Another Death in Smartphone Bloodbath - Windows Phone strategy so failed, now Nokia handset unit sold - to MIcrosoft

This is one of the saddest stories in the mobile industry. Today Nokia's handset unit is gone.

 

Microsoft has just bought Nokia's total handset unit - not just smartphones but also dumbphones - and the Nokia services business (of what is left of it) and gets it all for a paltry 5.3 Billion Euros. Truly catastrophic. Just before Elop announced his mad Microsoft strategy, in the last quarter of 2010, Nokia's handset unit - this which was now sold - produced revenues of .. 8.35 Billion Euros - and did this very profitably!  For the full year 2010, Nokia's handset unit generated 27 Billion Euros of revenues and 3.5 Billion Euros of profits!!! Elop wrecked all that in two and a half years and now the loss-making unit is sold for less than its scrap value.

What remains of Nokia, it is now back to its roots as a network equipment provider (NokiaSiemens Networks, that kind of business) competing with Ericsson and Alcatel-Lucent and the Chinese giants Huawei and ZTE. 

What becomes of Microsoft? It now is a handset maker. Its Windows Phone gets a new lease-of-life (certainly by now Nokia internally must have wanted to shift away from the dead platform). But the last remaining Windows Phone partners no doubt will further diminish their efforts so Windows Phone will become purely a Microsoft handset OS. I predict that Windows Phone under Microsoft ownership will sell less phones (by market share) than it managed when independent companies such as Nokia, HTC, Samsung and others made Windows Phone devices. There is a reason why it is failing, and the reason was not Nokia design devices, it was the dislike of Microsoft and its ways of doing business. 

Microsoft does gain the dumbphone unit of Nokia to plunder now, and attempt to convert into Windows Phone devices. Good luck with that, it goes totally against Windows history and competence, trying to create something very slim and streamlined and cheap to sell to Emerging World markets where free rivals are popular from Linux on PCs to Android obviously on handsets. Expect this share to continue to diminish over time, as the past Nokia-ness of the Microsoft handset unit becomes ever more 'Microsoftian'. With Elop in chrage of that unit at Microsoft, expect the damage to continue and this unit to be a failure at Microsoft in the long run.

The good news is that Elop is gone in that process, he shifts back to Microsoft. I will return with my epilogue or perhaps a few blogs about this a bit later, I am about to board a plane now. I'll digest the news and blog an update when I arrive at my hotel tonight. 

 

PS - I might have to write that book..

Comments

[Louis]

@virgil: "Why didn't they see that their strength was in the industrial design, distribution and supply chain? How come they didn't decide that the best way to compete (and win) is by adopting Android?"

Mind-reading is hard, but basically Thompson's thesis is that the board should have reasoned:

"Because Android is free to use, it is clear that everybody will be using it. Whatever the faults of Android circa 2010, we will have an ecosystem no worse than our competitors, which puts us in roughly the position we had when the 8810 was our money machine. That was a nice time. We should just write off the sunk costs of NAVTEQ and other services."

I think Tomi's blogs give a decent insight to the actual reasoning, which was probably more muddled, but likely looked like:

"Meego has not really happened, but our basic plan to transition to a company that is a player in services is sound. WP is a greenfield opportunity to slot in our maps. MS will fund the transition, and there are substantial synergies for us with Windows that our competitors don't have. It would be a mistake to move backwards and give all this up."

This is why the board brought in Elop. What has happened since makes the error more obvious.

[Louis]

@lee: "However, Nokians can possibly end up being the driving force behind a reinvented Msft vying in the PC, tablet and smartphone space."

Given the unusual fact that MS is also buying the management team, it is safe to say that Nokia's talent and processes are seen as an important part of the purchase. (Of course, this sort of blows up the theory that the MS board thinks Elop sucks, so I don't know whether it will make anybody happy.)

[Antti K]

Have to agree with TimoT and Felix Mentalz.

Smartphone/Tablet space is becoming rapidly commodized. In that space WP was too expensive, killed by licensing fees, using a 3rd party mfgs.

MS had to bring devices inside, as WP licensing was not succeeding and neither were the ecosystem hardware makers. WP was failing totally.

But hardware has now caught up with demands. The phones Chinese companies are now releasing are cheap, plentiful and in high-mid range in features. They can go head to head with $700 GSIV iphone 5.

Can MS compete in the mobile space?

Perhaps, if they concentrate on the corporate, total corp device management (skipping BYOD trend companies), full backend integration with embrace&extend logic against/with Android/iOS. And just press down the prices to flood the market with low end devices.

But this will require HUGE resource investments from MS. And speed.

MS has resources, but speed it does NOT. The glacial move in WP has clearly demonstrated this. Their movement is too bureaucratic, slow and so far removed from what the markets want (and telcos want to sell). Their management by committee, is not working in a fast moving market.

So, MS tactic? I guess it is : survive and wait till the markets slow down and then they can catch up.

Ballmer showed a goal of 15% market share by 2018. This is both optimistic, considering what they have been able to achieve with several fronts and manufacturers, but it is also very modest, considering what MS is used to and wants, in order to dominate and collect that dreaded yearly 'Redmond tax'.

Thus, MS knows they can't eat the elephant whole, but have to try chunk by chunk. Go slow.

The issue is, that by the time that has happened, the market has totally commodized (both tablets and phones) and iOS/Android have entrenched quite deeply to systems, markets, users, etc.

So, MS is between a rock and a hard place: they have to move fast, but can't. They want to go slow, but the market forces are against them.

Time will tell if MS succeeds, but judging by past performance, I don't give them better success than what they achieved with WM (below 10% at best).

Nokia?

They are most likely gone. Slowly withering away. Yes they have a chance, an improved now, but it's a slim one.

HERE has no chance against Google/Android (nor can it get entrenched on iOS). Nokia is too stupid/slow in software. Further, they are not bundled in iOS/Android, and WP hardly makes a dent in the market. They have no delivery and they have no superior product, nor skill in making it.

NSN? Good luck fighting against Huawei, Ericsson and ZTE. The markets, networks, clients and investments are already or moving to Asia. China is building a strong foothold in Africa. What's left? Upgrading ageing networks within the OECD? That's a shrinking business, not a growth opportunity. NSN is a sunset business most likely.

Nokia still have a licensing portfolio of utility patents, but that's not big enough to turn a company like that.

I don't give Nokia a big chance of survival as an independent company, UNLESS they really pull a rabbit out of their Advanced Technologies unit and totally re-invent Nokia. That's been done before, so it's not impossible, but it isn't easy either, hence low probability of success given.

Just my 2 cents.

[eduardo]

This deal makes sense for Microsoft. It is desperate to get into mobile, but Nokia was going bankrupt. If it closed shop then Microsoft's mobile strategy would be dead, so Microsoft had to rescue it.

That said, it seems to me pretty unlikely that Nokia phones, even with an infusion of billions of dollars, are going to gain much market share.

[sve]

This move is a further stamp on a progression that sees mobile phones becoming just a specialized player on the wider computers and intelligent environment field. The true evolution marks the end of mobile phones as a separate driving category much like timekeeping devices (watches) ceased being a separate important category. Tomi will have to expand his mobile phones-only focus or disappear with the category.

[KPOM]

@LeeBase, I agree this appears to be Plan B. However, I'm not sure putting in place the CEO who couldn't make Plan A work is the right idea. I know he wanted to get Nokia to adopt Windows Phone as quickly as possible, and didn't want the distraction that trying to "fix" Symbian had become, but he completely gave away their market share and let Samsung become a juggernaut on his watch. A more gradual strategy, or at least not dissing the old stock a year before the new phones were ready would have been better. Nokia did manage to convert about 1 Symbian buyer to 1 Windows Phone buyer, but only after watching their Symbian share crater after carriers and customers abandoned what Nokia clearly suggested in February 2011 a dead-end platform. Symbian was fully written off to the point where it could have at least run Nokia's "dumbphones," leading to a more gradual wind-down (which was Nokia's original prediction).

Plus, being blindsided by the inability to upgrade Windows Phone 7 to WP8 cost them sales on the uptake. That's on Microsoft, but it shows even further why February 2011 was too soon to abandon Symbian. Nokia could have developed WP 7.5 phones in secret until about September 2011 (watching its Symbian share continue its rather steady slide), and then at least it would have had a much shorter window between announcement and release. Or if they were concerned about development, announce it as a North American exclusive (or a "second" OS) in February 2011 and then announce at the end of the year things were going so well they "decided" to go whole hog.

I'd been saying for years that Nokia had to abandon Symbian, but by the time they did, they really botched the process. I don't really see how Elop fixes it now that he's back in the Microsoft fold.

[m]

@Tommy: > let´s also celebrate that Elop, the giant tumor, is finally gone.

"We had to amputate the head and torso, which had severe gangrene, but the remaining leg is doing well!"

Elop's vision of a leaner, more efficient Nokia, which no longer sells phones at all, has become a reality. Elop came out from Microsoft's lair, killed Nokia's phone division, and dragged the corpse back as a gift.

[dee.]

Anyone find it strange that Elop continues in the same job over at Microsoft?

After all, it was Elop that bungled the entire Nokia business into ashes. The man did such a ridiculously horrible job as a CEO that his bumbling will be used as a cautionary example in business schools around the world for decades if not centuries. What's wrong with the picture, why does MS want him back, let alone in the same job - the job he bumbled in the most atrociously horrible way while at Nokia?

The only reason I can think of: from Microsoft's perspective, Elop didn't fail - he did exactly what he was meant to do. He brought down Nokia, removed a potential threat of MS, minced the company into easily-digestible pieces for Microsoft. MS wanted to buy Nokia back before Elop, they couldn't pull it off - the shareholders wouldn't have gone for it when the company was still succesful. Elop was a clever ploy, a trojan horse if you will. Microsoft is like a horrible parasite, it destroys everything it touches and feeds on their corpses.

A sad ending to the tale of Nokia. Now all we can look forward to is seeing MS crash and burn on mobile - it would be poetic justice if Sailfish gained bigger market share than Windows Phone... the revenge of the ghost of Nokia, as it were.

[The Recusant]

Also, this supposed "app ecosystem" advantage of the crApple iOS & laggy, unsecure Android has always been overstated and just mindlessly repeated by the self-reinforcing tech media echo chamber. At the average, only 41 apps are installed on a typical smartphone, and these are the most common ones which are also the most likely to also already exist in the alternative OSes like Symbian, MeeGo, Maemo, Moblin, Meltemi, Sailfish, etc. No one needs a choice among 10,000 flashlight apps or 1,000 fart apps, etc. So the number of apps for the iOS & Android have always been bloated by programs with the same or similar functionality anyway.

Lastly, and the most crucial point, in the App Store alone, 60% or 450,000 apps have *never been downloaded even once!*. For the simple reason most people only download & use the most common & popular ones listed (41 is the average number). And of those downloaded, *one in four apps* will be abandoned after its first use. Ironic that for a supposed smartphone, most people use them as a 41-function feature phone! LOL

Source: http://techcentral.my/news/story.aspx?file=/2013/3/22/it_news/20130322110324

So bottomline, it's just consumer ignorance & inertia that is the biggest hurdle for a 3rd-party OS to gain traction & marketshare, not this supposed "app ecosystem" myth that keeps getting perpetuated by the tech media echo chamber who are most likely also financially-invested in seeing that the current top 2 OSes stay on top (the same guys predicting $1000/share for crApple because they were pumping&dumping the same stocks, and the media believed their reasoning instead of seeing through their self-interested agenda!).

[Kani]

Haha. Excellent. Nokia will now aquire Jolla and Vanjoki, creating the Apple-effect like they did when they bought NeXT and Steve Jobs :)

[birne]

@The Recusant:

It's not the common apps that make or break a system but the special stuff for specific services. Complain all you want but most customers are not stupid. Most customers have no interest in the vast majority of apps and those don't make or break a system. It's the specialized stuff that matters, e.g. online banking apps and here's where Windows Phone fails.

In the end it only needs one missing app to disqualify a system. The customer knows that and buys accordingly. Smaller businesses who produce some supporting apps can't afford to go after the last 5% of the market if doing so costs half as much again as supporting the first 95%.

[z]

What of suddenly making all their device 'partners' instant competitors? Nokia already had an unfair advantage with subsidised licensing, but this will make it impossible for any manufacturer to make money with even a niche presence on the platform. Why wouldn't the few remaining dump it?

And I wonder how the carriers and retail will respond to a m$ phone that now probably only m$ will be making? If the carriers didn't like them before they could at least be forced by the manufacturers carry these unpopular devices - it'll be easier to tell m$ where to stick it.

[Earendil Star]

Wow, troll explosion going on! The MS propaganda machine is in warp mode!

Again the same old stories, repeated over and over again by the usual astroturfers!

Just crap mounds.

Nokia ended in 2010 with the appointment of THT Elop at its helm. No, THT Elop wasn't supposed to kill Nokia. He was just supposed to transform it into a zero margin captive MS OEM. All the operation was meant to be a covert acquisition of Nokia by MS for... zero! Unfortunately opting for WP (P)OS backfired terribly, since the appeal of the software was nil, let aside the bugs and the terrible user experience.

Proof of the conspiracy? What proof? Common sense anyone?
Let's recap: a MS exec -with no experience in the mobile space- becomes CEO of the n.1 smartphone maker worldwide. While he is there, the company stagnates and starts producing losses while the market is growing exponentially. All decisions he takes favor his former employer and damage his company. He eventually sells the company to his former employer, while getting a top C-level post (maybe CEO) when coming back...
You decide if there is any conspiracy theory here...

By the way, I am quite pleased with my forecasts... which I wrote on this blog starting in 2010:
- Nokia was dead and would be acquired by MS or become a low profit captive OEM
- Nokia would be sold in September 2013
- Elop was a Trojan Horse Troll
- MS had bribed its way to achieve a covert and pennyless acquisition of Nokia

Fantastic move for MS. Terrible move for Nokia. Pity we can't go and check the Board members' bank accounts in some black list country... follow the money, as they say!

If MS had bought Nokia back in 2010, I would have never had any objection to that. What really pissed me off is the fraudulent path they took. Yes. It was a scam. But no. Nothing will happen to redress justice.

But there is an ironical twist to the story: THT Elop is now the frontrunner to get the MS CEO post.
I really wish this prediction becomes true: Elop is known for burning the platforms where he ends up working... hehe!

PS: Tomi got his latest predictions on Nokia wrong. But all he wrote on the absurdity of the THT Elop tenure at Nokia is just undeniably true. This is what really counts. No matter how much trolls try to obfuscate it.

[Earendil Star]

By the way, the interesting thing is that now talk of Elop being a "trojan" is finally no longer relegated to this tech nerd blog. All the press is recognizing this simple fact. From Wired to the foreign press like Spiegel.

Aaaah... this sweet smell of truth finally being told... sooooo cool!

[Ma]

Tomi,

In your comment you said "... and in two and a half years, no doubt we will see a new Nokia branded smartphone emerge." I might be clinging on straws here, but I'm sort of hoping that would be true. It's the first prediction of Nokia's future phones (as in real Nokia, not Nokia branded MS phone).

Can you throw some scenarios in air? Even far fetched ones, go wild. Do you think it will really be likely for Nokia to do that, is it still in Nokia's DNA even though they are selling it all now? Even if they can't say it at the moment, would the remaining Siilasmaa et co. be willing to go there again? Who would be able to run such company, Siilasmaa or some of the names linked to Nokia previously, Ala-Pietilä, Vanjoki, Kallasvuo, Alahuhta?
Would they buy someone, Jolla for OS, Elektrobit for HW, Xiaomi, Micromax or some small vendor if Chinese or Indian laws allow, or part of which ever company is doing badly in their smartphone business at that point?

This reminds me of Vanjoki's remark in 2009 that it's not impossible that Nokia could sell the phone business some day.

[sharkhunter]

@Moron95:

This may be 'awesome' only for some sharks populating the stock market. Sure, greed is eternal but calling it 'awesome' that some company with a long tradition was destroyed either by incompetence or sabotage is not awesome, it's sad.

Of course idiots like you are the reason why the economy is going downhill: Just looking at one's own bottom line without any care for long term effects.

Let's see how well the big sharks will digest this 'meal'. I'd jump for joy if they start puking all over the place when they start losing money.

[Tomi T Ahonen]

Hi all

First, don't worry about the trolls, I remove those comments, so don't bother responding.

Secondly, and to many of the questions (thank you for them!) I have now posted the long version of the story, wrote nonstop on my 5 hour flight, its 12,000 words for you on the full big picture. Please read that and post your comments after it..

Also feel free to continue the discussion also here, I read every comment even as I don't have time to respond to them...

Tomi Ahonen :-)

[The Recusant]

@birne & leebase (same person?): So, pray tell, what "online banking apps" are missing on the non-iOS & non-Android Oes, and how many actually need that out of the hundred of millions of smartphone users? And most of these so-called "apps" you refer to aren't really programs but mere shortcut icons linking to a customized version of a specific section of a particular website! (for e.g., the YouTube "app" just linked to a special section of the YouTube site that served converted videos that can play on underpowered crApple phones that can't play the original versions of those same videos! LOL)

So for other mobile OS manufacturers, the challenge really is only to make a standards-compatible, fast & powerful web browser so that a user can just use that browser to access websites just like he or she would on a desktop PC, no need to hunt down specific "apps" for specific websites or services when you can get the self same experience on a mobile phone browser (ex.: Facebook, Twitter, other SNS sites, etc.)

And as for the other "apps", most of the common ones are already on Symbian, MeeGo, & other OSes or there are equivalent apps for them (just search for litreally thousands of apps on Symbianize, N8FanClub, 808FanClub, Maemo.org, etc.). Even games are so plentiful that it is as difficult searching for good ones on those sites as it is on the Google Play Store, I know because I use all these other mobile OSes.

[The Recusant]

Wow, baron95 is actually happy about what happened, must be an American with shares of stockson those US companies. Predictable since there has always been an undercurrent of economic jingoism with the mobile wars, from the US tech media enamored of everything from crApple to the self-reinforcing social media echo chamber to the bandwagoneering & carpetbagging stock traders pumping&dumping these same stocks for their own financial benefit (must be one of those $1000/crApple share guys).

[Tester]

@The Recusant:

I think you have no idea what users actually do with their smartphones.

About banking apps, most banks just don't offer WP apps. iOS and Android, yes, but unless you are customer of a very large bank that's it.

But that's only one example where a fringe OS gets the short straw. What about games? People who like to buy mobile games will almost certainly opt for platforms that offer a wide supply of games.

People who need specific services will opt for the OS that provides the service.

And that all adds up. Once a customer realizes they can't do 'xyz' on platform 'abc' they chose platform 'def' or 'ghi'. And no matter where you look it's mainly 'Get our app for Android and iPhone.' WP is very rarely mentioned. Aside from leaving out people who need or want these apps it also creates a psychological barrier because it tells people that if they buy such a phone they may fall victim to such app shortage some time later when they MAY need something special but can't get it.

The 'common' stuff is not relevant here, that won't offer much of special value.