Ballmer Aftermath Part 2 - Impact to Nokia, especially Lumia running Windows Phone

Ballmer is out. I blogged a rare Saturday blog to give my first views on Ballmer's exit, in that blog focusing on impacts to Microsoft. This is part 2 of the trilogy, looking at the impacts to Microsoft's 'strategic partner' Nokia and obviously its flagship division, the smartphone unit that has just completed its migration from Symbian to Windows Phone. Part 3 will be on replacing Ballmer and does Elop have a chance. (Long blog warning, this blog runs about 10,000 words so it would be a solid chapter in a hardcover book. Get yourself a cup of coffee as this will take you half an hour to read, but it goes into the necessary detail and explains fully the how and why. Oh, and if you're strongly invested in Nokia, you might throw in some whisky into that coffee, cause this blog is going to sting quit a bit.. be prepared)

THE EVIL TWINS

Ballmer was a bad CEO, of that there is no doubt. The owners of Microsoft were so delighted that Ballmer is departing, on Friday the Microsoft share price shot up 10% on the announcement. The owners have spoken loud and clear, that they disapproved of Ballmer's management and 'anyone else' could do a better job than him. (Incidentially, the same will be true of Elop's departure from Nokia, he is a far worse CEO than Ballmer was, has done far more damage to Nokia than Ballmer did to Microsoft, so when Elop is fired or resigns, the Nokia share price will jump much more than it did for Microsoft)

 

Nokia's CEO, Stephen Elop came from Microsoft and seemed to be a close buddy to Steve Ballmer. They would often appear together and in his capacity as Nokia CEO, Elop would often sound more like a Microsoft CEO than a Nokia CEO - such as welcoming rivals to the Windows Phone world, and rather than talking of Nokia - handset maker - rivals when talking of competitors, he would often rather talk of Microsoft - operating system maker - rivals. So Elop would often totally ignore mentioning Samsung for example, but would talk of Google (Android) and Apple (iOS). As I have written on this blog, Stephen Elop has been the worst CEO of any Fortune 500 sized company, his damage to Nokia is worse than what Toyota experienced with its global brakes recall problem, or what Coca Cola experienced with the launch of New Coke, or how BP suffered with its oil spill etc.

 

Ballmer was on stage with Elop when the new Windows strategy was announced by Nokia on that fateful day, February 11, 2011. Ballmer's personal support (or involvement, however you want to see it) to the Windows Phone project has been a major part of Elop's enthusiasm with the strategy. We heard Elop tell the Nokia annual shareholder meeting last year, that he - Elop - and Ballmer had been personally involved in negotiations with major carriers/operators about adopting the Windows Phone operating system with some novel Skype integration (and after more than a year of those negotiations, not one carrier/operator had decided to go on that suicidal route).

ELOP THE INCOMPETENT FOOL

Ballmer was famous for his arrogant, abrasive, bullying style. Elop clearly emulated that too. Elop can sound very charming and down-to-earth on his public appearances, but he has clearly been a two-tongued snake, with his charm he invites the honest assessments by his staff, and Elop then ruthlessly fires all who hold views differing from his own. Elop has rather systematically eliminated all dissenting voices from top management at Nokia. If Elop was a Steve Jobs with an exceptional view to tech future, this might be good. At Apple it was Jobs who made all the critical decisions. But at Nokia, we've seen Elop was utterly clueless about the handset industry, whereas Nokia had the deepest bench of true competence in the industry, in Nokia senior management. If Elop had been intelligent, he would have held onto all that knowhow and helped fill in the gaps that he had. Now instead we have seen one mistake after another from Elop, that he then has to fix months or years later. I refer to only a few - the Burning Platforms memo, which Elop was so proud of initially, but he later admitted yes, it did damage Nokia sales. I've measured it here on this blog as the most damaging management memo of all time. Yes, its total cost was 13 Billion dollars of revenues demolished, and get this - wiped out 4 Billion dollars of profits. Costliest memo in corporate history, courtesy of Mr Management Fool, Stephen Elop.

Elop has also been regularly reversing some of his silly early decisions such as the naming decision (no more names for Nokia phones and units, rather all phones would only be numbers). This was ridiculed by the marketing professionals and within a few months, Nokia went back to names, and now we have the Lumia line, the Asha line, and Pureview branded premium camera smartphones, so Nokia is back to nearly as many names it had for its phones as it had before Elop, the N-Series, the E-Series and the Communicator line, to mention three (Nokia also used to have the C-Series etc but at least now he has reversed that silly decision and is back to the right path. Nokia's former Chief Marketing Officer, Keith Pardy, famously promised Nokia to move away from the pure numbers models to named models. Elop wanted to go the opposite direction. Pardy came from Coca Cola the biggest marketing brand on the planet. Elop came from Microsoft, which makes all its profits in monopolistic market conditions. Which guy do you think knew his marketing better?)

When Elop took over, Nokia had several areas where it made top-end premium phones that had features or abilities better than those on Apple's iPhone. For example the E-90 Communciator was the first smartphone in the world to feature a 4 inch screen in 2006 (vs the iPhone's 3.5 inch 'oh, wow, look how big it is' screen in 2007). Nokia's N95 had a 5 megapixel camera in 2007 vs the iPhones's 2mp. Nokia's E7 had a full QWERTY keyboard as a slider, in the touch-screen smartphone, only days before the Windows strategy was announced. Plus Nokia had more connectivity options, removable storage options, removable batteries allowing heavy-users of smartphones to carry an extra battery - such as us jetsetting heavy travellers who find the phone battery dies on long flights, etc. All these were technical abilities where Nokia was far ahead of Apple's then-current iPhone models. All these were abilities a sensible CEO would cherish and explore and exploit - and greatly celebrate - as ways to differentiate against the iPhone and other rivals.

 

Rather Elop showed us the early Lumia series as being designed by rejected employees at Apple. The early Lumia were clumsy copies of iPhones, but with less features and abilities, and with the exception of the gorgeous looks and the swipe tech - both stolen from Nokia's own MeeGo operating system based N9 - everything else on the early Lumia's were like a discount-barrel iPhon-a-clone. The flagship camera capability of 12mp was downgraded (who in the world launches a downgraded flagship?) to 8mp. So suddenly Nokia had no competitive advantage in the camera - its strongest feature and the feature Nokia customers always ask for first. The screen size and resolution were reduced from Nokia's previous top models. There has not to this date been a QWERTY variant to the Lumia series even as more than a third of Nokia smartphone buyers in 2010 bought a QWERTY version such as most of the E-Series, and various youth smarpthones. Nokia didn't offer anymore microSD slots, or TV-out and HDMI-out features, nor removable batteries - all items that were strong differentiators on Symbian, Maemo and Meego model smartphones by Nokia, but suddenly under Elop, that all was removed and he only gave us clones of the iPhone.

Since those silly decisions - remember, Elop is firing anyone who dares to disagree with him, so any senior management at Nokia who knew all this, had either spoken - and been fired, or else held his or her tongue to keep the job. So Elop was compounding one stupid decision followed by another. Hence we got to the infamous 101 faults problem with the early Lumia smartphones - phones as if designed to infuriate existing Nokia smartphone owners.

MOST OF ELOP'S SILLY DECISIONS NOW BEING REVERSED

I have been loundly critical on this blog about those faults, explaining in deep detail why there is a loyal Nokia segment that wants premium cameras, or QWERTY keyboards, or large screens, or removable batteries, or microSD slots, or full and uncrippled Bluetooth, or TV-out and HDMI-out etc. Now we are seeing Elop gradually reversing those decisions. So was Tomi right or wrong on this blog, when now, Nokia's latest Lumia 1020 offers us a seriously better camera than anything offered in Apple's iPhone line? That Nokia has finally 'gone big' in screens? That Nokia now offers Lumia models with removable batteries (especially critical in many emerging world countries where electricity is not relibably connected 24 hours a day), etc. The only major part Elop has not accepted yet, is the QWERTY versions to the Lumia line.

So Elop had very bad judgement in mobile. Worse, he is delusional, he would refuse the facts of Nokia customer surveys, and rather insert his own imaginary world instead. And he governs that way. Had he been a smart CEO, he would have trusted the Nokia senior management - who after all had delivered a dominant market position in total handsets, more than 50% bigger than the next largest competitor - Samsung - at the time that Elop announced his Windows strategy, and more importantly in smartphones, the future of this whole industry. Where, using the increasingly outdated Symbian OS, Nokia had managed to utterly dominate the smartphone market - yes, dominate. The PC market has never seen Hewlett-Packard enjoy a market position where it is twice as big as its nearest rival. Neither had Dell, nor IBM, nor Compaq, nor Lenovo, nor Acer, nor Toshiba, and obviously, the Apple Macintosh has never been even biggest PC maker, far less twice as big as its nearest rival. Same in cars, Toyota has never been twice as big as its rivals, neither has GM, neither has Fiat or Volkswagen or Nissan or Renault. But guess what, even using the 'obsolete' Symbian OS, Nokia's smartphone unit towered over the iPhone and Samsung and Blackberry, Nokia smartphones were more than twice as big as any of those rivals when Elop announced his Windows strategy at that start of 2011.

The first Lumia line smartphones were far far worse as Nokia branded products, than I had thought possible. The first Lumia smartphones were, as Elop told us, designed not by Nokia's Finland-based top smartphone designers, but rather designed by US based designers, because Elop wanted the first Lumia models to take over the US market (they failed utterly in that, Nokia's small but persistent US market share in smartphones fell by half with the first year of Lumia in the market). As these smartphones were so poorly designed overall, and were in so many ways infuriating to loyal Nokia owners (101 faults and all), they helped collapse the loyalty of Nokia smartphones worldwide. As carriers/operators said: in Europe the European carriers/operators said, these Lumia smartphones are not suited for the European market. Asian carriers/operators said the same of Lumia for Asia. In Emerging World markets, the early Lumia flopped totally. In many of Nokia's strongest markets - most notably China - the first Lumia smartphones were simply not even launched by the carriers/operators, they were so bad. And take this, Nokia had to release similar-spec Symbian smartphones for the Chinese market instead..

So, first, to all those who wrote on this blog over the past two years, that Elop is right and Tomi is wrong, nobody wants a better camera or bigger screen than on an iPhone. Nobody needs removable batteries anymore or wants a microSD slot etc, I stand vindicated. If you were right, and I was wrong, why has Nokia now done all that. If I was right and Elop was wrong, then clearly Elop was a bad executive for Nokia. These were all competitive advantages that consumer surveys said Nokia loyal customers liked or wanted. Elop refused them to the loyal customers, and Lumia sales suffered as a consequence. Now he's thrown most of the loyal customers to Android or Apple, so the opportunity was wasted.

I still await the first QWERTY version to come, either by this CEO or his successor, there is a huge market of loyal Nokia customers now clutching their E7s and in the stores, playing with QWERTY variant smartphones from Blackberries to the new LG Android model, as they await some new Nokia branded QWERTY flagship smartphone. But yes, about Elop. He has been forced to reverse almost all of his silly decisions he made early, that all helped diminish Nokia's appeal in the market, and helped suppress the meek performance of the early Lumia series. Elop through his actions has proven himself wrong, time and again, and has been forced to reverse all those silly 'ideas' he brought in. Remember, readers, Nokia had BY FAR the deepest and best market research on handset users, better than any carriers/operators and far more than any rival handset maker. Nokia management KNEW that these were selling points that Elop was removing. And obviously I have been proven correct, as Elop has now finally allowed most of these to return to Nokia smartphones.

ELOP AND BALLMER - BULLY AND BULLY

So we heard from Ballmer when he bought Skype in 2011, that he would bring Skype to all desktops and make it the world's largest voice calling and messaging platform. Then only days later, after that purchase, we heard Elop - remember this is a Nokia CEO, not a Microsoft CEO - promising that Skype would come to every Windows smartphone. Elop was this arrogant, saying it would come whether the carriers/operators wanted it or not. Yes, its bully and bully. The Evil Twins. The Ballmer and Elop show, visiting carrier/operator CEOs and threatening to steal their business - but please take this smartphone, it will be the poison elixir that expedites your extinction. Remember, a year later, at the annual Nokia shareholders meeting, Elop admitted that he and Ballmer had been to those meetings, insisting Skype would come whether the carriers resisted or not, and that they wanted to force a new business model for mobile phone voice calls where Microsoft (not Nokia) gets the revenues, rather than the carrier/operator, and then Microsoft would kindly give a few pennies of that to the carriers/operators. And as one can predict, the carriers/operators are totally united in rejecting this - not one of the world's 600 mobile operators/carriers has taken this 'offer' of assisted suicide by Microsoft, Skype (and Nokia).

Elop was an utter fool to join in those discussions and tying Nokia into that outrageous position. There was no gain to Nokia from those meetings, only harm. Nokia should have played the 'good cop' in the situation, let Microsoft's Ballmer go in an threaten them, then send Elop in separately, promising that Nokia will always offer smartphones, both with Windows and without it, that have no Skype on it.... That is no doubt what Samsung has been saying to those loyal Nokia clients, stealing all that business. The clients have spoken loud and clear. When Elop started this nonsense, 10% of Samsung's smartphones sold ran Windows. Today 1% of Samsung's smartphones run Windows. The carriers/operators have spoken, loud and clear. Carriers gave 33% of the global smartphone business to Nokia before Elop announced Windows, today they only give Nokia 3%. Carrier have spoken, loud and clear.

DAMAGE CANNOT BE UNDONE

So now Ballmer is done. Can Nokia now say to carriers/operators, we'll give you what you want, don't worry about Microsoft, the evil dictator is gone, Microsoft will now be better and you don't have to fear Skype? Haha. Yeah. No chance in that. If Elop had been on the side of the carriers/operators, maybe yes. But because Elop took the side of Microsoft and Ballmer every time, very loudly and in the press - and Elop kept firing his sales staff who disagreed, of course everyone knows Elop is the 'Mini-Me' of Ballmer. He's a Ballmer clone. The Evil Steves.

So the break in Microsoft management that comes with the departure of Ballmer, could have been a welcome moment for Nokia to break with Windows and Lumia and the Evil Empire reputation that Microsoft has always had. But because Elop has been so closely the Mini-Me of Ballmer, Elop has tied Nokia totally not to Ballmer the person, but the whole Evil Empire 'we will crush you' mentality that Elop so eloquently elaborated to Nokia's shareholder meeting - we (Ballmer and I) tell the operators that Skype will come to the smartphones in any case, whether the operators/carriers want it or not. That is how totally Elop has aligned himself and Nokia, to the worst philosophies of Microsoft, not the persona of Ballmer.

WHY DID ELOP DO THIS

Now we can see with hindsight, what has been going on. We know now, that yes, Nokia was under very serious discussions of being sold (as I predicted) to Microsoft. Those discussions broke down this February. So there had been very serious ongoing takeover talks last year (when I said Nokia would be sold soon - and obviously I was wrong, but I had obviously still had a good hunch, I had sensed a very likely scenario).

Now we know that Elop had wanted to sell Nokia to Microsoft and Ballmer had been very interested in buying Nokia. Its obvious. Now when we look at the enthusiasm with which Microsoft's CEO would bounce into various Eloppian events and schemes, and meet with Elop often privately, and plot world-domination plans together like we heard from 2012, that Ballmer and Elop had considered buying RIM ie Blackberry together, but decided against it. These two were truly Bondian villains-in-kind, plotting and scheming how to take over the world.

But look at the time-line. We know now that the Nokia takeover talks broke down in the early Spring of 2013. And we heard Bill Gates on Charlie Rose being critical of Ballmer's management - in February 2013. The one specific failure or in Gates's words 'clearly a mistake' of Ballmer's management time had been Windows Phone. This was February of this year.

So now lets put two and two together, and what do we find. We find first, that yes, there were talks of Nokia being sold to Microsoft. Those were not exploratory talks, they were deep serious talks. And that they broke down early this spring. So now, lets look back at Elop's tenure as Nokia CEO. If we look at his most glaring mistakes and the ones that most damaged Nokia during his time - the Burning Platforms memo, the ridiculously early announcement of the Microsoft partnership in February 2011 when he had no phones to sell, no phones even to snow on Windows, in fact, when Nokia would not even use the then-current Windows Phone version and would have to wait for the next version out sometime in the summer - and first Nokia Lumia smartphones would only ship in modest numbers, to selected countries, by Christmas. That was the 'Osborning' of Nokia smartphone business and plunged into the abyss of loss-making where it still is today. This all was idiotic by a Nokia CEO, but if you want to look at it in the eyes of Microsoft, all those actions were to Microsoft's benefit. Microsoft's Windows Phone was failing at its launch (we would find Q1 data some weeks later, that yes, WP was actually falling in sales only half a year after launch). Microsoft desperately needed someone like Nokia to bring it new life to the stillborn Windows Phone platform after Ballmer so openly destroyed Windows Mobile, its predecessor. Nokia did not need Microsoft in February 2011, Microsoft needed Nokia. So who was Elop helping?

Same of the mad statement Elop made when the fantastic N9 was shown for the world for the first time, running the MeeGo OS. The Nokia share price jumped and everyone was truly impressed by how exciting the MeeGo OS was and this exciting iPhone-killer N9 superphone - but the very next day Elop went on Finland's largest newspaper saying that no matter how great a success the N9 would be, he will not allow any other MeeGo based smartphones to be sold.

What the Fuck?

This is a true moron. Can you imagine Apple releasing a new iWatch, and then any Apple CEO of any era, saying - by the way, no matter how may you buy, my dear Apple loyal customers, we will not do any more of these. No matter how much you might love the iWatch, I won't let my company make more of them. What a total lunatic! By this one action alone, Elop should be fired, and I said so on this blog.

Not only that, Nokia actually was MANUFACTURING a second MeeGo based smartphone, in small numbers - this was the N950 - in Nokia factories, using Nokia supplier components - both which were idling or at low capacity, as early Lumia models were manufactured by Compal in Taiwan, not in Nokia factories, and used Microsoft-compatible components, not usual Nokia supplier components - and for MeeGo Nokia doesn't need to pay any licenses, its Nokia-owned software, but for Windows Nokia has to pay a royalty to Microsoft every time a handset is sold. What total asshole CEO would jump on literally the first good news Nokia had had, since the Windows disaster press conference of February 11, 2011, that plunged Nokia share prices down by over 55% in five months - now, that Nokia had its first upward bounce with MeeGo and the N9, Nokia CEO says, that by the way will not be tolerated.

Yes, this is mad misbehavior by a delusional dictator CEO. Mr Elop, who wants people to call him 'The General'. And yes, he now 'Osborned' the MeeGo OS in one statement to the newspaper. Why would the CEO be allowed to stay with this statement in the press. Why didn't Nokia issue an immediate correction, that Elop was misquoted, or perhaps he was jetlagged and didn't mean that, or whatever. No, we know now why. The Board of Nokia had been convinced that Nokia will be sold to Microsoft, and they had to kill all rival platforms before that could happen.

So Nokia killed its own babies. Killed Symbian, killed MeeGo and even more bizarrely, where both Microsoft and Nokia execs say that Windows Phone is not suited for ultra-low-cost smartphones, and Nokia had thus been developing its own low-cost OS on Linux, called Meltemi - that Elop would kill Meltemi too - is again a totally criminal action by Nokia's CEO (he really should be brought up on criminal charges and all ethics violations by all three stock exchanges that Nokia shares were traded on during his tenure, Helsinki, New York and Frankfurt). Killing Meltemi makes no sense whatsover for Nokia who held more than 50% market share of smartphones on all three continents of the Emerging World, where most mobile phones were sold already then, and today even most of all smartphones are sold now. And where all the big growth is in smartphones. And where smartphone sales prices are far below the average price of the Lumia line.

Killing Meltemi makes no sense at all for Nokia, but it makes sense if Nokia is in talks to sell itself to Microsoft and Microsoft cleverly dangles the Nokia purchase in front of the Nokia Board, and says, if you only do this one thing for me, then we can talk... By February 2013, Nokia's last Symbian factories had ended their Symbian production. Maemo and Meltemi had been terminated, their last smartphones long since made and sold. Meltemi the project had been terminated. Nokia was now 100% a Microsoft-house. Now was the time to conclude those talks to sell Nokia to Microsoft.

GATES WAS TOO SMART

Clearly Ballmer wanted Nokia to be Microsoft's handset and tablet manufacturing divison. Clearly Elop has been breaking his fiduciary duty to Nokia shareholders for more than two years, and has been just preparing Nokia for the sale to Microsoft, as he did in the past when immediately after he became CEO of Macromedia, he proceeded to sell it to Adobe.

 

But now Bill Gates stepped in and ended this nonsense. When Ballmer brought the Nokia purchase plot to Gates, in 2010 - before Elop was sent as their agent to run Nokia - at that time Nokia's market share in smartphones was 33% and Windows was 5%. Together they had 38% of the total smartphone market - most of that on Nokia's side. If Nokia would switch to Windows, and were able to do a 1-to-1 transition - and they honestly believed at Microsoft's headquarters, that Symbian was such a bad OS, that the new Windows Phone would be so much the better OS, that these 'improved' new Nokia smartphones (that we now know as Lumia series) would sell better than Symbian - because Windows Phone was more like the iPhone and all early Lumias, under Elop's management would simply be cheaper clones of the iPhone of essentially identical form factor. Because the Microsoft handset competence felt that copying the iPhone was the answer to world domination - just like copying meticulously the Macintosh was the key to Windows PC world domination - the Microsoft management - Ballmer and his Nokia-boy, Elop (who was already heading Microsoft's Nokia collaboration at the time on the E-Series and Windows Office Suite integration with Symbian) - were convinced that just ditching the silly Finnish Symbian ideas, and replacing them with the Microsoft way of copying Apple, would give the new partnership great success and soon, world domination.

Sounded like a good plan. Take these two, 33% and 5%, add them together, and this partnership might get to 38%. Recognizing that promising Nokia some 'preferred treatment' meant that some of Microsoft's other handset maker partners - Motorola, LG, Samsung, HTC, SonyEricsson, Dell, etc - might be upset with that arrangement, they might see a decline in the non-Nokia part (the current 5%). So 38% was maybe the ceiling, but certainly this partnership, after the conversion to Windows was completed, should be able to do 30% at least. If it was on the down-side, things really went bad, it might be 25%. The upside could easily be 35% or better. And most analysts who predicted Nokia future with Windows Phone, were promising shares in the 20% range or above. The worst of the 'big analyst houses' were still promising high double digits, in the 15% to 18% range. Even that would be a huge bonus for Microsoft, whose market share had fallen from the peak during Gates's time, of 12% down to the 5% it was now under Ballmer. Even if the very worst of those numbers came true, 15% - Microsoft's Windows smartphone performance would achieve a huge new peak, much above the 12% achieved under Gates a few years earlier. So even the 'most pessimistic' view by the big analyst houses was pure gravy for Microsoft, compared to its declining fortunes at the time at 5% and falling.

SHATTERED PROMISE

That is what Ballmer sold to Gates in 2010, when they agreed to send Elop to be a candidate as Nokia's new CEO. In those interviews, Elop was at his best, he gives a great first impression - like any con-artist has to - and he totally tricked the Board of the Finnish giant, that Elop was their best man. He said there would need to be changes, lots of people would need to be fired, some of Nokia's waste would need to be cut, but he promised as CEO the few things Nokia's Board wanted to hear - he would not move the Nokia HQ to the USA. He would not end Nokia's manufacturing in Finland. He would keep Nokia 'Finnish'. And with his strong connections to the US market, he would bring more US-focused smartphones to recover Nokia in the only continent where it was not strong - North America. Remember, in the summer of 2010, Nokia had reported its first corporate loss since it became a handset giant. The loss was not in the handset unit - that unit still reported healthy profits - but because of NokiaSiemens Networks losses being so big, the total Nokia corporate results had just been loss-making, the first time in more than a decade. A disasterous quarter at Nokia and obviously big changes were necessary.

That is why they chose Elop over Anssi Vanjoki, the internal candidate. And one of Elop's missions from the start, approved by Nokia's Board, was to evaluate the smartphone direction, and consider alternate platforms, to possibly replace Symbian, Maemo and MeeGo. The Board in 2010 did not approve the ending of Symbian, that had already been decided and communicated. Nokia's Board approved in Elop's responsibilites the evaluation of the internally-developed path to MeeGo (with Symbian alongside it for many years still) vs outside options. We have heard that there were sincere and serious discussions right after Elop took over as CEO, with Google's Android and Microsoft's Windows. We also heard that Elop had approached RIM for licensing the Blackberry OS as an option but RIM wasn't interested. We haven't heard from the Apple side, but if Elop contacted those three, we can be sure he also contacted Apple where Steve Jobs would have told Nokia to go stuff itself...

 

I am very sure that the decision to go to Microsoft was not made when Elop was hired, he was only given the permission to explore alternatives. This was a legitimate Board concern, as the development costs of Symbian and Maemo/MeeGo were considerable, as were the related expenses of building the Ovi store and the Qt software development tools environment. Elop was a software guy, so he was particularly well suited to examine the true costs of those issues, and as an outsider to view them honestly and against some 'industry norms' as Nokia was being accused (rightly) of very costly software-development inhouse, where Nokia's own processes had become very bloated and all software was chronically delayed, in some cases by a year or more (ironically, they would take advice from the company even more bloated and slow in software launches, Microsoft..). The Nokia Board in 2010 had no intentions whatsoever in attempting the sale of Nokia to anyone, they wanted Nokia's position corrected. It was a Fortune 200 sized super-giant company and highly profitable (among 50 highest profits) and it would be Nokia much more as the buyer than seller if there were any corporate buyouts in Nokia's future, back in 2010, in the minds of the Nokia Board. They could not imagine that two years later Nokia would be so ruined, they would have to consider selling the company.

Elop's 'Microsoft Mole' mission was not obvious at the time but with hindsight now, its clear he had the ok for this before he was let go from Microsoft. Elop came into Nokia to sell it to Microsoft, not to turn Nokia around and bring it strong and competitive again. We see it now, the actions are loud and clear. Its been his mission from day 1. From all his early decisions such as the cancelling of the first MeeGo device launch, or the total termination of the first MeeGo smartphone weeks before it was to go on sale, etc. The very first steps by Elop, before his bombshell Microsoft partnership announcement 5 months later, the very first steps by Elop, can now be seen as steps to make Nokia ready for a sale to Microsoft. Any parts that Microsoft didn't want or would be threats to Microsoft were being terminated, starting with the budgets cut and early products cancelled for the biggest threat to Microsoft inside Nokia - MeeGo.

Elop went along with the charade of negotiating with Google, knowing that he could always brief Ballmer on what offers Google was making, to ensure that Microsoft could make a better offer and win the deal. Elop then ensured that the MeeGo option was smeared by his ridiculous press interview where he suggested MeeGo was so deficient and behind in schedule, that there wasn't ability to release more than two devices running MeeGo during 2011 - when Elop had already killed one, and Nokia did release two that year, but had the capacity to release at least one more, meaning at least four devices. But Elop was planting the seeds to ensure that the Board would vote against MeeGo. He needed that, to get the Microsoft decision. Elop masterminded the Windows selection very well, and in all honesty, 'ruthlessly' - in Microsoft's best interests and against Nokia's best interests obviously.

Then Elop and Ballmer brought the partnership to the world in February 2011. And the various analysts promised something between 15% and 28% success for this venture. Elop promised a one-to-one transition from Symbian to Windows Phone (he achieved 1 out of 10). So this is what Microsoft's Chairman Bill Gates was expecting. He has his own boy, Ballmer running this scheme from Microsoft's side. Ballmer had hand-picked their 'Nokia mole' guy, Elop to go prepare Nokia for the acquisition. Windows Phone had just been released, it seemed to show good early numbers and compared reasonably well against Android and iPhone and Symbian and the previous Windows platform, Windows Mobile. All looked good.

Then, conveniently, along the way as the Nokia share price took its deadly fall in the Spring and Summer of 2011, Elop came to his Board and said, don't worry, this will all change when we get our Lumia smartphones into the market. We knew this transition would be rocky, but the Lumia series will recover. Trust me...

Then as things only got worse, and the Nokia share price fell below two dollars, and the first whispers came about Nokia being sold - we have heard now that at least Samsung, Lenovo, Sony and Microsoft had looked at Nokia at some point in 2012 - that is when Elop brought to Nokia's Board the 'solution'. He will sell Nokia to Ballmer, to Microsoft, and all Board members would get their big payoffs, the shares will be sold at big profits and their options would be valuable and everyone retires rich. Let Elop bring this deal in, and everyone just calm down and relax.

Obviously, only Elop was the right CEO at that time, to conclude the deal with his buddy Ballmer. The Board could not fire Elop, if they were in the process of selling Nokia to Microsoft. So while the Board saw that Elop was severely mismanaging Nokia and causing it further damage, they now were all convinced, we're on the gravy train to become a Microsoft handset division, we will all be rich, we don't have to care about any short-term damages to Nokia. Elop is already in discussions with Ballmer, this will all be decided by early 2013. Nokia would become Microsoft's manufacturing division with Elop in chargeof it, and Elop would now be Ballmer's wonder-boy and number 2 guy, ready to eventually take over when Ballmer retires from post of Microsoft CEO.

Yes, it all makes sense now. That was the plan. This is why, as the disasterous results followed one after another, and as Elop made blunder after blunder, and killed off any chances of a Nokia recovery, the Board wasn't firing him. Because we now know, Nokia had been in serious talks to be sold to Microsoft. So Nokia's Board has been in collusion to deny Nokia shareholders the best returns of Nokia, they actually allowed the CEO to demolish and destroy Nokia, because of a secret internal plan to sell Nokia to Microsoft - and worse, that rival bids were not even going to be entertained. I think this alone suggests the Nokia Board must be fired, and sued, punished by the three stock markets, and disbarred from any corporate duties of any publically held company in the future.

That is also why the other offers didn't come. Because the moment someone like Sony, Samsung or Lenovo asked about interest of Nokia to be sold, Elop told them in private, that Nokia are already in talks with Microsoft, and you don't want to anger Microsoft - all of the three make Microsoft Windows based PCs, and you don't want an angry Microsoft suddenly suing you everywhere. Ok, if Microsoft would be buying Nokia, the other candidates would walk away. They all knew, that Ballmer would be willing to sell parts of Nokia to other companies, as clearly Microsoft would not want all of Nokia, mostly only its smartphone unit.

Now we know what happened. In February 2013, Nokia had killed off all its own babies and was giving its head to Microsoft, here I am, lets do the deal. Ballmer had wanted to do this, as did Elop. No doubt, those members on Nokia's Board who were now on it (Elop had gotten rid of those who were against this plan). Everyone was ready to take their payments out of this clever little plot, when Gates said no.

Gates looked at the real performance of this partnership. Gates said in public that Ballmer has made mistakes and singled out Windows Phone project as 'clearly a mistake' and so badly mismanaged, that recovery was no longer possible. Thats what Gates said on Charlie Rose in February 2013. This is when the decision was made to not buy Nokia. So we know, Ballmer wanted to buy Nokia, but Gates stepped in to override that decision. And at that moment, Ballmer's career as Microsoft CEO was ended (as I said on this blog). Gates gave Ballmer six months to quietly sort out his future but clearly said in February to Ballmer, get out. And Gates vetoed the Nokia purchase.

Now Nokia has been gutted, all its options destroyed, and its up the proverbial shit's creek without a paddle.

ALL EGGS IN ONE BASKET

 

No other handset company has ever done its transition this foolishly. When Samsung went from Symbian to Android, it didn't end Symbian when Andoid was announced. When LG went from Symbian to Windows, it didn't end Symbian at that moment. When HTC went from Windows to Android, it didn't end Windows (it still makes Windows today). When Palm added Windows, it didn't announce the end of Palm OS. Nobody has ever done it like this. When LG added Android to its platforms, it did not announce the end of Windows. Only when the new platform is well established, does anyone end the previous platform, like Samsung did with Symbian, when Android was finally strong. As LG did with Windows, when Android was finally strong. This is the right way. Elop is the only CEO to do it the wrong way, placing all his eggs in one basket before that basket has even been built.

Nokia was definitely large enough to afford developing for more than one platform - Samsung last year was releasing smartphones on three platforms (Android, bada and Windows) and developing a fourth (Tizen). And Samsung reported the second-largest profits in the handset industry behind only Apple. Nokia could most definitely have supported two or three, at least Windows Phone and MeeGo - because Windows Phone has never been called as good as the Apple iOS, but Nokia's MeeGo was rated as good or even better than the iOS on essentially every factor except app store size. If Nokia owns the world's best OS for smartphones - by tech press user-reviews including US based reviews - what Moron CEO refuses to sell those devices.

As I've reported, the N9 on MeeGo won the world's most prestigious design awards, essentially the 'Oscars' of design, ahead of not only the Lumia devices but ahead of Apple's iPad. Wow. Who beats Apple in design? And what CEO refuses to celebrate that device that is legitimately an Apple-beater? So good in fact, that in Germany, the weekly newsmagazine Der Stern actually recommended readers to fly to Austria or Switzerland to go buy an N9, because Nokia refused to sell it in Germany (yes, wow, first of all, yes, Elop refused to let the N9 be sold in Europe's biggest market where Nokia was traditionally very strong, and secondly, yes, previously only Apple had that kind of fierce loyalty that people fly to other countries to buy their products. Nokia had such an uber-device in the N9 but Elop killed the device and refused it to most of Nokia's best markets).

Now Nokia has placed all its eggs in one basket - Microsoft's Windows Phone. If the market share of Windows Phone was something near what it is on the desktop, then this would be fine. But now, nearly 3 years since Windows Phone has launched, its global share of the world's smartphone installed base is .. two percent. Yes. Only one in 50 people with a smartphone in use today, uses Windows Phone. Its even worse for Windows Phone 8, which has only 1% of the world's smartphones in use. Yes, its really that bad, that even the obsolete Symbian still outnumbers Windows Phone 8 by 8 to 1 in the global smartphone installed base. Yes, if you are a developer, you have an 8 times larger addressable market today, on Symbian, than on Windows Phone 8. But Nokia had terminated Symbian.

GATES WILL KILL WINDOWS PHONE

I do think the writing is clearly on the wall. Gates signalled clearly in February, that he is not pleased with Ballmer's management, and Ballmer now announces his departure. We know that in February Nokia and Microsoft had been in the final stages of a merger talk - that means the major issues were finalized, and the decision was taken to their respective Boards. Nokia obviously wanted this. And so did Ballmer. But someone said no, we can see that was Bill Gates. Why would Gates say no? Because he read the numbers. It was truly the case that mating two Turkeys does not create one Eagle. The two companies separately held 38% market share in smartphones. By February of 2013, two years after the partnership was announced (and using the latest data at that time, which was Q4 of 2012 obviously) - the partnership accounted for barely 4% of the world's smartphone market, combined. This included some residual Symbian sales still. Windows Phone was at 3% at the time. So these two clowns, Ballmer and Elop, had so messed up their soup, that they took 38% and were left with 4%. And this 'success' was now being offered to Bill Gates, where Nokia's always-massively-profitable smartphone business had generated a massive loss for the full duration of the partnership. So the Lumia phones were being sold at huge losses, and even so, weren't able to maintain market share.

Gates also saw the Billions that Ballmer was pissing away with this project. Microsoft paid a Billion dollars per year in marketing support to Nokia, for this fiasco. And Microsoft paid unknown fortunes more, to various developers who refused to make Windows Phone versions of their software. Only with Microsoft's money would they be willing to do so. And the carriers/operators so hated Ballmer's Skype thing, that they all demanded Microsoft bribes to their sales even to stock the phones (by any Windows maker). And then, the carriers/operators would only stock miniscule numbers of the handsets, so no large-scale sales was even possible, so any 'market surge' was utterly impossible under this plan.

Gates is a smart guy. A very smart guy. A numbers-driven guy. He looked at those numbers I've often shared here on this blog and the facts are obvious. This partnership is failing spectacularly, yes indeed, setting a world record for market share collapse. That is not a company you want to buy, that is not management you want to have, that is not the partner Microsoft needs in mobile. For Gates, in February 2013, it became clear that this venture has failed and he will end it.

The first step to ending it was terminating the talks to acquire Nokia. Second step was announcing his displeasure in February. The third step now is the departure of Ballmer. Next to go, is Windows Phone itself. Expect its evolution path to be terminated soon. If Gates had felt in any way that it was possible Windows Phone could still recover, he would not have brought up Windows Phone on Charlie Rose and said it is irretrievably broken, it is 'clearly a mistake' and no recovery is anymore possible. Gates has given up on Windows Phone.

If Ballmer was in charge, Windows Phone could still have a lease-on-life. If Ballmer was leaving on his own terms, a popular and successful CEO, he could select his successor, who could keep Windows Phone alive. But as Gates expressed his displeasure of Ballmer and his displeasure with Windows Phone, that means that Ballmer will be gone (check) and Windows Phone will be gone (soon).

WHERE DOES THIS LEAVE NOKIA

Suddenly, Nokia has killed all its own children, all its own options. And from February 2013, Nokia has seen - or if Nokia was smart, it should have seen - that Windows Phone will soon be discontinued too. Nokia HAS to rush to get an alternative platform. And that has to be either back to MeeGo if that is possible, or Android. Any sensible CEO would have done this already. Any new CEO coming in to replace Elop will do this instantly. But why is Elop not doing it?

Elop is not smart enough. He came in with a mission to destroy all threats to Microsoft inside Nokia, to make Nokia appealing to be bought by Microsoft. He has succeeded in gutting Nokia yes, but was so destructive to Nokia, that Gates didn't want to buy it after all. And Ballmer, Elop's guardian is now gone from Microsoft. Elop is now running a ship, Nokia which has no engine of its own after Elop threw overboard all three engines that Nokia had developed. And now we hear the sounds of this engine starting to fail. And worst of all, the manufacturer of our current engine, is likely not going to supply spare parts any day soon. Nokia is utterly destroyed. Adrift. In shark-infested waters.

The Windows Phone strategy has utterly, comprehensively failed. And now we only keep getting worse news. Microsoft no longer supports actively that platform. When was the last time you heard Ballmer even talk of Windows Phone - it is always Elop who celebrates the 'third ecosystem'. Now that Ballmer's word means nothing, we have to await the next Microsoft CEO to even give guidance on Windows on the smartphones. Will Microsoft terminate Windows Phone even before the new CEO has taken over? I would not be surprised.

If I was a developer, I would stop development of Windows Phone software, this is clearly a dead duck. If I was a carrier/operator, I would not stop buying Nokia handsets, I would only buy non-Windows Nokia handsets. And for the other Windows Phone manufacturers like Samsung and HTC, I would stop buying Windows Phone smartphones, only Android smartphones from them for now (before Tizen and Firefox arrive)

 

If I was a retailer, I would return all stock of Windows Phone smartphones now, and demand full refunds. I would certainly stop selling them, because customers buying a Windows Phone smartphone now are very likely being duped into buying an obsolete device and retailers don't want that hassle again. Andoid is always the safe bet in these cases.

WRITING IS ON THE WALL

 

Nokia's smartphone business was healthy and growing - yes growing, check the stats - in 2010, when Elop decided to destroy it on his Microsoftian Mission Impossible. Nokia's smartphone unit was not just reporting increasing sales, it produced a bigger jump in smarpthone unit sales in 2010 than Apple managed with the iPhone or Samsung with Galaxy etc, or RIM with Blackberry. Yes, its true. I know it sounds impossible, but check the numbers - Nokia's rivals were not catching up to Nokia in smartphones in 2010, Nokia was pulling away from them! And doing it profitably in smartphones. And Nokia's smarpthone unit reported record profits at the end of the year 2010, for Q4 the first full quarter with Elop in charge. He had a juggernaut on his hands. And he demolished it. Totally. From the day he announced the Microsoft partnership, Nokia's smarpthone unit has reported a loss every quarter since, and keeps doing so now. Launching Lumia and Windows Phone did not recover Nokia smartphones to profits. Launching the new-and-improved Windows Phone 8, did not recover Nokia smartphones to profits. And this was all while Nokia had a friendly relationship with Microsoft's boss, Ballmer in charge.

Now Ballmer has no power, the power is back with Gates, who is searching a new CEO. Will he want to give any of Microsoft's resources to the dead-end Windows Phone, when Gates himself said in public in February, that Windows Phone is so 'clearly a mistake' that it cannot be fixed? It is hopeless. Why on earth would Gates pour money into the Nokia venture, if he's already earlier this year decided Microsoft doesn't want Nokia. Gates will not promote Windows Phone at all. If Nokia is lucky, Gates won't kill Windows Phone yet and Nokia has some time to build a 'plan B' strategy on some other platform while Nokia lives on borrowed time.

Windows Phone is dead. It means Lumia is dead. It means Elop is gone. His whole gamble was 'lets go fully to Windows, I will burn all boats, I will set all platforms on fire, trust me, I will sell Nokia to Microsoft.' That has now failed. Nokia has to replace this clown, with some sensible CEO who knows the mobile industry and will think of Nokia's best interests, not Microsoft's best interests.

So, I think this means the carriers/operators will see ever less Lumia and Windows Phone sales from now on, because they do not want to sustain a dead system and be stuck holding the bag, with upset customers coming to their stores to complain. Same for retail, I think the retailers will keep reducing Nokia inventories on Lumia, and selecting Asha instead, the featurephones that often do just about all that Lumia can do (sometimes more). We've already heard of rapid and steep discounts on the flagship Lumia 1020, prices falling far faster than they should on such a new and arguably hot device.

If Microsoft signals any kind of shift away from Windows Phone, that would be the immdiate death-nail to Lumia. If Nokia is smart, and announces its new phablet, it does that on Android or MeeGo, not on Windows Phone. If the phablet is annouced on Windows Phone - soon-to-be-dead OS, where Microsoft's Surface tablets are in the discount bins on the same OS so the prices are ruined, is there any chance of any profits from that project now? But if the Nokia phablet runs on an alternate OS, we'll know that it was the first decision made against Windows from February, after Nokia was told it will not be bought, and someone smart inside Nokia, probably on the Board, saw the writing on the wall, and decided we need a 'plan B' - and whichever OS that would be, will be Nokia's next smartphone OS as well (Android or MeeGo).

(Obviously as I wrote on this blog, if Nokia announces a true tablet, rather than mid-size phablet, then Nokia is clueless idiots. A full-size tablet by Nokia is a suicide-mission, but a large-screen smartphone, ie phablet, does make sense)

NOKIA IS ON A ROAD TO DEATH

The Windows Phone path is a dead-end. It cannot win. It is irrecoverably destroyed. Microsoft itself is about to discontinue it. Ballmer, its Microsoft guardian is going to be gone. The only one believing in the dead, is the delusional 'General' called Elop at Nokia. Even the last giants with Windows, HTC and Samsung are running away from the platform. Previous partners, LG, Motorola, Sony, Dell, etc have already quit the sinking ship.

The longer Nokia waits in announcing its alternate platform, the more Nokia will be damaged in this transition. It is now clear, Microsoft will never push Windows Phone as hard as its done in the past two years, and those two years saw Nokia's smartphone share collapse from 33% to 3%, losing 10 out of every 11 loyal customers it had in smarpthones. Windows Phone will not get the development support inside Microsoft and not the priority that Nokia would need. Nokia itself complained in public a few weeks ago, that Microsoft has not been supporting Windows Phone enough - that was in the 'golden years' of Windows Phone when Ballmer was still in charge - now it gets minimalist support from Microsoft top management, if any. It means all the good staff inside Microsoft are rushing to the lifeboats, trying to get jobs in other units. The best depart fast, the worst staff will remain the longest. The death-spiral is now under way.

Developers will stop developing Windows Phone apps. The other handset makers shift away. The one left, holding the bag, and taking the biggest damage - will be Nokia Lumia and Elop. If Elop thought about what is best for Nokia, he would now use the moment to announce he will go Android or MeeGo. And if the Nokia Board was smart, it would now use this moment to fire Elop, because his gamble has failed comprehensively.

The moment a new CEO is hired to Nokia, the new CEO will end the sole support of Windows Phone as Nokia's smartphone platform. The new CEO will do this more smartly than Elop did, won't Osborne Lumia line, he or she will announce a new OS to run parallel to Windows Phone. That is the signal immediately that Windows Phone has died.

The new CEO at Microsoft will end the Windows Phone project. It might not be the first priority but it will happen soon after the new CEO steps in. Clearly Gates wants Windows Phone gone, he won't hire anyone who still tries to throw good money after bad. So again, Windows Phone is certainly dead, in the longer run.

Windows on smartphones achieved a peak of 4% twice in the Windows Phone era, first when it was launched (and half of that was still the older Windows Mobile). And now, just before Ballmer announced his departure. From now the Windows Phone share will diminish into irrelevance. It may hold that roughly 4% for this current quarter, but from Q3 it will be down, and down, and down, and down.

 

If your CEO - at Nokia - thinks the company should have all its smartphone future tied to this dying platform that never sold more than 4% of the world's smartphones, then the CEO is delusional and has to be fired now. If the CEO sees the truth and communciates it clearly, that the situation at Microsoft has changed, and Nokia has to change, and announces a new OS strategy, then perhaps he has a little bit of sense after all. The Nokia Board cannot wait any longer, it knows this is the time to act. Nokia needs a whole new direction right now. Every penny spent on Windows Phone now, is more loss-making for Nokia and produces even more disappointed Nokia customers killing their loyalty, or what remains of it.

I LOVE NOKIA

I am a Finn, I am an ex Nokia executive, I still carry a Nokia smartphone in one of my pockets today (an 808 Pureview running Symbian). I love Nokia with a great passion. I was critical of Nokia before Elop was hired, I agreed with the decision to fire his predecessor Olli-Pekka Kallasvuo. I was supportive of Elop in his first five months. I was critical of his decision to go Windows, but I did write on this blog, that while the Microsoft partnership was a huge gamble - and that I predicted it would fail for Nokia - I wrote that this partnership may succeed and we would not know until a few years into it. (About now). And I wrote in February 2011, that we should give them time to execute it. 

That all changed when Ballmer bought Skype - that killed the Windows Phone strategy and I explained on this blog countless times why. Note, it killed Nokia's Windows Phone strategy even as rival smartphone on Android had Skype, and Nokia's early Lumia smartphones did not. Yes, its not that we have Skype on our phones, its because carriers/operators hate Skype - even Elop admits this, that Skype is an existential threat to carriers/operators. And that Microsoft had become Skype's owner and deep-pocketed sugar-daddy to keep Skype healthy and alive to kill off all telecoms operators/carriers and their voice and messaging and videocalling businesses, that is poison to carriers/operators. Not whether we have Skype or Whatsapp or Facebook on our phones, that Microsoft now owns Skype.

So I wrote on this blog this decision killed Microsoft in smartphones. Bill Gates seems to agree with me, when he said in February 2013 that the current Microsoft smarpthone strategy was 'clearly broken' and so kaput, it cannot recover. No success in smartphones is possible for Microsoft anymore. Not my words, words of Microsoft Chairman Bill Gates, in February 2013. I told you in June 2011 that this was happening. By February 2013, Gates confirmed it had happened.

And I started to call for Elop's resignation when he murdered MeeGo in that summer. So remember, I was supportive of Elop when he came in. I was skeptical of his Microsoft strategy, but said it might work and we have to give it time. Only when Microsoft itself killed the Windows Phone smartphone market by purchasing Skype, did I say Windows was dead in smartphones. And only after Elop started to kill off Nokia's best strategic assets like MeeGo, did I start to call for him to be fired. He has since managed over the biggest self-induced collapse in Fortune 500 history, he has done bigger damage to Nokia than New Coke to Coca Cola, the Toyota Brakes disaster, the Exxon Valdez oil spill or the BP oil spill etc. Elop is the worst CEO of all time. I am not against Nokia, I became convinced Elop is a bad CEO and have been calling for him to be fired, and Nokia to get a new strategy with a new CEO.

AND I AM NOT FAN OF MICROSOFT

(this part repeats from Saturday's blog, its about my personal biases. If you read that blog, you can skip this)

I have tried to be 'fair' and 'open-minded' about Microsoft in my writing and on this blog. However, this is the tech company with the nickname 'The Evil Empire'. That term comes with plenty of cause - over the past three decades Microsoft has been fined countless times huge sums for crushing competitors with illegal methods, using its monopolistic position like a bully. I personally have been a user, supporter, registered developer, and/or authorized trainer for many of the various victims of Microsoft from WordPerfect and Lotus 1-2-3 to Novell Netware, Mosaic and Netscape.

On the hardware side, inspite of how much I here on this blog am critical of the wasted market opportunities Apple has with its strange iPhone strategy (of only one new iPhone per year - increasingly most tech analysts now agree with me that this must change) - I am a HUGE Apple fan, have always been, preferring the Macs to Windows and seeing the obvious, that Windows (for the PC) was a case at Microsoft of Macintosh-envy. So some have interpreted my love of Apple and desire Apple would bring the iPhone to more consumer segments and user-types and form-factors and most of all, to more Emerging World customers, and I have thus been critical of that part of the strategy that Apple now has, that it won't give us more than one new iPhone model per year. I love Apple. This blog is where that commonly-used term 'Jesusphone' originates from - I didn't coin the term, but press mistakenly thought that I had termed the iPhone the Jesusphone, when I explained how after the iPhone would launch, we would consider the handset industry in two eras, the time before the iPhone and the time after the iPhone (like we mark time in the Western calendar, before Christ and after Christ). That blog was then mistakenly labeled as Tomi Ahonen calling the iPhone the Jesusphone - and the term stuck. I was one of very few analysts who could explain why the iPhone would indeed reach 10 million sales in the first year - yet I am no blind Apple-fanboy, I was also the first blog to to pinpoint the moment when Apple's dramatic market-share gains were to end. Once again, the most accurate forecaster in mobile. I do know my backyard. But yes, I hate it that still today, for computer compatibility reasons I use an old Windows compatible Fujitsu. I can't wait for the day that I can return to my beloved Mac.

As the Evil Empire crushed my favorite software giants one after another and feuded for years with my fave PC maker, I have of course picked up a strong sentiment of favoring 'anyone else rather than Microsoft'. Please bear that in mind in my blog series now about Ballmer and the future of Microsoft. But also, I am a 'biznezguy' and I respect good business performance. Nobody can doubt Microsoft has been a phenomenally successful corporation, massive profits, and whatever you think of their methods of getting there, they have pursued and often achieved market dominance in several areas. So while I am not a fan of the 'Microsoft way' of doing business, and I miss my Lotus 1-2-3 and Netscape and various other preferred software, I respect the company. And even if I don't agree with its various evolutionary steps in given areas say with the Windows smartphones or on the PC side now with Windows 8, having a strong Microsoft is generally good for the industry overall.

I am far far more a fan of Apple or Google or HP or Intel than of Microsoft. I personally due to my history with all those that Microsoft has crushed, will never voluntarily give Microsoft a penny of my personal discretionary expenditure - not a penny - except where it is unavoidable such as with the PC and Office Suite situation still currently. So for example the moment Chrome became a viable candidate to replace Microsoft Exploder, I replaced my brower. I never use IE anymore. I will similarly shift away from Office and PC Windows the day it is practical in my line of business. I regularly test the alternatives anticipating that day.

 

So more specifically on Windows Phone, much as I am a Finn, and loved Nokia long before I had the privilege of being employed by the company, and for the past 18 years,  never had a day in my life, that there wasn't a Nokia branded phone in my pocket. Most of those years I have carried two (sometimes 3) mobile phones, and not always has the other one been a Nokia, but always at least one has been. However, I will never buy a Windows based smartphone, even from my fave Nokia brand, as long as at least one viable rival platform exists. So you can rest assured, this blog will never review a Lumia smartphone simply for the fact, that even if Nokia gave me the phone for free, I would not use it for one day. I do personally reject anything Microsoft does, and will always select 'anyone other'. That is because Microsoft destroyed so many of my favorite software brands earlier in my tech career. And my hatered of Microsoft trumps my love of Nokia in this case.

Ok. My biases are clear and in the open. Considering that history, please do allow me some hostility perhaps in my postings about Microsoft. Ok, this was part 2 of the 3 part series ie impacts to Nokia, part 1 was impacts from Ballmer's departure to Microsoft's mobile strategy. Part 3 in this series will examine CEO options to replace Ballmer, what chance does Elop have.

Comments

[Paul Ionescu]

Now Nokia is tied to Microsoft by 5-year contract. 2.5 years have passed so other 2.5 are left!
The question is: "Will Microsoft/Gates let Nokia alive in case that Windows Phone OS comes on the last spot on the Microsoft's priorities list? Would be Microsoft/Gates tempted to acquire the patent portfolio of Nokia just because is so easy and cheap?

[MarcoAustria]

@Tomi: wrong name ...
"But now Steve Jobs stepped in and ended this nonsense."
==> "But now Bill Gates stepped in and ended this nonsense."

[foo]

@Tomi

> By February 2011, Nokia's last Symbian factories had ended their Symbian production. Maemo and Meltemi had been terminated,
> their last smartphones long since made and sold. Meltemi the project had been terminated. Nokia was now 100% a Microsoft-house.

These three sentence summarize what happened.

Elop was hired to Nokia, killed all the projects that were somehow related to Linux (Microsoft's "archenemy").

He killed Meego and Meltemi. He closed the doors to Android.

In all his appearances he talked not as Nokia's CEO, but rather as Windows Phone's ambassador. He repeatedly disparaged Android and invited competitors to join the "ecosystem".

(Years later he would come to say that he didn't adopt Android because he "knew" that Samsung would dominate that market. Bullshit. First, because Nokia was bigger and had better hardware than Samsung; and second because he *invited* Samsung to join the Windows Phone bandwagon.)

***

Some people seem to believe that Elop and Ballmer had a plan, to sell Nokia to Microsoft.

I don't think so. I think the plan was much worse -- and criminal -- than that.

I say that because Elop effectively "sold" Nokia to Microsoft... without actually selling it.

Nokia was an independent company before the partnership, and right after that became completely dependent on Microsoft.

We could very well say that Nokia became a Microsoft subsidiary without having to be bought.

From Microsoft's perspective it was great: if Nokia kept 30% market share it would be selling more than 300 million phones per year. Microsoft would eventually start to receive royalties -- let's say $10 per phone. That would translate into $3 billion dollars per year. Much more than the $1B/year they put in!!! Even if Nokia's market share dropped to 10% market share -- a tragedy for Nokia -- it would break even for Microsoft, which only paid $1 billion per year, and would receive the same amount after some time.

***

Now, what happens to the companies that become dependent on Microsoft?

Look no further than the PC market -- Microsoft squeezes as much of the profits as it can, leaving just enough so the companies can survive and bring more money to Redmond.

Windows licenses are prohibitive, but PC manufacturers have to pay it.

(Microsoft comes to the absurd of creating several "versions" of Windows, so they can extort more money from the different price points.)

***

Elop's plan was to put Nokia in *that* position. The company would just move commoditized boxes (even more if other manufacturers joined the ecosystem) that would be extremely profitable to Microsoft.

The problem was execution.

Elop was so thirsty to help Microsoft succeed that he made a succession of errors that killed the company.

Now Nokia has less than 3% of market share, and became almost useless to Microsoft. (I say "almost" because Windows Phone now completely depends on Nokia -- but this only happened because Elop didn't succeed in attracting other manufacturers to the "ecosystem". If Samsung, HTC and others were heavily invested into platform Nokia could be scraped.)

[davide]

Dear Tomi,
I often find myself agreeing with you on the reasons for Nokia's fall as of late.
Anyway, you might want to correct a statement you make at the beginning of this article.
"Nokia's N95 had a 12 megapixel camera in 2007 vs the iPhones's 2mp."
The N95, released in 2007, had a 5 megapixel camera; the N8 had a 12 megapixel camera, but was released in 2010. Just to be sure proofs don't get spoiled by wrong numbers.
Cheers.

[foo]

@Tomi

> Windows Phone is dead. It means Lumia is dead. It means Elop is gone. His whole gamble was 'lets go fully to Windows,
> I will burn all boats, I will set all platforms on fire, trust me, I will sell Nokia to Microsoft.' That has now failed. Nokia has
> to replace this clown, with some sensible CEO who knows the mobile industry and will think of Nokia's best interests,
> not Microsoft's best interests.

Let me insist in one point:

Selling Nokia to Microsoft was never part of the plan.

The plan was to "sell" Nokia without selling it.

Why I say that?

Two reasons:

1) Microsoft (and Elop) wanted to mimic the PC market where several manufacturers (Nokia, Samsung, et al) produce commoditized hardware and Microsoft have obscene profits with software. IF Microsoft effectively bought Nokia, other manufacturers would be reticent on joining the ecosystem. SO Microsoft had to "buy" Nokia without buying it. Microsoft had to buy Nokia's independence, and Elop sold it.

2) Microsoft would put $1/bilion per year in the partnership, for 5 years. IF the plan was reasonably successful and Nokia kept 20% market share, it would mean 200 million devices by now. I don't know how much Microsoft receives for each device sold, but I guess it is at least $10/device. In other words: Microsoft would receive at least $2 billion per year.

So, mark my words:

The plan was to sell Nokia without selling it. The only way to do it was to sell Nokia's independence, and Elop did it in the exact moment he announced Nokia would go 100% Windows Phone.

[Tomi T Ahonen]

Thanks MarcoAustria and davide

Corrections made! Cheers :-)

Tomi Ahonen :-)

[foo]

> Yes, it all makes sense now. That was the plan. This is why, as the disasterous results followed one after another,
> and as Elop made blunder after blunder, and killed off any chances of a Nokia recovery, the Board wasn't firing him.
> Because we now know, Nokia had been in serious talks to be sold to Microsoft.

I agree that Microsoft eventually entertained the idea of buying Nokia -- but that was not the original plan.

The original plan was to make the partnership succeed, giving Microsoft at least 20% of market share and $2 billion / year. Other manufacturers would join in, and Microsoft could easily make $3 or $4 billion/year without having to buy Nokia.

But the plan went so awfully wrong that, in a ironic twist, Nokia became responsible for 80% of the sales of Windows Phones, and Microsoft's Windows Phone division became as dependent of Nokia as Nokia became dependent of Microsoft. (Obviously if the plan was reasonably successful Microsoft wouldn't depend on Nokia -- they would leverage the PC market to dictate their terms to smartphone manufacturers.)

Microsoft wanted to be a software company extorting commoditized hardware makers. It took 3 years to realize that they would have to become a "services and devices" company, but when that happened Nokia was beyond salvation.

[Tester]

@foo:

Either way, whether it was the intent or not, the results are the same.

The one thing to operate on right now is only what Bill Gates said in February. And in typical corporate style, read between the lines. In other words: Anything that gets mentioned negatively is on the chopping block. It was outright clear that the decision to get rid of Ballmer was already set - and so is most likely the decision to terminate Windows Phone.

The only question remaining now is, when?
It needs to be done in a fashion that doesn't hurt Microsoft. I said this before but let me repeat: A lot depends on the contract Microsoft has with Nokia and other WP manufacturers. I guess all but Nokia are irrelevant and just shrug it away if WP is ended. But if it *IS* eventually terminated I guess they'll at least need to keep quiet for a few months unless they'd like to be sued for damages by Nokia (of course a non-Elop-Nokia at that time...)

Anyway, the smart thing for Nokia would be to announce something on Android that does not compete with their smartphone business. Here's where for me the RT tablet announcement sounds strange. If they had announced an Android tablet they might have been able to use that to explain that away their working with Android using it as a front to develop Android phones without causing suspicion. But as it stands I really don't know what to expect. Apparently Elop still hasn't learned.

[RottenApple]

I don't believe in a takeover conspiracy either.

I think at the start it was just a normal business deal no matter how misguided: Microsoft agreed to pay Nokia money to transition their high end smartphones to their OS. Ok, it failed, and it certainly explains why MeeGo was killed outright.

I think that selling Nokia only came up some time in 2012 as Nokia was deep in the red. And that'd perfectly explain the destruction of Meltemi: The precondition of starting talks was to get rid of this platform. So Elop killed it.

And from that point onward everything makes sense. Elop and Ballmer negotiated a takeover but obviously, before it came to fruition things went sour. The trigger was possibly the complete and utter failure to place Windows RT in the market. Now Microsoft was sitting not on one, but two complete duds - and the reception to Windows 8 was also far, far below expectations.

This looks like the perfect point in time for the owner(s) to step in and call 'stop'. And February sounds about the right time for that.
So what to do with the products now?

First, let's fix Windows 8. But let's do it in a way that doesn't make us look like idiots. Pump out a partial fix with Win 8.1 and then do it right the next round
Second, let RT silently die and wither away. It barely generated a blip on the meter.
Third, get rid of the costly baggage, i.e Windows Phone. But this is clearly something that needs to be orchestrated very, very carefully. So first, make a public statement carefully hinting at the plans, then follow through with the easy thing (get Ballmer out) and then, finally pull the plug. Tester is probably right that, if they got a contract with Nokia, it has to be carefully coordinated. So I don't expect anything to happen on this front in the next 6 months but I guess any rumors coming out of Nokia will tell us a bit about what's planed here. So far it seems that Nokia is still oblivious, though.

[foo]

@Tester

> Either way, whether it was the intent or not, the results are the same.

There is one important difference.

If Elop and the board planned to sell Nokia, that *could* be acceptable business.

But that's what not happened. Microsoft bought Nokia... without having to buy it.

Is there something more profitable than buying something without having to pay the price for it?

Worse: Microsoft wasn't in position to negotiate such a good deal. Microsoft needed Nokia; Nokia could use Android to negotiate a better deal, where it wouldn't become a Microsoft slave.

> But if it *IS* eventually terminated I guess they'll at least need to keep quiet for a few months
> unless they'd like to be sued for damages by Nokia (of course a non-Elop-Nokia at that time...)

The contract was so biased in favor of Microsoft that I don't doubt that it would be cheaper to end this adventure than keep it until the end.

But I don't think Microsoft will end Windows Phone yet, as they need a mobile strategy; what they'll probably do is to morph Windows Phone into something different.

Moore's Law will probably allow smartphones to run Windows 8 in a few years; they just need to keep Windows Phone long enough so they have time to build full computers in smartphone shape.

But, again, we are talking about reasonable strategy for Microsoft, terrible for Nokia (which by then will probably have to compete with a "services and devices" company).

[zlutor]

@Tomi: could Sailfish OS be an option beside Android?

I think Meego is not viable any more, i think, competence does not exist in the company any more...

[Tester]

@foo:

>> Is there something more profitable than buying something without having to pay the price for it?

That depends how you define 'price'. The whole thing has been an utter mess for Microsoft. They may not have paid with money but with part of the company's future - and that's far, far more costly than a certain amount of cash.

And that doesn't even consider the money-grave WP has been.

[foo]

@Tester

> That depends how you define 'price'. The whole thing has been an utter mess for Microsoft

We must analyse the partnership according to the information (and expectations) of the time.

The plan was simple: Nokia would give Microsoft 20-30% of market share, and Microsoft would give Nokia... well.. the right to use Windows Phone.

Of course, Microsoft would also pay $1B/year... but that was an incredibly low price to get the exclusivity from Nokia.

As I said, I don't know how much Nokia would end up paying in terms of royalties... but guessing it was around $10 / unit sold, that would mean $10 * 300,000 = $3 billion / year to Microsoft.

So -- Microsoft would pay $1B/year for a $3B/year business.

Even if the plan went wrong and Nokia dropped to 10% of market share, that would be $1B/year to Redmond, from a single customer. If the whole "ecosystem" worked out, Microsoft might get $1B from other manufacturers. At least it would break even.

What they didn't expect -- nobody could expect at the time -- is that Nokia would crash to 3% of market share.

The reason for such collapse was that Elop was too eager to promote Windows Phone, announcing the migration before Nokia had any products to show, inviting competitors to join the "ecosystem", killing the alternatives, etc.

[foo]

@RottenApple

> I think that selling Nokia only came up some time in 2012 as Nokia was deep in the red. And that'd perfectly explain
> the destruction of Meltemi: The precondition of starting talks was to get rid of this platform. So Elop killed it.
>
> And from that point onward everything makes sense. Elop and Ballmer negotiated a takeover but obviously, before it
> came to fruition things went sour.

I completely agree with you.

Microsoft wouldn't buy Nokia since they got the exclusivity contract.

Once they assured the exclusive contract with Nokia, they could pursue other manufacturers (Samsung, HTC, et al) -- and that's what they did.

The original plan failed, and Nokia became the only manufacturer really invested into the platform. Thus, Microsoft started to consider Plan B: buying Nokia.

But things started to go so wrong, that Microsoft turned to Plan C: become a "services and devices" company. What does that mean? They will start to compete with their former "partners", producing their own devices.

And since Windows 8 and Windows Phone are such failures, I guess it will take a couple of years to put the new plan together.

Microsoft can survive this transition thanks to their several cash cows (Windows 7, Office, etc).

What will happen to Nokia?

[Hansu]

This long text brings up a couple of points that I haven't got an answer for. 1. If Nokia was doing so much money had crystal clear strategy for Symbian to Meego and Meltemi was Elop brought in and OPK fired abrubtly like that. 2 If Microsoft wanted to buy Nokia why didn't they do it in the summer of 2012 when the company was in deep deep shit and stock price was around 1,40€ now it's over doubled. 3 Elop dumped Nokia's share price? in 2000 during Ollila it peaked around 75€ when Elop took over it was around 6€ now if a company is doing so great why did the share price collapse. 4. why did the board accept all these decision like killing off Meego and others. As for those great hardware features lie HDMI and TV out nobody else makes them and qwerty phones well as we have seen Blackberry is killing the market as the recent figures show. 4 what else go Android and compete agains Samsung look at HTC they were the original king of android and where are they now nowhere. PS Ballmer isn't gone yet he is going to continue for another 10-12 months. As mor MSFT share price it has settled to basically where it allways has been for the last 10 years around 30+ USD

[Tester]

@foo:

If the deal had worked out it would have benefitted both Microsoft and Nokia. Microsoft would have made tons of money based on licenses and Nokia would have stayed at the top, maybe at #2 on the profit ranking. The deal itself was nothing evil, even if it was stupid on behalf of Elop to jump in without a safety line. On the other hand, maybe at that time he kept Meltemi as said safety line. The mere fact that its development continued tells us that it was outside the Microsoft deal and only became an issue much, much later.

@Hansu:

>> 1. If Nokia was doing so much money had crystal clear strategy for Symbian to Meego and Meltemi was Elop brought in and OPK fired abrubtly like that.

Because it wasn't the strategy that was flawed but the execution of the strategy. The strategy was fine and if executed well, would have kept Nokia at the top. But it was executed at a snail's pace with various obstacle pushed in the way by a bureaucratic management.

>> 2 If Microsoft wanted to buy Nokia why didn't they do it in the summer of 2012 when the company was in deep deep shit and stock price was around 1,40€ now it's over doubled.

Because it takes time to hammer out such deals. If we assume that takeover talks started shortly before axing Meltemi, there simply wasn't enough time to get it done.

>> 3 Elop dumped Nokia's share price? in 2000 during Ollila it peaked around 75€ when Elop took over it was around 6€ now if a company is doing so great why did the share price collapse.

Nobody ever said that the company was doing so great. They did indeed miss the smartphone resolution and it took too long to act. But their trouble in late 2010 wasn't serious enough to push the panic button yet. At that point they were merely late. Of course the stock price drops if your management shows signs of incompetence - and that was clearly the case.

>> 4. why did the board accept all these decision like killing off Meego and others. As for those great hardware features lie HDMI and TV out nobody else makes them and qwerty phones well as we have seen Blackberry is killing the market as the recent figures show.

Remember, these are non-tech people. Feed them some misinformation to steer them in your direction and they'll hastily follow if you give them projections as lofty as what Elop seemed to have projected for a WP transition. Better don't think about these projections being utterly bogus.

>>4 what else go Android and compete agains Samsung look at HTC they were the original king of android and where are they now nowhere.

Nokia is not Samsung, Nokia is not HTC, especially not in 2010. Back then Nokia was by far the largest mobile phone maker in the world with incredible market power. Compared to them Samsung was an upstart. Had Nokia been able to compete on even ground they would have crushed Samsung back then. Of course, if you got a genius CEO who doctored his projections in favor of Microsoft and... see my remark about influencing the board above.

>> PS Ballmer isn't gone yet he is going to continue for another 10-12 months. As mor MSFT share price it has settled to basically where it allways has been for the last 10 years around 30+ USD

Ballmer may not be gone yet, but essentially he's a lame duck. Still nominally in control but with no real power anymore. He got the axe but to keep the public face nice and pretty he 'resigns within the next year'. That sounds a lot better than 'they fired him' but that's what really happened.

[zlutor]

Nokia tablet is rumored (with WinRT) - pffff... :-(

http://mynokiablog.com/2013/08/26/nokia-sirius-10-1-1080p-tablet-slimmerlighter-than-current-ipad-quadcore-s800-lte-microsd-and-more/

What a piece of hw with a so undesired OS... :-(

[Hansu]

@ Tester if they had a clear strategy and it was the execution that was lacking didn't they simply hire a person who would complete the execution faster. As for the sale of Nokia a hostile take over could have been done by a third party in a jiffy no question and whoever would bought Nokia would have been able to sell it of for pennies and still make a healthy profit. Nokia is like Samsung both make phone in every price spectrum from 30usd dumbphone to top of the line smartphone they are the 2 biggest phone manufacturers still today in numbers Dumbphones+smartphones. As for Ballmer if they really wanted him gone he would be gone in a heartbeat there is no sentiment in big corporations if CEO has to leave he's outta there in a heartbeat. As for WP being dead not anytime soon knowing MS and giving them some credit were credit is due they are rolling out a update for WP soon an they are still supporting WP7 until next year if this was Google they would have rolled out the software made one update then made a new one and forgotten about the old one. Microsoft atleast supports their programs way longer than is neccessary no matter if it's a succes or failure

[Movie Gooer]

I think the movie about Nokia/Microsoft will sell more than the movie about Apple.

[NoNameRequired]

So they launch a Windows RT tablet, after the failure of everyone else to do the same, and it will be "similar priced to current iPad" and "the company won't try to undercut pricing initially"? They will even sell the keyboard accessory separately, just like the Surface. (source: The Verge)

It is like they have collected all the relevant experiences from the Windows RT failures of everyone else, and decided to repeat them all, just one year later.