The Nokia Catastrophy in Single Pictures: Today the Ultimate Picture, Number 9: The Misery Graph - here is how Nokia's destiny is seen from the future

Over the past two months or so, I have been chronicling the Nokia disaster of the past two years, in short blogs, of one topic, one picture. Today we do the Misery Graph. But yes, before that, brief summary of this series. So far we've done 8 pictures 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, the CEO delusions: When was Nokia truly burning, and when was it safe from any platform fire? and the Extent of the Failure in Elop Strategy Promise vs Delivery 

That was the first 8 pictures. Today we do number 9 in the series, and today's is perhaps the single most important picture of them all. This is the ultimate test for Nokia, how Nokia will be remembered decades into history. When people look back at Nokia of this time, this is the one decisive factor, the one picture, the one measure. It is what I call the Misery Graph.

Nokia faces a 'paradigm shift' in the technology space. The total market of what we now call 'dumbphones' or Nokia sells as 'featurephones' will be shifting to something else, called a 'smartphone' Sometimes industries see total such shifts, as we saw for example in televisions from black-and-white TV sets to color TV, and then again, from picture-tube based CRT TVs to flat screen televisions of today. These are total industry shfits, if you do not capture the shift, you die. Like the world's biggest TV makers RCA and Philips back in the days of black-and-white TVs and color TVs, who are gone from making TVs today, replaced by Sony and Samsung. Other technology evolutions, while revolutionary, are not 'paradigm shifts' because they do not shift the whole industry. Diesel engines in cars, jet engines in airplanes, did not end other engine types like gasoline engines in cars, propeller-driven planes, even as their proportion has kept growing. So you can safely survive as a car maker not offering diesel engines, or being an airplane maker without jet engines. Maybe your market is not as big, but that is viable. Trying to sell black-and-white TV sets is not.

The handset industry saw its first paradigm shift already, going from analog to digital phones. Motorola was the giant handset maker in the analog days, Nokia came and grew strong with digital phones, and Motorola fell from the top by not capitalizing fast enough on the new digital phones and their new non-voice capabilities such as SMS text messaging and rudimentary mobile internet services. Motorola withered and died and was bought by Google.

Now the handset industry faces its second such total paradigm shift, from dumbphones to smartphones. Right now, latest data from Q4 of 2012, has the world transition having reached 46%. It will pass the 50% level - meaning half of all new phones sold will be smartphones - soon this year, 2013. Eventually all phones will be what we now call 'smartphones' and the dumbphone market will vanish. So how is Nokia doing in this transition?

Nokia was doing just fine. Nokia in fact invented the smartphone. Nokia was punishing its rivals, the other dumbphone makers like Motorola, LG, SonyEricsson, Siemens, Panasonic, Sharp and Samsung - pushing them into loss-making or quitting the handset business while Nokia made a profit every single quarter of every single year, in its smartphone unit. Nokia invented the smartphone, and Nokia kept safely ahead of the industry migration rate - not too far ahead, but about 4%-5% ahead of the industry migration rate, as Nokia helped its customers transition from using dumbphones to smartphones, while safely holding onto its massive global lead in handset sales.

Nokia was such a master at this transition - that differing from every other rival dumbphone maker attempting this transition - only Nokia was able to GAIN market share while migrating customers from dumbphones to smartphones. Yes. Nokia's massive global market lead in total handsets, fuelled at the time by dumbphone sales, was actually improved when shifting customers to smartphones. And yes - Nokia's smartphone unit was profitable doing this!

By every textbook measure, this was the very definition of success in a technology migration. Nokia not only saw the transition coming, Nokia invented it, and then dominated the whole transition process, where Nokia, the world's largest handset maker, actually had a bigger lead in its smartphone - future handset business - than the massive lead it had in the dumbphone business. This, done profitably, is what success looks like. This is what Nokia will be measured upon, and Nokia was doing it brilliantly. Spanking such global tech giants as Sony, Samsung, Motorola and LG in the process. Wow.

Then came a clueless new CEO who decided to snatch defeat from the jaws of victory. This is what happened.




This slide may be freely shared

Nokia's global sales did not disappear. Nokia customers keep coming back. Its the transition that suddenly failed. What were highly desirable, well-selling, well-designed 'world phones' that Nokia sold, at a wide price range, in vast array of functionality and features, from world's best cameraphones to QWERTY sliders to advanced operating systems like Maemo and MeeGo, Nokia was the ONLY dumbphone maker in 2010, whose loyalty was so high, most who owned a Nokia wanted another. Only Apple and RIM/Blackberry - both pure smartphone makers - had better loyalty at the time. Nokia was winning the transition. 

Then new CEO Stephen Elop decided to badmouth his own smartphones as uncompetitive (the notorious Burning Platforms memo, the costliest management memo of all time) that caused what is called the Ratner Effect. When a CEO says his own products are bad, he is believed, and sales collapse overnight.

And the new CEO Elop also decided to utilize another corporate-suicide trick, the Osborne Effect by madly announcing his new Microsoft partnership in February of 2011, when he had no Windows based smartphones to sell until November. This of course collapsed existing sales, just like with the Osborne computer company and Nokia smartphone sales set a world record in sales crash in one year. These two effects, when combined (they happened within 3 days of each other in early February 2011 is what I coined as the Elop Effect and increasingly that is seen as the dumbest management communication attempt of all time, causing the single worst destruction of any Fortune 500 sized company business, in human economic history. Yes, this is far worse damage to the company, than what Coca Cola did with New Coke or the Ford with the Edsel or the BP Oil Spill or the brakes disaster at Toyota.

So Nokia was strongly leading the transition to smartphones. Now under Elop Nokia is regressing and fast. The industry transition for the year 2012 was 39% to smartphones, Nokia was down to 10%. If you think it was getting better at the end of the year, no it was not. By Q4 the world transition level was at 46% and Nokia's migration rate to smartphones was down to 8%. Nokia is truly going in the suicidal direction of this industry.

How can I put it in clear terms. Imagine if Philips or RCA saw the new color TV's taking off, selling well, and suddenly deciding, no, thats not the future of televisions, we shut down our color TV production and do only black-and-white TVs.

Or more recently, if Samsung or Sony looked at their TV sales shifting from the bulky CRT based TV-tube type of television sets, and saw customers preferring flat screen TVs and then they shut down their flat screen production and pushed bulky picture-tube TV sets instead? How mad would that be?

Or what if Panasonic and Sony and other video cassette recorder makers, had seen the success of DVD players, and then - as DVD sales are exploding, suddenly decide to shut down their existing DVD player production, and shift their business to VCRs intead?

I could go on. Rotary dial phones? Analog cameras? Wrist watches that you wind manually to make them run? Dot matrix printers? 

There are already operators/carriers like Safaricom in Kenya who say they will stop selling featurephones altogether. They will only sell smartphones. Yes, the world will pass this year, 2013, the half-way-point, where half of all new phones sold are smartphones. Nokia was far ahead on this transition. Now they are literally selling or shutting down smartphone factories, and Elop is introducing ultra-low-cost phones that cost 15 Euros/20 dollars to sell the superdupercheap phones. Dumbphones. This will be the classic case study in how to abandon a sure victory, how to snatch defeat from the jaws of victory, how to set up a certain road to the future, and then gift that to competitors and refuse to take that road yourself. This graphm the Misery Graph is not just what Elop will be known for in all eternity as the biggest Business Failure in history, but also how Nokia will be known. How they voluntarily abandoned certain victory.

In the long run for Nokia survival and success, nothing matters more than this one picture. The whole handset business will transition away from dumbphones and 100% to smartphones. This is now no longer under any argument or disagreement. The price points of smartphones are coming down and squeezing the dumbphones out of the market, it is only now a matter of time. Nokia's only measure ten years from now, like we look at Motorola in the digital transition, is will Nokia be able to win in the transition to smartphones - as it was winning - or will the story be, that Samsung came and took Nokia's candy while the CEO madly pursued low-cost featurephones and missed the transition to smartphones. The only thing that matters for Nokia's history is whether this transition was successful or not. It does not matter what awards some Lumia phone won or lost, what carriers it attracted or not, was the Windows ecosystem the third or fifth or whatever, what profits Nokia pretended to earn in a quarter by selling its HQ building or its Salo campus, etc. The only thing Nokia will be remembered for, ten years from now, is did they win or lose the transition to smartphones. In 2010 Nokia was safely a full 5 points of migration rate ahead of the industry, Nokia had migrated 23% of its phones to smartphones, while the industry was only at 18%. Now at Q4, the world has gone to 46% and Nokia is down to 8%. This is how Nokia will be remembered, it lost the transition. The clown in charge was the management fool named Elop, worst CEO of all time. Because Elop lost that race, he has to be fired for that reason alone (not to mention all his other madness)

Why is Elop allowed to remain in control of Nokia? Why is Nokia's Board allowed to remain in control?

And there is still more to this Nokia disaster, more pictures and stories to come.. This is so sad, seeing Europe's biggest tech giant destroyed by a delusional Canadian madman who wants to shift the inventor of the smartphone, Nokia, back to the 1990s. 

Comments

[Dipankar]

"This is so sad, seeing Europe's biggest tech giant destroyed by a delusional Canadian madman who wants to shift the inventor of the smartphone, Nokia, back to the 1990s. "

It's bad enough to call out the Finnish Army and invade Canada!
Led by General Ahonen, maybe ;-)

[DS]

Elop has finally came to its senses and is pushing WP8 on low cost (low end is not possible given the platform restrictions = nokia profits go bust) devices, where it belongs.
This is the first year I've actually seen Nokia WP devices (low cost range of course) in the wild. And this year is final round for Nokia WP, and the game will be played in the low cost market.

MS is tripping Nokia by releasing laughable 7.8 update and messing up WP8-WP7 compatibility story even more, ultimately killing all the remaining support that WP7 had among developers. That closes that avenue to low cost just after Snapdragon S3 is starting to get cheap. What else can they screw up?

[zlutor]

@DS: "Elop has finally came to its senses" - well, it was not Elop's fault/decision not to push WP7.x into low-cost segment. WP7.x was simply not capable of 'going down'.

That is one reason I think Nokia should have forgot WP before WP8 has got released - if they had any plan to go for WP at all...

[cycnus]

Tomi,

I was curious, do you have any data of dumb->smart? Which country is leading? Which country is STILL on the dumb phone and not changing?

[Lasko]

And yet again Samsung does is just quite right - quite contrary to Nokia.

They are full part of the transition thanks to the Bada - Tizen transition, which will not only transition from featurephone to smartphone but rather from a featurephone operating system to a smartphone operating system - in an application-compatible way (Tizen 2.0 offers Bada the API)!

The is just ridiculous - it appears to be that Samsung isn't able to do anything wrong, whereas Nokia isn't able to do anything right.

[Lasko]

"Elop has finally came to its senses and is pushing WP8 on low cost (low end is not possible given the platform restrictions = nokia profits go bust) devices, where it belongs."

Low cost = Low margin.

This is *not* what is going to save Nokia.

[Gai]

@Lasko

I thought Bada is not upgradeable to Tizen?

[Tester]

@Lasko:

>> (Tizen 2.0 offers Bada the API)!

Whether this is good or bad remains to be seen. The Bada API was shit. So all the Tizen phones are already saddled with some heavy legacy baggage.

And BTW: Bada is a smartphone OS, not feature phone. It was already counted as such in any statistic available and in terms of capabilities it's quite clear that it's a smartphone system. Low market share and low end positioning doesn't discount this.

[Uwe]

@Tester:

>> "The Bada API was shit. So all the Tizen phones are already saddled with some heavy legacy baggage."

Hm, that is not what the Tizen documentation says. Tizen is based on LiMo and applications will be based on HTML5 and some script libraries (like jQuery). Samsung did consider merging Bada and Tizen development at some point, and to have Tizen support legacy Bada applications. Nothing has been heard about that for almost 9 months now, and when Samsung did announce Bada dead on the 25th of February 2013, they did not make any mention of anything Bada moving to Tizen. "We are moving development to Tizen" is all they said.

[Lasko]

As far as I know the native API of Tizen, as included in the 2.0 SDK, is based on the Bada API.

[Michael Cox]

Tomi, just a thought for your great blog... A black background/white text version for reading on a mobile to save battery as your posts take some time to read :).

[John Phamlore]

@Lasko The reason why Samsung does everything right is it owns stuff and makes stuff. Samsung actually can and does make phones for every phone OS that is available to it. It can do so at every price point a particular segment might demand.

Samsung unlike Nokia developed their own LTE baseband chipset.

Samsung unlike Nokia developed their own ARM SoC.

Samsung unlike Nokia owns their own fabs.

Samsung is regarded as a national champion of South Korea and is treated accordingly being allowed to expand in all sorts of areas to accumulate the cash to be able to afford to spend on research, development, and manufacturing.

Neither the EU nor the Eurozone has any idea how to support a non-French or German company like Nokia that should be regarded as a continent-wide champion.

[Tester]

@John Phamlore:

>> Neither the EU nor the Eurozone has any idea how to support a non-French or German company like Nokia that should be regarded as a continent-wide champion.

Don't you mean a money grave?

I doubt that any government intervention would have prevented the corporate rot that had infested Nokia. They didn't fail due to lack of government 'protection' but simply because they misjudged the market and couldn't act anymore with their inefficient and bloated structure. And when they finally made decisions they were just dead wrong. Since 2007, each and every time they made a decision they were wrong - the biggest one, of course, Elop's WP misadventure.

How on Earth can such a company be saved?

[John Phamlore]

@Tester Both the United States and China have established unnecessary channel access methods, the US with Verizon and Sprint CDMA, the Chinese with TD-SCDMA and now TD-LTE, that have served as IP barriers benefiting domestic companies, the US with Qualcomm, the Chinese with their national champions such as Huawei.

The Asians are also noted for their being willing to pay for infrastructure that aids new factories and research centers, the Chinese in particular establishing a supply chain that will be very hard for the West to catch up to.

Nokia's problem is that they simply failed to bet on the winning technology of the future LTE. That was a bare minimum for surviving at anywhere near the size they had. With clear direction would come planning to achieve what they needed to do as far as securing IP for their own LTE baseband chips and somewhere to fab them.

The clear example of how it was necessary to bet on LTE is shown by Ericsson who while exiting the handset business is a world leader in telecom infrastructure and who is going to clean up in the US for over a decade supporting new US LTE network.

[Spawn]

@DS

> And this year is final round for Nokia WP, and the game will be played in the low cost market.

They lost that already. With Lumia last month when Huawei and Microsoft introduced the WP8 4Africa smartphone. First Huawei made de P1 beating Lumia 620 and short before the Lumia 520 came out Huawei beatthem again already in price, specs and as preferred Microsoft partner. Let alone the much cheaper Android devices. Keep in mind that Nokia has to pay $40 per device license-fees to Microsoft. As cheaper the devices as more those license-fees become a serious disadvantage. I am sure Huawei pays a fraction of that for its WP8.

@zlutor

> it was not Elop's fault/decision not to push WP7.x into low

It was Elop's fault to push and promise low segment Lumia while not being able to deliver. Microsoft never ever promised WP for low end. Microsoft's focus is 100% on peofitable high and higher segments. That never was in question, a secret, unknown. Elop just went on to promise things he can't deliver to kill there next billion low-end strategy Meltimi cause "WP will do that for us". A typical call me Mister General Failure.

@Uwe

> Samsung did consider merging Bada and Tizen development ... Nothing has been heard about

No big splash but Tizen 2.0 is exactly that. The native API is out, its Bada API. They deliver already.

@John Phamlore

> Nokia's problem is that they simply failed to bet on the winning technology

Yes, they went all in with WP and lost. That's how gambling works but now how a proper company strategy should look like.

[cycnus.i.cant.post]

@Marc Aurel

"This is why I don't like your offhand dismissing of Nokia's decision to call the Asha Touch phones smart phones."

This FROM NOKIA PRESS RELEASE:
http://press.nokia.com/2013/02/26/nokia-asha-305-wins-best-entry-level-phone-at-mobile-world-congress/

In this press release, nokia announce that it's asha 305 win the BEST FEATUREPHONE AWARD beating another 2 nokia phone and a samsung phone.

Even nokia think that Asha = FeaturePhone. What really happened was Elop trying TO FOOL INVESTOR. elop want nokia looks successful by including the asha number in smarpthone.

[cycnus]

@Henrik Nergard

What so great about WP???
Microsoft were loosing money on it.
Nokia were loosing money on it.
LG (was) loosing money on it.
Sony (was) loosing money on it.

This called DUMPING. and there's a law against dumping.

[cycnus]

@Mark aurel

I need to add...
IF Asha 305 WERE SMARTPHONE... It WILL NOT WIN THAT AWARD IN THAT CATEGORY.

[Spawn]

@Alex Takacs

> Symbian touchscreen attempts around 2008-2010 failed to provide a competitive experience (N97, N8...)

N8 with first Symbian^3 wqs full touch-screen. The problem was more on the UI side where things where not even close as polished as iPhone was. That changed with Anna (first Symbian^3 update) and even more with Belle (second Symbian^3 update). Belle is really good and is competative. The N9 UI-concepts made it to Symbian. Fast, beautiful, featuerich and rock-stable. Just try the 808 PureView.

Those updates came from Accenture, after Elop's Nokia outsourced and closed Symbian development already, with a way smaller team and budget. Nokia itself could have come up with thise updates much faster if not burned beforehand.

> and the platform legacy was too heavy to move fast enough

Symbian Belle and MeeGo N9 prove you wrong. What happened with Symbian is exactly the same pattern Elop applied to MeeGo and Meltimi. Short before killed.

I don't need to add that Symbian sold by factors bettern then both, WP7 Lumia and WP8 Lumia, or?

[Lasko]

@Henrik Nergard

"In the smartphone market I see three players in the long run. Android, iOS and Windows Phone 8."

We hear this crap for years now, and now it is even less true then ever. There *was* a window of opportunity for Windows Phone, but now it's gone and it failed miserably. We have OEMs dropping Windows Phone for Tizen and Firefox OS in smartphone business, like LG, we have OEMs dropping Windows for Ubuntu and ChromeOS in traditional computing, like Dell, HP, Samsung and all the others. Microsoft and Windows is losing ground left, right and center - and yet people stand up and say "but now its time for Windows Phone". This is completely deslusional and stupid. It has had its chance, and it failed, miserably. So did everyone banking on it, above all Nokia and Elop.

Windows Phone is gone. Period.

@John Phamlore

"Neither the EU nor the Eurozone has any idea how to support a non-French or German company like Nokia that should be regarded as a continent-wide champion."

This is just plain wrong. It was above all Nokia which got subsidized left, right and center and literally money shoved up their asses across Europe. But Europe did stop doing so simply for two reasons: constant dick moves on the end of Nokia (Bochum Germany, Cluj Romania, et al.) and the simple fact that most decision makers think that Nokia in this state has absolutely *no* future and that spending money for it is wasting money.

EU beeing not beeing corporate-friendly? You are kidding yourself, really!