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..

Comments

[Tomi T Ahonen]

Sorry Baron, am having a very difficult time to get this response to you, even after editing it down massively and now cutting it up

(continued)

And multi-touch is FAR MORE a progression than the first smartphone was truly a revolution. Before multi-touch we had plenty of touch screens all the way back to stylus-operated PDAs.

But you are right, Nokia and RIM both dismissed the iPhone early on and both expected touch screen phones to be a fad or only a tiny niche (and were wrong). You will remember, I said the iPhone would be a success, and that it will reach the incredibly ambitious 10 million unit sales level in its first year. Notice that for example now, when smartphones sell 4 times as many per year, Microsoft with all its minions including Samsung and HTC, were not able to sell 10 million smartphones in the first year of WP7 haha.

But again, your assertion that Nokia or Blackberry were somehow injured by the iPhone is NOT BORNE OUT BY THE FACTS. When the iPhone grew from 0% market share to 14% market share from 2007 to 2009 Nokia was essentially flat and RIM actually grew market share. It was Android to hit both RIM and Nokia hard into declines. The iPhone stole market from Palm and Windows Mobile

On Motorola and Google. Fine, split hairs if you like.

Tomi Ahonen :-)

[Marc Aurel]

Since I know you like the facts: Samsung was in the film camera business. They started making film compact cameras some time in the late 1980's (probably for the SK domestic markets at first) and achieved some limited success in Europe during the 1990's. Something else I bet you didn't know: even Panasonic (i.e. Matsushita back in the day before they changed the name of the company) made film cameras in the 1990s, or at least film cameras were sold under the Panasonic brand.

Now to the IBM PC, Windows and OS/2 question; unfortunately the whole story has not been told in these comments. OS/2 really was a Microsoft and IBM co-development, but Windows 3.0 did not come out on top because it was better or because it was available earlier (it wasn't). OS/2 could run MS-DOS applications just like Windows 3.0. The real reason for Windows 3.0 success was the Microsoft Office software package, which Microsoft had developed for Windows 3.0 and Macintosh, but not for OS/2. MS Office had much better integration between components, a nice graphical interface and it was more WYSIWYG than its DOS-based competitors like Word Perfect and Lotus 1-2-3. They key to Windows' success was Microsoft Office, not Windows itself. In other words, MS Office was a true "killer app". MS Office was so successful that even on Mac it's still by far the most successful office application suite (well, file format lock-in and other underhanded measures are part of the reason, but those came later when MS Office was already the established industry standard).

You also completely forget the clone PC makers when discussing IBM. Even Nokia was once one of them! The biggest one was of course Compaq in the 1980s and by the beginning of the 1990s they had already seriously eroded IBM's market share even though IBM was still the largest. IBM also made some hardware-related errors like the IBM PS/2 computers with their proprietary Microchannel bus. The clone manufacturers did not want to pay the expensive licensing fees and simply developed their own bus, the EISA, which later became the industry standard for high-end PCs (before the PCI bus), whereas the Microchannel peripherals remained expensive and the bus itself was not used by other PC manufacturers than IBM. The Microchannel/EISA debacle shows that IBM was already losing its grip on the PC markets and it had very little to do with the software; after all you could buy an IBM PC with Windows 3.x installed "out of the box" already in 1991! IBB never sold PCs exclusively with OS/2...

I just thought people needed a little history lesson ;-)

[Patrick]

@Baron95 and @Reda : your opinions make a lot of sense !

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