Nokia Misery in Single Pictures: Today part 8 in series: The Elop Strategy to Go Windows from Feb 11, 2011. At the 2 year anniversary, what do we now see?

So yes. Lets continue with the Nokia analysis of how could this mobile giant handset maker implode so totally, to produce the biggest collapse not just in handset industry, but any industry ever, by its global market leader. In this series I've taken one element of the failure and studied it through one picture, per blog. We've done 7 so far -  the Nokia smartphone sales collapse due to Elop Effect, the competitive picture of Nokia vs Apple and Samsung, Nokia market failure in context of other handset collapses, the failure of the migration from Symbian to Windows Phone, the disasterous Lumia sales pattern with Windows Phone, the Revenue Collapse in Nokia's handset business and the CEO delusions: When was Nokia truly burning, and when was it safe from any platform fire? 

As to this blog, we'll now look at the strategy that Nokia CEO Stephen Elop introduced on 11 February, 2011. He showed this picture at all strategy sessions two years ago.




So this was how his new Microsoft partnership, and the migration to Windows Phone was supposed to happen, according to his new strategy, over the next two years. This picture is in revenues, Windows Phone was supposed to achieve better than 1-to-1 revenue migration from Symbian sales levels, and even take a small part of Nokia's basic featurephone sales revenues. The total revenues of Nokia handset unit were supposed to remain flat during this transition period.

LETS ADD CONTEXT

The part Elop conveniently omitted from that picture, was that Nokia showed strong growth in both its smartphone business, and its featurephones business, during 2010, and that revenue growth was accelerating towards the end of the year, as the world was emerging from the global economic crisis, and as Elop took over. This should be the picture, to show the context:

 

So to start with, Elop abruptly interrupted Nokia's strong revenue growth in both the smartphone unit and the featurephones unit - this while the global handset industry was growing revenues very strongly (has doubled in the two years since this was announced). But yes, we can see the three legs here. Since we know when Lumia series was launched (Q4 of 2011) and as we've heard Nokia CFO Timo Ihamuotila tell us that Q4 of 2012 was the last quarter of meaninful Symbian sales, we have the actual time scale for the strategy clearly defined. The new Strategy was announced February 11, 2011, when Q4 of 2010 was the last reported quarter (Nokia reported the numbers only three weeks earlier); and the transition will have ended by the end of Q1 of 2013, so the two year transition period as promised by Elop in February, will have been achieved. That sounds good. Lets now look at what he delivered in that time.

SYMBIAN DISASTER

So we have three legs in the strategy. Nokia's world-leading sales of Symbian based smartphones - which outsold nearest rivals at the time - Nokia smartphones outsold Apple's iPhone by 2 to 1, and Samsung's smarphtones by 4 to 1 - and Nokia grew more in 2010 than either rival so the gap between these was not closing, actually Nokia was pulling away from its strongest rivals. Nokia's dominance of the smartphone market was bigger than what Toyota or GM has ever had in cars. Ever! Nokia's dominance in smartphones was bigger than what HP or Dell (or Apple) has ever had in computers. Ever! Yes, what Elop inherited in 2010 when he took over as Nokia CEO was a massively overpowering global juggernaut in smartphones. And yes, look at that picture - the revenues generated by Nokia's smartphone unit in 2010 did grow - strongly. And Elop's strategy would cut the growth, and hold smartphone sales revenues flat for 2 years, and generate about 150 million more sales out of Symbian as he would transition to Windows Phone. So what happened to the 'cash cow' of Nokia, the highly profitable smartphone business based on Symbian smartphones, the bestselling smartphones of China, India, all of Africa, all of Latin America, etc. This is what happened to the first leg of Elop's strategy:




Ouch! That is massive failure. That is a disaster! Yes, the Nokia Symbian sales did not sustain healthy sales for three more quarters before the new Lumia sales could emerge, but rather, collapsed immediately (due to the 'Elop Effect' in particular the Osborne Effect part of the Elop Effect but also the Ratner Effect associated with the Elop Effect). So lets redraw the strategy picture, showing now the reality and the loss that Elop's management of his promised strategy, did in fact destroy half of Nokia's promised Symbian sales. This is reality vs promise in the first leg, the Symbian leg, of the promised new Elop strategy for Nokia:




So yes, the yellow/blue vertical lines show the area that was destroyed by Elop with his Elop Effect, the annuncement of this strategy before he had Windows phones to sell (ie 'Osborne Effect') and that he bad-mouthed his own products as uncompetitive (the Burning Platforms Memo ie the 'Ratner Effect'). 

Gosh-darn-it !! How big is that damage? Yes, very good question. We can now measure it. Since this diagram offered by Elop himself was in revenues, we can now calculate the loss of this part 1 of the Strategy failure, the Symbian part. It was.. (you better sit down) .. 11.9 Billion Euros (16.0B US Dollars). Ouch with a big Oh.. Why is this clown allowed to remain as CEO if he is this incompetent? But at least we have his saving strategy, part 2 of this plan, the Windows Phone sales, which will recover from the loss in Symbian sales. So lets adjust his strategy picture (first picture) to this loss and see how the Windows Phone part will save Nokia's position. This is what the revised picture looks like, after the self-induced damage to Symbian, by Elop. Now his strategy looks like this:

So, luckily Elop promised us that his Symbian losses will be compensated by more than 1-to-1 with Windows Phone smartphone revenues. So yes, it started to seem that the Symbian collapse was bigger than expected, but if Elop could recover to same level of smartphone sales revenues as he inherited when he took over as CEO, then yes, maybe a little bit of pain along the way was ok, if Elop could deliver on the promise of the transition. And while Elop admitted his Burning Platforms memo did damage Nokia Symbian sales, and he admitted being surprised at how big the drop in Symbian sales was, he has repeatedly told us that Elop is satisfied with his Lumia/Windows Phone strategy! Elop has repeatedly said that Nokia was on the right path and he would not alter his strategy. So the above picture is what we must expect from Elop. Anything less than full recovery by Windows of the lost Symbian - is by very definition a failure.

WINDOWS CATASTROPHY

So lets look at how Windows Phone has fulfilled Nokia's new smarpthone sales as this strategy was being implemented. Elop never once said his Windows/Lumkia part of his strategy was failing or disappointing. This is the reality:

That, my dear friends and readers, is a catastrophy. There is no 'rescue' here. This is no 'savior'. This is arriving at a Tsunami wave devastated area, then to discover you now face nuclear contamination as well. This is comprehensive utterly total failure of Elop's promised strategy. The Windows Phone sales are nowhere near restoring Nokia smarpthone sales. Not in the least bit. This is the size of the damage so far:




The new lined part, yellow horizontal lines with the dark blue, is the loss to Windows Phone reality vs Elop's promised strategy. And yes, how big is that loss? So far, since Lumia series was launched, Elop's Strategy promise for Windows and actual sales, has failed to produce 11.1 Billion Euros (14.9 Billion US dollars) of revenues. This strategy has utterly failed also on its second leg. But luckily, there is a solid foundation to this strategy, the featurephones business, which was growing when Elop took over, and when Elop changes the 'smartphone operating system' - that should not in any way harm the sales of Nokia featurephones, that do not use any smartphone OS. So at least part 3 of his strategy was safe. Or was it?

NOKIA FEATUREPHONES SALES FAILURE

Unfortunately, the smartphone end of Nokia handsets is seen as the flagship and premium product, the aspirational side of handset sales. The consumers do not differentiate what is a smarpthone or not, and thus, when the Ratner Effect hit Nokia, where the Nokia CEO bad-mouths his own products (half of the Elop Effect) - that not only damaged Nokia smartphone sales, it also damaged Nokia featurephone sales. This is what happened to the floor of his strategy. It did not hold:




That is a three-leg strategy failing on all three legs. The featurephones business has also experienced severe loss of sales revenues, and the damage achieved by Elop's strategy is worth 8.6 Billion Euros so far (11.6 Billion US dollars). So if you want to see how the floor fell out of this strategy, it looks like this:

So yes, all three legs of the Elop Strategy have failed. What does any sane CEO say when his 3-legged strategy is failing? That he will abandon that strategy, and develop a new one, of course. Not Elop. He promises to give us more of this Microsoftian misery in the years to come. So he promised us this:




And he delivered us this instead:

This is utter comprehensive strategy failure, a three-part strategy that failed on all 3 parts. This strategy has so far wiped out 40.9 Billion Euros (55 Billion US Dollars) and damages Nokia handset sales to the tune of 4.7 Billion Euros more (5.3 Billion US dollars) every quarter Elop is allowed to remain in charge of this mad self-destructive and utterly doomed 'strategy'. Understand, while the global handset industry has doubled in size, Elop has taken the undisputed global giant handset maker, 50% bigger in dumbphones than its nearest rival, 100% bigger in smartphones than its nearest rival - and wiped out 56% of the revenues that Nokia was making (not to mention, plunging the highly profitable smartphone unit into massive losses ever since)

Why is Elop allowed to pursue this doomed strategy? Why is Elop still selling this strategy as a success?What is wrong with Nokia Board that they have not already fired this clown? Why are Nokia shareholders not insisting on firing not only the Nokia CEO but its Board as well. This is a world record in destruciton of a global market leader, fastest collapse of a market leader ever, in any industry.

But yes, this was part 8 in my series. More misery to come, hold on...

(all data and pictures on this blog may be freely shared and used) 

 

Comments

[Cyan]

> What is wrong with Nokia Board that they have not already fired this clown?

That, i believe, is the real question.
Nokia Board members are protecting themselves by putting their head in the sand, and pretending that all is right.

The simple fact that they can do it and remain on board, unpunished, is proof enough that this governance system does not work.
Such blatant colluding people should not only be removed of their charge, they should also pay for the consequences of their acts.

[Sysad]

Tomi, please, to avoid those blurry letters in your graphs, those "mists" and so on... please save your images in png format instead of jpg format.

Jpg format is for photos and alike, not for graphs like yours.

[dies felices]

Tomi, how do Lumia sales fit into the picture of all WP sales? I realise that this is out of the scope of this article but I think it would show a context for Elop's strategy which might even be able to be twisted into something favourable. Going further off topic, if I may. What would your strategy going forwards from today, be to right the sinking ship?

[Peter Frandsen]

You should add a graph showing how the market has expanded during the same 2 year periode (at least in smart phones, don't know if the feature phone market expanded or schrinked)... A conversion dollar for dollar (or unit for unit) is not a success if the market is groving rapidly (even though it may not be what Elop promised...)

[zlutor]

@dies felices: See MNB. There is a post about exactly this issue: http://mynokiablog.com/2013/02/11/nokia-dominating-windows-phone-with-78-marketshare-54-of-wp8-devices-have-received-portico/comment-page-1/#comment-767833

According to that 78% of total WP sales are from Nokia. I do not see it as a big thing - knowing that other manufacturers are not so active in this arena...

I really wish Nokia to be successful.

Telling the truth I do not really care what OS/'ecosystem' they use if devices are capable of doing all the things customers demand for, UI is easy to use, development environment is not locked to that single 'ecosystem'...

I do not know how WP fulfills those criteria... ;-)

Well WP8 is quite OK as OS - especially if Digia ports Qt/QML for it. Unfortunately it requires some assist from M$ or some extra work due to lack of OpenGL support...

[RyanZA]

@zlutor

WP8 is most definitely not OK as an OS. It's plain awful and is very undesired by consumers - possibly even hated. MS is also never going to assist Qt or any other open technology, especially OpenGL. MS is fighting against OpenGL with their DirectX very heavily at present on both Xbox and PC - and losing.

[zlutor]

@RyanZA: form my(!) point of view, WP8 is quite OK as OS - especially if you compare it with WP7.x...
Metro UI - well, that is an other story. Somebody might loves it... :-)

WP8 is not (so) crippled, there is support for most customer demands:
- Blootooth
- microSD
- different SoCs
- different Screen resolution
- etc.

So, in theory nothing prevents Nokia to build great devices with this. It is significant improvement compared to WP7.x.
We will see whether it will be 'too little, too late' or some savior...

About OpenGL and M$. In fact they support it in desktop Windows. Most probably it is because of the huge legacy code base but anyway. Support is support. They have DirectX there and still...

Of course, they do not want to support Open GL (ES in fact) in Windows Phone OSs because it would easily open up developer lock-in. No single sane developer would develop in C# if they can use Qt/QML combo there. We, developers, all love 'develop-once-sell-many-times', don't we?

Anyway, there is some hope: http://qt-project.org/doc/qt-5.0/qtdoc/requirements-win.html
That's what I referred as 'extra work': http://qt-project.org/wiki/Qt-5-on-Windows-8-and-Metro-UI

[Lasko]

@ExNokian

So Elop did *not* want to transition the majority of customers and revenue from Symbian to Windows Phone in the first place? So the plan was to lose the majority of customers and revenue during the transition on purpose?

I'm quite sorry, but your 'but he didn't say he wanted to transition 1:1, he just illustrated the future' argument is just absurd. What is the purpose of switching the core business and risking the cash cow if *not* doing so for a brighter future, ie. transition rate > 1:1.

Of course Elop planned that every Symbian customer becomes a Windows Phone customer. That's what he said with this graphic. That's what he filed to the SEC.

[zlutor]

@ExNokian: we can play with the words trying to figure out who mean what but the fact is Nokia performed a colossal collapse. I hope we all can agree on this transition could have been managed better most probably...

Current figures of Nokia are just simple horrifying.
I can hope only it will improve - sooner is better.
Wishful thinking - I hope not...

[Tester]

@zlutor:

>> Of course, they do not want to support Open GL (ES in fact) in Windows Phone OSs because it would easily open up developer lock-in.

And this is something I don't get. What does MS think to gain here? They are the minority platform, they can't dictate terms to developers. They should do anything they can to attract mobile developers to also support their platform. Instead they went out of their way to do everything differently, to keep developers away. Why support one more low percentage platform if yo have to do the same amount of work for it than for all the rest combined?
So it not only would have prevented developer lock-in, it also would have prevented developer lock-out - and with the current situation that part is a lot more crucial.

>> No single sane developer would develop in C# if they can use Qt/QML combo there. We, developers, all love 'develop-once-sell-many-times', don't we?

Indeed - which is why WP will always be behind, unless MS bribes the developers and essentially finances all development themselves.

@ExNokian: All nice and well, but the fact remains that it was not part of the plan to crash and burn Symbian. They would have needed to let it fade away gracefully so that it can be replaced seamlessly later.
That's how Blackberry did it. Yes, they also tumbled toward irrelevance but they didn't actively destroy everything they had. And in my opinion, despite having made bad mistakes, are now in a better position than Nokia. They also have a new OS, but one that isn't hated, one that's more in line with the rest of the available offerings and that's much easier to do multi-platform development on with the other systems. In other words: much more promising app ecosystem than Windows.

The thing is, Nokia themselves knew the risks, everybody with a shred of knowledge and common sense promised an utter failure right back in February 2011. There's absolutely no denying: It was a suicidal strategy from the very beginning that should have never been implelented - unless some other interests that don't benefit Nokia were the driving motivation.

[alvi]

> What is wrong with Nokia Board that they have not already fired this clown?

As Cyan already points out, that's the big question. There is way too much focus on Elop here. Quite frankly, I believe at this point that Mr. Elop is just doing the job he was hired to do, and he does it quite well (that is, doing an all-in on WP and eloquently defending this failed strategy).

There is no question in my mind, if this was really Elop's strategy, considering these results after 2 years, he'd be a goner by now. Someone's backing him big time. Which must be the board of directors.

[zlutor]

@Tester: "And this is something I don't get. What does MS think to gain here? They are the minority platform, they can't dictate terms to developers"

They may think in 'ecosystem' - and they can be proven right to some extent: if it really turns out to be a working way to develop once and deploy to desktop W8, Xbox and WP8 phones...

They believe they are the king of desktops, kind of king of consoles (XBox) they hope it works in WP, to...

or I do not know...

[Fred_Sch.]

@alvi - good point. I also believe more and more that someone big is backing him. But what does Nokia want to do? If they fired Elop, they would officially admit that WP has been a big failure - Nokia would be left with NOTHING. It seems Nokia is on a highway without exits - but hopefully no dead-end!

Generally it seems that Nokia lives is some kind of dream world. Everyone around Nokia realizes that things go wrong, Nokia on the other hand sees everything positively. Bad sales numbers are turned into positive ones, sales-tricks are used with the hole Amazon.com story etc... But many analysts (people, journals - economical and IT ones) see the real situation.

Or have a look at Nokia Conversations (their official blog). Those Nokia bloggers stubbornly write their happy-colorful Lumia posts, while the reactions (comments) are surprisingly often negative - even now, where Nokia Conversations pretty much "banned" all the old users by not talking anymore about Harmattan or Symbian.

If you read Nokia's publicity one would think, Lumia would be a huge success. It isn't. I live in Europe but am often in the US. Yes people know about those colorful Nokia phones, but do they own them? No. It's a rarity to see a Lumia device in most countries and especially in the US, a huge rarity to see it in stores (even some AT&T stores don't display them, I checked almost all those stores I saw in 2 different states). What surprised me is, that HTC devices are shown much more in the US and are advertised like the phone belonging to the Surface tablet (at least by Microsoft itself). Now Huawei even launched a Lumia-copy for Africa in cooperation with Microsoft. Didn't Africa use to be a great Nokia market for Symbian phones? Wasn't it an aim of Nokia to be present there?

So the hole story stinks badly. Nokia is like a sinking ship with a captain who says "all is fine" as long as his head is over water. Sad but true. I don't think that abandoning the WP strategy would all the sudden rescue Nokia, it's to hope that Microsoft finally releases a decent smartphone OS! Everyone hoped it would be with Windows 8, but we have the prove now that it wasn't.

[dskov]

Can't the reason for Elop not being replaced be that it's hard to find anyone trustworthy who thinks he/she can turn around Nokia?

Personally I think the only way forward now is to also start producing smartphones with android. Perhaps even meego.

[Brock]

@Tomi

the gartner numbers are out. Here they are

http://www.gartner.com/newsroom/id/2335616

[Spawn]

@Fred_Sch

> But what does Nokia want to do? If they fired Elop, they would officially admit that WP has been a big failure - Nokia would be left with NOTHING. It seems Nokia is on a highway without exits

And that's why the first thing Elop did was to burn all alternate strategies, all bridges, all exist Nokia had. He KNEW this will get them in line in the future too. No, that Elop is not stupid.

> Microsoft

For them Noka failed to deliver two times. Now Nokia needs to pay 250m each quarter anyways, they are going to stay and do not have anything from interest to offer to Microsoft any longer.

Sure is Microsoft looking at better partners and at this time everything but Nokia is an option.

> I don't think that abandoning the WP strategy would all the sudden rescue Nokia

Vertu was taking only some weeks to switch from Symbian to Android. Granted Nokia has not much money and talent left but they could still do within weeks. Its the only option left for them to grow again.

Why Nokia still does not even try Android while keeping
umia running is beyond illogical. Even crashing HTC was able to and now they have two options AND are Microsoft exclusive flagship partners!

The contracts Elop signed may the reason why Nokia cannot even if they would like to. Nokia may forced to pay back some billion $ to Microsoft if they do. I would bet on such a condition in the contracts.

[dies felices]

@zlutor

My point is not how much market share in WP Nokia has but to see overall WP sales over time. So we can see how the 'Burning Platform' memo impacted WP sales, the market share of WP with reference to the whole market and whether or not that share is rising or falling and within that segment the Lumias performance.

I agree with @alvi that the Nokia Board must be backing him and to some extent asserting direction. Even as CEO, I imagine it must be nearly impossible to drive an organisation in the opposite direction to that desired by the board.

[vladkr]

@Tomi :

In the cost of Elop's failure (about 40G Euros), you didn't include : the sale/loss of patents, of factories, resale value losses.

Anyway, I don't think Elop give a damn of Nokia's potential success; this guy built his career and wealth with failures. He's there just to make huge money for himself and friends (see the demonstration I already made in past comments).

If that was something else, how would you explain that Nokia could deliver only 30K Lumia 920T to China Mobile, which ordered a "royal" 90K units (to be compared to its 700M customer base)?

[zlutor]

@Tomi: related to Gartner's numbers: they indicated "Others 713.1" in the Smartphone section - what does 'others' mean here?
Meego? Still?
What else?

What does "Microsoft" includes? WinCE+WP7.x+WP8 all together?

[geektech]

I wonder why mr. Elop dont sell Maemo-MeeGo OS? Nokia is in deep Sh*t right now, or is that they are planning to use it/them later? Or M$ want those Oses away from the market? Those are easily a desktop remplacement, better that anything else out there;
WP8? i dont think it going to get any better traction from now on, they going to sell a little better any new device release but i not sustainable for Nokia.