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

[EmmanuelM]

Unhappy 920 french customers are bashing Nokia France on its facebook page...

A lots of problems apparently...

[elop]

bluestacks player allows all android apps on windows 8. compatibility with windows phone 8 and windows blue is almost available. tomi, this change opens up the apps market several years early.

[So Vatar]

Just to honor and recognize, here are the current members of Nokia's board:

Risto Siilasmaa (Chairman) - Board member since 2008, Chairman since 2012
Dame Marjorie Scardino (Vice Chairman)- Board member since 2001, VC since 2007
Bruce Brown - Member since 2012
Stephen Elop - Board Member since 2011
Henning Kagermann - Board Member since 2007
Jouko Karvinen - Board Member since 2011
Helge Lund - Board Member since 2011
Isabel Marey-Semper - Board Member since 2009
Mårten Mickos - Board Member since 2012
Elizabeth Nelson - Board Member since 2012
Kari Stadigh - Board Member since 2011

I am too lazy to look up the cast of former board members, the ones that left in the last few years.
I hope that history will do the members of Nokia's board justice and give them their rightful earned place having overseen one of the largest blunders in the history of public corporations.

And I am sure there are other players hiding in the dark, but without the board's cooperation they would have never succeeded destroying a once innovative and profitable European company.

[Interested to know]

Why is it that Microsoft people (including ex-MS Elop) feel their products can't co-exist with any non-Microsoft technology? What possesses a CEO to publicly denigrate his company's own products?

Lumia and Windows Phone 7 had no realistic chance in the market regardless but Elop really shot Nokia in the foot when killed Symbian. He could had taken all the billions of profits generated by Symbian and used them to prop up the Lumia disaster. Instead he killed the Nokia's goose that laid golden eggs.

[Interested to know]

Given Nokia's terrible fall, Elop should at least be removed from the board so there can be some small semblance of oversight.

[zlutor]

I really wait the shareholders' meeting in May.

How will these numbers been communicated and explained to the owners of the company?
What magic will be applied to show how rosy the picture is?

I'm sure Elop will give explanations - he is a good speaker, at least...

[incognito]

@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 should do anything they can to attract mobile developers to also support their platform."

They hope to leverage the existing gaming industry's knowledge of DirectX on the desktop Windows, and the Xbox to an extent, to lure game developers who haven't moved on to mobile. Further, they kind-of believe (which is why people call them deluded these days) that they'll repeat the success of Windows desktop regarding gaming, which was enabled by DirectX, and get again in the situation where people would say `I'd gladly move to Linux but there are no games for it`. Microsoft don't seem to comprehend in how unfavorable position they are these days - all the developer familiarity with DirectX and all the undelivered promises of a unified system won't make developers seriously develop anything for a platform used by extremely tiny minority.

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

Even bribing doesn't work. Microsoft tried to bribe Flash and other interactive-web/RIA developers to move to Silverlight. They poured a ton of cash down that sink, but the plain fact is that nobody was asking for Silverlight and as soon as they closed the pipe fueling this wrong impression of devs wanting Silverlight - nobody was left on that bandwagon. Microsoft even tried to recoup a bit of the investment by making Silverlight the first class citizen in Windows Phone, but that ended up as one of its many Achilles heels, so they finally ditched it altogether.

Precisely the same will happen with this WP nonsense - as soon as they stop throwing cash at it - it will be dead as a duck. WP is a solution for a non-existing problem, same as with the Windows RT, which is precisely why the both are prime examples of DUD products.

[Tester]

@incognito:

All correct. And it only shows how deluded Microsoft is. I still don't get the DirectX/OpenGL thing though.

There's absolutely nothing they can gain this way since 90+% of mobile already uses OpenGL so everybody who wants to be successful needs to support it anyway. In the end it only acts as an additional turn-off for WP development, not the opposite.

It's really funny how the delusional thinking at MS hurts their product.

First they lock it down like Apple did with the iPhone, completely forgetting that this turns off all the customers who want an open system - like they are used on Windows PCs.

Then they try to dictate terms how to develop software and restrict functionality in an almost ridiculous fashion so developers get turned off, too.

Then they release the next version and completely change the development game, in turn pissing off even those developers they already lured in.

And last but not least they show a severe affliction of Not-Invented-Here-Syndrome which means that the platform is so incompatible with everything else that it's not economical for most developers to support it.

And that not only goes for Windows Phone but for Metro in general.

Sorry, why should I develop Metro apps which are dictatorially controlled by MS and can be shot down at any time if I can just do a classic desktop version I have complete control over and ultimately is much easier to port to other mobile platforms.

It all doesn't make any sense at all if one assumed that it was thought up by a sane mind.

[Jani]

Tomi, you might find this worth the minute or two it takes to read it

(In finnish):
http://nokialand.blogit.kauppalehti.fi/blog/29459
Elop puhuu taas pehmeitä - "Olisi parempi tunnustaa totuus kuin yrittää ympyröidä neliötä, herra Elop"

[kris]

For the fuck sake....why is nobody doing something here..Elop is allowed to
do so many failures with a board who dont care...FTFS...fire them all and give
NOKIA a fair chance in the game out there...Nokia is a company who deserves people
around who care for the company...They are making worldclass products with honor
and in many ways they are in front of new technology for people around the world

[Will There Ever Be A Cure For Herpes ? - Find Out Today]

You really make it seem so easy with your presentation but I find this matter to be really something that I think I would never understand. It seems too complicated and extremely broad for me. I'm looking forward for your next post, I'll try to get the hang of it!

[Metabolic Cooking Reviews]

Ridiculous story there. What happened after? Thanks!

[ps2 emulator]

As of now, Sony's Play - Station 3 is the only older Blu-ray DVD Player that will support 3D Blu-rays. Standard alkaline batteries only last about thirty hours, so if you buy Xbox 360, invest in rechargeable batteries to save yourself some money in the end. Everyone is talking about the new upcoming game console by Sony, which is Play - Station Vita that is going to be released late this year.

[this website]

Hi! I could have sworn I've been to this blog before but after reading through some of the post I realized it's new to me. Anyways, I'm definitely happy I found it and I'll be bookmarking and checking back frequently!