother to develop their own OS software for the PC, they outsourced that to Bill Gates's little start-up company called Microsoft. 

I know the analogy to Nokia is not strong here, Nokia invented the smartphone but at least one could say that the early Symbian OS development was not done in-house by Nokia, Symbian was set up as a separate entity co-owned by the major handset maker rivals like Motorola, Sony, Ericsson, Panasonic, Samsung, Siemens etc - with Nokia only one of the shareholders.

But yes, to my analogy. IBM did use the PC to become the world's largest PC maker and passing Apple to take back the title as the world's largest computer manufacturer when measured by units sold. Then came the Apple disruption - the Macintosh PC, with its radical mouse and graphical user interface (what we think of as Windows style PCs today) and all its user-friendly innovations like displays that showed what the finished printouts would look like, and hypertext links (what enabled the WorldWide Web half a decade later) etc.

Microsoft was powering all IBM personal computers at the time. Microsoft set on to build a rival to the Macintosh OS, what became Windows. IBM could have remained with the Microsoft OS version - which was the world's bestselling OS platform both on DOS and Windows, the Mac never passed either in scale. But IBM departed from the leading Microsoft platform, suddenly, and decided to develop its own rival to the Mac, called OS/2. IBM had been on the world's bestselling OS platfrom for PCs while it was the world's bestselling PC brand. Then it decided to abandon that platform, and try to create a new rival inhouse.

Now look at Nokia. Nokia's Symbian platform was still in Q4 of 2010 the world's bestselling smartphone OS according to all analyst houses but one (and that one was ridiculed by the industry for an obvious blatant mathematical error). Nokia decided to abandon the world's leading OS platform, and replace it with the smallest of the seven in production at the time in February 2011, Microsoft's Windows Phone.

Since that decision was made, Nokia has so far lost half of its market in half a year (we will see how much worse the damage is in a few days when Nokia Q4 results are released). This is a world record collapse of global market share in any industry ever. Now Nokia's path looks very similar to how IBM suffered with OS/2. They struggled for several years attempting to sell premium IBM PCs using OS/2, and found their market share in terminal decline - until they abandoned OS/2 and shifted back to the Microsoft world which now was obviously Windows. The journey was so costly, IBM would later see its PC business become so unprofitable it was sold to Lenovo.

Like I said, this is not a perfect analogy, but this is the nearest. IBM did have a world-leading market share in its PCs over all rivals, using the world's best-used OS. So was Nokia last year using its own world-leading OS in smarpthones. IBM decided to abandon that platform to switch to what was definitely no better than 4th biggest OS at any one point in time. Nokia did the same abandoning the leading OS for what seems to still today be the 7th best (might be 6th best for Q4 when the final numbers are out). And just like IBM, Nokia has already seen its global market leadership position collapse last year, falling from by far the biggest smartphone maker to only third biggest by Q3. 

Kodak lost because while it invented the digital camera, it did not pursue the opportunity from the start, and when it finally did, it never did it well enough to recover the leadership position. This is not the analogy to Nokia, which also invented the smarthpone, but Nokia did pursue leadership in smartphones and did that successfully for every single quarter smartphones have ever been sold up until Q2 of 2011.

The correct mobile phone handset analogy to Kodak is Motorola. They did invent digital wireless telecoms but did not pursue that opportunity in consumer oriented cellular phones until too late and never regained their leadership in it. They ended up losing to the rivals who went digital faster.

The correct analogy for Nokia is IBM, where both companies had the global hardware leadership position in their respective industries. As the software side of the business was disrupted, both companies held at one point the world's bestselling OS but in both cases, management moved away from the leading OS to the smallest in the market. This caused hardware sales to fall and in the case of IBM led to a highly profitable PC company reporting losses and being forced to sell its PC unit to Lenovo. Similarly Nokia turned into losses and now there are rumors that the smartphone unit (or indeed all of Nokia) might be sold.

The irony is that at least in the case of IBM, the company understood that Microsoft the subcontractor of the OS was like a vampire sucking all the profits out of IBM's box-mover PC sales. Microsoft saw the Macintosh shift in the industry as an opportunity to move away from Microsoft and try its own OS instead. With Nokia it is very sadly the opposite. Nokia had a highly successful OS development team, including Symbian, MeeGo and Qt, And Nokia decided rather than use its own world-leading OS platforms, it abandoned that control of its own destiny, to adopt Microsoft's OS and now has to pay a licence for every smartphone sold that uses the Microsoft Windows Phone software. The IBM decision was at least a reasonably logical one, that might have succeeded, and a worthwhile risk to take by management, that did not work out. The Nokia decision is simply an insane one.

So Kodak management had a treasure among their intellectual property, which they did not understand well enough and failed to exploit. That was bad judgement by management. This was the same at Motorola with digital communications. IBM management issue was a case of a gamble in switching its operating system platform away from the market leader to a small rival. The execution might have perhaps worked but did not. Nokia is doing something similar and its early signs show that the change is actually even worse for Nokia than what happened at IBM.

Thats my view on the Kodak analogies..

The No Straight Lines challenge: be realistic imagine the impossible

What do these have in common?

A car company built around a global community as an organisation, enabled by combining flex manufacturing techniques, open source platforms, open legal frameworks and social communication technologies premised upon cooperation, fuelled by the desire to be a great company and green; that can build cars 5 times faster at 100 times less the capital costs. A crisis management platform and organisation born out of the Kenyan post-election crisis of 2008 that can record critical information of events unfolding on the ground via a blend of location-based data, eyewitness accounts and mobile telephony, from often hard to reach places which visualises those unfolding events so that others can act and direct action at internet speeds. And now utilised for free in many parts of the world. Or, the largest organic diary farm in Britain, that has evolved a methodology that allows it to remain autonomous, profitable and sustainable in a market that is acutely volatile, because large-scale agricultural farming is mostly run on an oil-based economy, plus diary farmers are at the calculating mercy of the marketing needs and whimsies of large chain supermarkets.

A new social / organisational / economic model

They are collectively representative of a new reality of living, working and organising. These organisations or companies have quested to find a means to serve humanity better, to search for meaning in the work that they and others do, and offer up new viable alternatives for the ways that, in the past, these things were done. They seek an outcome that is more distributive of wealth, ideas and resources. In fact, one might argue an outcome that is more humane and community centric. Rather than premised upon the extraction of wealth, and resources, whether they be physical, mineral or otherwise, these very different initiatives represent both moral courage and a collective purpose, if you will. And why is that important? Because it does not matter if you are an employer, a worker, VC fund, an NGO, an organisation, a local council or a government, you will miss out on the energies and capabilities of your people who will increasingly seek those new realities to discover a better way of living, working and being, when better and viable alternatives are on offer. And the fact is we now have the possibility to truly transform our world, to be more lightweight, sustainable and humane, through the tools, capabilities, language and processes at our fingertips. As Tony Judt argued: ‘Why do we experience such difficulty even imaging a different sort of society? Why is it beyond us to conceive a different set of arrangements to our common advantage?’

The opportunity and the design challenge

Which brings me on to the title and the challenge of this project. Be realistic, imagine the impossible is taken from a poster from the 1968 Paris riots. In making sense of its meaning for our time, I would argue that what we face at the tail end of our industrial society is a design problem. The reason is that we are witness to a systemic failure of many of the institutions that have brought us so much prosperity and it is this convergence of failures that requires us to understand the challenge from a whole systems approach.

Many of the institutions, organisations and systems that we still use were designed and built for a less complex world, the increase in the complexity of our world is placing an unsustainable load upon those institutions, organisations and systems. One could argue our industrial world has reached the edge of its adaptive range. Consequently, fault lines are running through our society which present a trilemma based around interlocking social, economic and organisational tensions and questions. The design challenge involved in resolving these questions comes because the non-linearity is causing a comprehensive restructuring of society at large, breaking old models of organisation, and the trilemma heralds the coming of the age of uncertainty. All three tensions are in flux, and cannot be addressed without considering the other two. So each and every part of this story reflects upon and relates to this trilemma: the relationship of the individual to companies and other organisations and forms of power, economically, socially, politically

Now is the time when we need a way of evaluating of what comes next, when we face a world that has gone in a very short period of time from seemingly linear (simple) to complex and non-linear (chaotic). When we move into a world that is inherently more complex, the result is concussive, its disorientating effects surround us, and our responses either individually or at an organisational level result in reflexes and perspectives that can be dangerously corrosive or inappropriate. And yet, this chaos seems to be, if anything, accelerating. At this very moment, great debates are raging. The spanners are in the works, defined by 9/11 (we now talk about asymmetrical warfare) and the near collapse of the world banking system (and its asymmetrical impact on every single one of us). And, as the global centre of economic gravity moves east, this has set off a series of events that are having significant asymmetric economic effects on societies around the world. These are but three examples of fault lines creating battles, ideological or otherwise, that are exploding and imploding at the same time. They all surfaced in a single decade. Though it is important to add that their gestation period has been much longer and is indeed multidimensional. These challenges are highly interlinked and interdependent, so a one-size-fits-all response just won’t do. There are no longer simple problems; what we face is the trilemma of a complex world. This book does its best to face them, because we are in more than just an economic crisis; it is equally political, educational, spiritual and moral.

The cultural challenge

The biggest challenge we face is cultural. How we contextualise (make sense of) the world around us determines how we engage and what action we take. Those actions then determine the outcomes we must live with and this requires a change from our industrial mindset and behaviour to one that is more cognisant of what is now seen as a non-linear world. This is where I want to return to the idea that what we face is a design problem, where answers exist not at an unattainable theoretical level but on the floors of our factories, in the streets of our towns and cities, the classes of our schools, the waiting rooms of our hospitals. These answers will manifest themselves as true acts of creation, originating new ways of getting stuff done, informed by the decisions we collectively take. So in re-designing the world, we need human creativity in the sense of the capacity to ‘make’, we need visionary leadership in the sense of making a difference. And we seek the craftsman’s critical eye, steady hand and creative mind. It is this process of seeing – realising new pathways to success, by bringing two ‘unlikes’ (new information, tools, processes etc.) together in close adjacency – that we create, and make new things. Then we can meaningfully apply that capability.

 

The coming age of the Craftsman

Why is the idea of craftsmanship significant at this epochal moment in time? Because it is about shaping our future and the ‘engaged’ craftsman brings the full power of humanity to bear upon his work. His hand is guided by his eye, informed by his creative mind; his productivity the act of unique creation. Indeed, the master craftsman is adept in using a philosophical framework, as well as tools and materials, to deliver useful things to the world. But more than that, the craftsman must be open constantly to new ideas; he is essentially always in beta. Therefore, we cannot engage with our uncertain non-linear world with the linear and inflexible orthodoxy of logic alone. The craftsman’s critical eye and creative mind is vital to evaluating new possibilities; he must be open to new ideas, information, tools and materials to make things that enable humanity to flourish. This approach is inherently more creative in that it synthesises all aspects of what make us truly human. But the 21st century craftsman does not only exist in the dusty workshop of a forgotten age; a games designer is a craftsman, a Linux programmer is a craftsman, innovative organisations like Local Motors and Ushahidi, which are discussed in more detail in Chapters 3 and 8, embed craftsmanship into everything they do. These are well designed responses to what real life previously perceived as intractable as the plot line in Catch¯22.

And so I come to this project with a strongly held belief, that there is an opportunity to bring a way of thinking to many of the seemingly intractable problems that confront us today. But this requires us to think and act as craftsmen and women and apply our critical thinking to understanding our non-linear world, which is in part shaped by participatory cultures, open, complex and seemingly ambiguous systems that are highly interdependent of each other. We need to be inspired to be epic, to seek epic wins – to design for transformation, to make informed choices and co-author innovative new possibilities that can enable humanity to lead a life not constrained by the crushing reality of industrial-age thinking but one designed around the primary needs of humanity. We need to explore our non-linear world, not exploit it.

I believe there is much evidence demonstrating the possibility of this society. It exists in philosophical frameworks, language and literacy, legal frameworks, tools and technologies, and real stories of how others have been motivated by a real desire to create new and better answers to what others would call unsolvable, wicked problems. And it has been my mission to bring together these separate component parts to offer to you a vision of the world which is both realistic and eminently possible. But to create this regenerative society requires us to take a voyage of discovery and to look upon the world as Proust would say with fresh eyes. This is the world of no straight lines and this project is how we make sense of this non-linear world, and then act in it.

No Straight Lines at Amazon

 

Related articles

• No Straight Lines: making sense of our non-linear world (communities-dominate.blogs.com)
• The NEXT Silicon Valley is not a place it's a platform (no-straight-lines.com)
• 6 challenges for a non-linear world (no-straight-lines.com)

What does Kodak have to teach us?

I am sure we are all a little sad of the passing of Kodak.

Some of us of a certain age have piles of Kodak slides and snaps, even old Kodak cameras around the place. Hearing about Kodaks resignation and demise also got me thinking about Nokia, and indeed other organisations and industries that struggle and fail as they were unable to adjust to what was them an ambiguous world.

The coming age of an uncertain world

 When faced with an ambiguous world some move into that world, and embrace it to understand it, listen deeply and think very hard about transformation - how to transform, how to design for transformation. This is a very hard thing to do and few do it well - LEGO being an example of the few. And why is that? As Carlota Perez argues in her book Technological Revolution and Financial Capital,

When the economy is shaken by a powerful set of new opportunities with the emergence of the next technological revolution, society is still strongly wedded to the old paradigm and its institutional framework. Suddenly in relation to the new technologies, the old habits and regulations become obstacles, the old services and infrastructures are found wanting, the old organisations and institutions inadequate. A new context must be created; a new ‘common sense’ must emerge and propogate.

There is indeed deep institutional resistance to real change. This is due to the voices of fear, cynicism and prejudice. And, as the forces of disruption increases often the resistance of organisations under threat does not abate but intensifies, until flailing against this unknown or misunderstood enemy they exhaust themselves.

Its why Ambiguity is the first principle of NSL. You can read briefly about the other six here - 6 challenges for a non-linear world. With ambiguity there are 5 key points,

1. Accept the uncertainties of an ambiguous world and become master of them.
2. Stepping back – seeing the world more holistically – as a system
3. It requires deep listening
4. To move from being unaware to aware
5. To seek new patterns that make sense even if they challenge pre-conceived ideas, positions and ways of doing things.

To be a little more expansive in NO Straight Lines I write:

In many ways ambiguity is the output of our current trilemma, but for that very reason it must also be a defining principle. When we individually and collectively live in an age of uncertainty, we must all become masters of managing uncertainty. As individuals or organisations we need to demonstrate the ability to face the future openly; we have to replace fear of the unknown with curiosity. We need to become aware of what is around us. To do that requires a step change in learning and self-improvement – this is achieved through continuous contemplation and self-reflection which ultimately enables the mastery of an aware self/organisation, with the motivation to pursue truly motivated goals.

There is a need to accept a lack of control, and of uncertainty, not only being prepared to accept being taken outside of one’s comfort zone but deliberately seeking it out – the consequence of which is a more disciplined mind or organisational culture, that is now capable of strong creative and conceptual thinking.

So if we look at LEGO

1. They had the wisdom to recognise the old model of commerce was broken
2. They had the courage to explore new and emergent means by which to create a new sustainable business
3. They listened deeply and evolved an internal ability to critically appraise where they needed to get to
4. They recognised the important patterns in co-creation and how they could have real benefits for R&D, organisational capability, commercial models and marketing
5. This enabled them to evolve to a new more sustainable economic / social / organizational model

The dangers of trying to innovate whilst looking in the rear view mirror

Om Malik writes,

As my friend Pip Coburn says, turnarounds never turn. Kodak has been in restructuring mode for 15 years – cutting headcount, closing factories, tightening belts and squeezing rocks for blood. In other words — the company isn’t fat in a traditional sense.  But why none of its strategies worked was  because the company took too long and sat on its duff watching digital photography come and eat it for a mid-day snack even though Kodak R&D helped with the digital photo revolution when it launched the first digital camera in 1975.

And yet they failed to do what one of their major competitors – FujiFilm did — embrace digital with both arms and is now thriving. And when Kodak finally did embrace digital in 1993 it did with hesitance that comes when companies are afraid to cannibalize their existing businesses for the sake of the future.

Disruption never asks for permission

Nokia said it would never release a touch screen phone, so someone else did - a software company. In my journey in writing NO Straight Lines, I have seen this organisational myopia as a constant red thread. So I argue, to survive organisations have to disrupt themselves before someone else does it to them. Or as Arthur C. Clarke said,

The only way of discovering the limits of the possible is to venture a little way past them into the impossible

Malik writes,

Anyone remember the Nokia 770? That phone could have been Nokia’s future, instead it is forgotten.  Nokia defined itself by a certain kind of a product – the 12-key phone. People at Nokia talked about a multimedia mobile computer, but it couldn’t look beyond those 12 keys. It took Apple and Google to show Nokia how to re-imagine the phone.

Standing at the edge of the adaptive range of our industrial world

We have arrived at the edge of the adaptive range of our industrial world. At the edge, because that world, our world is being overwhelmed by a trilemma of social, organisational and economic complexity. We are in transit from a linear world to a non-linear one. Non-linear because it is for all of us socially, organisationally and economically ambiguous, confusing and worrying. Consequently we are faced with an increasingly pressing and urgent problem, WHAT COMES NEXT? And also we are therefore presented with a design challenge: HOW do we create better societies, more able organisations and, more vibrant and equitable economies relevant to the world we live in today? No Straight Lines presents a new logic and inspiring plea for a more human centric world that argues we now have the possibility to truly transform our world, to be more resilient, to be more relevant to us both personally and collectively, socially cohesive, sustainable, economically vibrant and humane, through the tools, capabilities, language and processes at our fingertips.

The key to unlocking this opportunity, so we can design for transformation is through understanding the interlocking concepts of the six key principles of No Straight Lines, these are:

[1] Ambiguity [2] Adaptiveness [3] Participatory cultures and tools [4] Openness

[5] Craftsmanship [6] Epic – designing for transformation

It means we can then ask this question: How do we find the best possible solution to seemingly intractable problems, and be able to answer them?

NSL Store

 

My website and email is down temporarily, should be up shortly

Just a notice to some who may be wondering. My website went down around the time of the SOPA protests which also took down my business email address. (I was not formally part of SOPA protest but thought my webhost might be). That is now being fixed and we should be up shortly. Don't panic.. :-)