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

[JP]

http://m.seekingalpha.com/article/1241121

That proves the theory that operators just milk Microkia...

[khim]

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

So very true. Because.

@John Phamlore: Nokia's problem is that they simply failed to bet on the winning technology of the future LTE.

Yes, Nokia went with WiMax and failed. BUT! Samsung ALSO was a huge WiMax supporter:
http://www.wirelessweek.com/news/2007/02/samsung-shows-way-wimax-handsets

And it CONTINUED to support it even when it failed:
http://www.ubergizmo.com/2011/07/sprint-wimax-samsung-galaxy-s-ii-spotted-at-the-fcc/

But of course Sumsaung ALSO kept LTE efforts and when WiMax failed it was able to offer LTE, too.

And the same with Android, WindowsPhone, Bada, Tizen, whatever: Samsung does not burn bridges while Nokia was increasingly more gambling company. Why? Why company which produces bazillion handsets will, nonetheless, abandon whole sectors (as it turned out later SUCCESSFUL sectors)? Just Why?

That's just crazy - and it happened before Elop, he just went to the logic conclusion with this mad strategy.

[Lasko]

On a short note: Nokia has just been thrown out of the Euro-Stoxx-50 (and EADS got in); it no longer counts as one of the most valueable companies of Europe.

Prepare for another dive.

[Henrik]

@Henrik Nergard The "If they make Android devices it will just be one manufactor in the jungle with Samsung, HTC, Sony etc.."

I see that a lot when people defending why Nokia picked WP and not Android.
But with MS you really are one of many. All looks the same OS wise. You are not allowed to change anything.
On Android you can make your custom skin and become unique. Yes there are a Love/Hate relation for the differece skins on Android. But that is one of the thinks that make and HTC, Samsung, Sony, Huawei, LG, Motorola, etc. Android devices not just "one of many"

WP. It's hard to see what the difference are from buying a HTC WP8 or Nokia WP8 phone in the same end of the line up.
The only difference are
1) The price.
2) The color of the cover.
3) Is it says Nokia og HTC on the cover.

So as I see it. Making WP then you really are just one of many

[Winter]

@JP
http://m.seekingalpha.com/article/1241121

Nokia marketing in China is mirored in the rest of the world, see the comments.

I cannot explain such behavior except when there really is no demand.

[Lasko]

@Henrik Nergard

"If they make Android devices it will just be one manufactor in the jungle with Samsung, HTC, Sony etc.."

This is honestly the greatest joke I've ever heared, especially if you look at the existing Windows Phone and Android devices.

This is especially laughable as Nokia now offers it sole unique selling point, Nokia Maps or HERE as they call it now, to all Windows Phone systems, for free! So not that they all look the same and behave the same, they even now run the exact same software, made by Nokia, given away for free to all competitors.

This *is* just *ridiculous*!

[JJ]

@Henrik Nergard

Why would anyone like to join WP? There is only one dominant manufacturer (Nokia) that takes 70% of sales plus gets special advantages from Microsoft top of that.

[Lasko]

Not even remotely.

Nokia indeed is the largest contributor to Windows Phone in terms of market share and funcionality (eg. HERE), but by far the smallest beneficiary. Microsoft sucks out way more license fees then of any other partner (way more), has dropped Nokia as launch partner (now HTC and ZTE), as marketing partner (now Samsung), as development partner (new Samsung, for example native code options for Windows Phone 7).

That's a typical Microsoft partnership. Give everything and die.

[Tester]

Judging from Microsoft's behavior it seems quite clear that Nokia seriously failed to deliver in their 'partnership'.

Why else would Microsoft be looking elsewhere? If they could have done it with Nokia I think they would have, instead of relying on Android manufacturers right now - which can't be this easily extorted.

Although little is being mentioned in the press I cannot imagine these companies doing it for free - if they support a system with such low market share and invest work there, someone has to pay for it - and that really can only be Microsoft. And it's also clear that any deals these companies made are magnitudes better than what Nokia got.

[Lasko]

@Jojo

Well, and a lot of people are getting tired of the "Windows Phone becomes a major player (~20%)" comments.

What about you sharing your opinion on why this would happen - instead of just claiming this bold sentence.

[chithanh]

@JP @Winter
It seems that someone at seekingalpha didn't like the Nokia doom-and-gloom article. They now published two more articles titled "Nokia Is On The Rise" and "Why Microsoft Will Dominate The Smartphone Space: Its Android OS Cash Cow". The latter sourcing its information from rumours and hearsay...

[Nzt 48]

Hey 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!

[Winter]

@chithanh
The story seems to be:
- "Its Android OS Cash Cow"
MS as the ultimate Patent Troll! It seems that the current trend away from SD card slots is a way to avoid MS patent extortion. It shows that there is no protection against bad (patent) laws combined with bad standards.

- "Nokia on the rise"
This we hear since 2010. Nokia will rise because it this time, MS will not destroy its partner. Really, promise. This time it will be different.

[cycnus]

@Winter

The new Nokia mantra were:
* Lumia on the rise
* (thus...) Nokia made a profit in Q4 2012

[Winter]

HP's $170 Android Tablet Is Devastating News For Microsoft
http://finance.yahoo.com/news/hps-170-android-tablet-devastating-141101095.html

HP, just announced plans to sell a $170 7-inch Android tablet in April. That's less than the cost of the Amazon Kindle Fire HD and Google's Nexus 7, both based on Android, and both of which sell for $199. It's less than Apple's $329 iPad Mini.

Most importantly for this story, it's significantly less than the $650 HP charges for its Windows-based ElitePad, which is geared more towards enterprise customers.

[Tester]

@Winter:

>> - "Nokia on the rise"

Now that Symbian is gone for good, Nokia will inevitably rise. It can't go much lower than where they are.

The big question is not whether they will rise again, but how quickly. And there it doesn't look good - despite some incompetent forecasts in business news.

[chithanh]

Eldar Murtazin had something to say too when confronted with that kind of articles:
http://www.mobile-review.com/articles/2013/birulki-214.shtml
«Человек, который возглавил Nokia, занимается сегодня не развитием компании, а ее уничтожением в пользу Microsoft. Планомерным, методичным уничтожением.»
Google Translation:
"The man who headed Nokia, today is not engaged in the development of the company, and its destruction in favor of Microsoft. Planned, methodical destruction."

[Marc Aurel]

@ cycnus

I am very well aware of the common definitions. The question is not whether Asha Touch are smart phones according to common "wisdom", but instead I wanted to question the common definitions, because they don't seem to be based at any concrete criteria which would separate smart phones from feature phones. Instead the definitions seem to be historical and even completely tautological.

[Tester]

@Jojo:

If you make claims, you have to back them up. Otherwise be prepared to be called a troll.

As for Kantar, there's nothing new here. It has already been commented when last quarter's numbers were released. Most of the change was not now but half a year ago.

[bjarneh]

Jojo> I'm not writing a popular blog about mobile world, so I don't have to explain the reasons behind what I think.

that's not how a debate works Jojo.

Jojo> He has always been quick on commenting WP8 poor sales numbers, but now when it shows WP is growing, he is silent.

this is hardly the case, the percentage growth is massive since they start from a small number. there are a ton of already-obsolete-devices (Windows Phone 7 from last year) getting pushed to unknowing customers. here in Norway even the new Windows Phone 8 devices from HTC are already on 30-50% discount, they are basically the cheapest smart-phones around. this will give you some market-share, but the key here is whether or not this is sustainable/profitable.

http://www.elkjop.no/product/mobil-og-gps/mobiltelefon/HTC8SBLUE/windows-phone-8s-by-htc-smarttelefon-bla

as you can see 1895 NOK = 331 USD (at Norways largest electronics store); smart-phones with that kind of spec don't come much cheaper than that, in Norway at least...