The Full Story of Nokia and Microsoft - How we got here, and why Microsoft will fail with Nokia handsets just like it did with Kin

EXECUTIVE SUMMARY by member 'caffeine-overclock' over at Reddit:

Elop killed Nokia twice: First by announcing the move to Windows Phone 9 months before they could deliver, and again by announcing that no more MeeGo phones would be produced the day after the first MeeGo phone was released to extremely positive reviews.

Microsoft's phone ambitions are similarly doomed because buying Skype caused most if not all of the global carriers to despise Microsoft, and by association Nokia. This will only get worse as time goes on, since Microsoft/Nokia just became Microsoft and any residual good will from Nokia is gone. Without carrier support, Microsoft can't succeed in those markets.

Definitely worth the read if you have time.

Thank you caffeine-overclock. You brilliantly summarized the essential points! Come here too and comment with us, you'll find plenty of smart people to chat with about this Nokia story in my comments thread..


Ok the news is out. I told you literally two years ago, that the Windows Phone strategy would be the death of Nokia's handset business, and today we have the final nail in that coffin. I honestly, truly with my hand on my heart, hoped this day would never come, and that my prediction would be seen as wrong. But unfortunately I was correct (once again). I do tend to know this industry. And I was the first to tell you, on this blog, that Nokia's handset business just died. I told you when it happend, and more importantly, I told you why it died. It didn't die with the crazy Burning Platforms memo, nor with the announcement of Microsoft Windows Phone either. So this is my (first) full epitaph to Nokia. And we have to have a bit of history. (Long blog warning - this runs 12,000 words, so get yourself a cup of coffee, this will take about half an hour to read, but its the first 'full story' of the Nokia collapse. It won't be the last, this will be a case study on how to destroy greatness)..  

 

HOW DID NOKIA GET TO THIS POINT?

So, before Elop announced his mad Microsoftian strategy, Nokia ruled the global handset business, more than 50% bigger than its nearest rival Samsung. Nokia did this with massive profits. That is 'handsets' ie both smartphones and dumbphones.

The future of the handset business is 'smartphones'. Contrary to what many recent converts to the smartphone opportunity believe, the smartphone was not invented by Apple with the iPhone - but as I correctly predicted back in 2007, that is how the industry is increasingly seen as now, in two eras, the old era, 'before the iPhone' and the modern era, 'after the iPhone'. So who invented the smartphone if not Apple? Nokia. Literally a decade before the first iPhone was sold. And then you say, but those were like the Blackberry, business-oriented smartphones. Sure. But who invented the consumer smartphone? Nokia. Nokia was the first to be so audacious they called their little pocket devices 'real computers' with the marketing of the consumer smartphones under Nokia's N-Series branding - they were called 'multimedia computers'. Yes, that is a very apt name for an iPhone, isn't it. A multimedia computer. A music-playing, videogaming, social media internet device. That is a very apt name, multimedia computer. Except that Nokia invented that category years before Steve Jobs strutted on stage with the first iPhone shown to the public.

And yes, touch screens, yes, app stores - Nokia did all that years before the iPhone too. But just as Apple is always known for, when Apple did its 'version' - it executed that far better than whoever did whatever before, whether it was the Macintosh vs IBM computers running Microsoft DOS operating system, of Apple's iPod vs Sony's Walkman portable music players or yes, the iPhone vs Nokia's consumer smartphones - yes, Apple did that always better. That is Apple's DNA. When they enter a new business, they only come in if they can revolutionize it.

But here is the fact vs the myth. Nokia wasn't dying because of Apple. Nokia's smarpthone unit was not dying at all, when Elop announced his bizarre strategy on February 11, 2011. This is the truth. Nokia's smartphone unit was more than twice the size of its nearest rival (which wasn't Apple even). How unusual is that? IBM was never twice as big as its biggest rivals in the PC world. Neither was Compaq, nor at any time Hewlett Packard, nor Lenovo nor Dell. Same of cars, General Motors has never been twice as big as its nearest rival. Neither has Toyota nor Volkswagen nor Fiat. Ford has, yes been twice as big as its nearest rival, but that last happened nearly century ago, when Ford manufactured the Model T, before the Great Depression. Can you imagine. Nokia in 2010, was such a supreme dominating powerhouse in smartphones globally, it had a bigger lead than HP or Dell or Lenovo or IBM ever had in PCs, or Toyota, GM, Volkswagen, Fiat ever - EVER - had in cars. And Nokia was doing this very profitably indeed.

Not only that. Nokia grew more in 2010, yes grew MORE in 2010, in smartphones, than Apple grew iPhone sales or Samsung or Blackberry or HTC or anyone else. Not as 'growth percentage' a misleading metric that always favors the smaller guy against the bigger guy, but in absolute growth numbers. In year 2010, just before Elop announced his new Windows based smartphone strategy, Nokia sold 103.6 million smartphones (the latest, corrected number according to official Nokia documents). Nokia owned 34.8% of the global smartphone market. Nokia sold its smartphones at strong profits, and ever since Elop took over in 2010, Nokia's smartphone unit profits had increased to a record of over 500 million Euros - for the full year, the smartphone unit generated 1.6 Billion Euros of profits (2 Billion US dollars). The profits were growing. And yes, Apple's iPhone was not 'winning' compared to Nokia smartphones at the time. Apple grew from 25 million to 47 million iPhones sold from 2009 to 2010. Apple added 22 million new iPhone customers during the year. RIM's Blackberry grew from 35 million to 48 million, adding 13 million new customers during 2010. (Samsung even less than these two). Nokia grew from 68 million to 104 million smartphones sold during 2010, so Nokia grew its smartphone business by 36 million new users. Nokia grew in 2010 essentially as much as Blackberry and Apple's iPhone - combined. Nokia was not dying. Nokia was not in trouble. The gap between Nokia and Apple was not shrinking in 2010 - Nokia was PULLING AWAY from Apple's iPhone!!!!

 

Give any other industry leader the position Nokia was in, and ask would they change places. Nokia was 50% bigger in the total industry than its nearest rival but far more profitable than that (ie Samsung). And specifically the future of the industry, smartphones, Nokia was more than twice as big as its nearest rival and growing more than the two nearest rivals added together. And Nokia was highly profitable - with profits increasing. This is exceptionally rare, if you're the boss of Coca Cola or American Airlines or Citibank or indeed, Apple, you would LOVE to be in that position. Leading the whole industry, but in the area where its future lies, you are more than twice as big as your nearest rival - and the gap to your nearest rivals is not closing - you are pulling away, growing MORE than your rivals! And doing all this not just profitably, but with increasing profits.

ELOP EFFECT DESTROYED NOKIA

That is the company Stephen Elop discovered, when he was hired to run Nokia in 2010. That is what Elop decided he will torpedo, sink, set on fire, burn to the ground, with his moronic Burning Platforms memo (that caused a 'Ratner Effect' - when a boss of any company calls his own products rubbish and uncompetitive - he will be believed and it will destroy the company - as it did Ratner Jewellers and it now did Nokia phones).

And to ensure his company is utterly demolished, Elop followed the notorious Burning Platforms memo by the Osborne Effect of announcing his Windows smartphone strategy while Nokia had no Windows based phones to offer or even show. It was so bad, when he announced Windows, Elop said Nokia will not even use the then-current version of Windows for the Nokia smartphones - Nokia would have to wait until the next version would be coming from Microsoft in the summer. Nokia's first Windows Phone based smartphones weren't sold until 9 months after his announcement. This Osborning of the Nokia smartphone unit demolished Nokia smartphone sales. Combined with the Ratner Effect of his idiotic memo, Elop witnessed Nokia smartphone sales collapse from 28.6 million smartphone units per quarter (Nokia latest revised number) down to 16.8 million by the time the new Lumia smartphones were starting to sell. Nokia's dominant market position was crushed, by Q3, Nokia had surrendered its market lead and was holding only 14% market share in smartphones. The fastest collapse not just in smartphone history - the history of any global market leader technology or brand ever. But Elop was not done...

His Windows strategy could not really hurt the dumbphone side of Nokia, the 'featurephones'. But his Burning Platforms memo sure damaged that too. Nokia's dominant handset position was lost in one year, and now Samsung is the world's largest handset manufacturer. That transition happened at the anniversary of his destructive memo and Elop was at least man enough to admit, his burning platforms memo did damage Nokia handset sales. I have coined the term 'Elop Effect' which is when you combine the catastrophic Ratner Effect with the cataclysmic Osborne Effect. Because either Ratner or Osborne effects by themselves will destroy the company, of course the Elop Effect will destroy the company, only faster. Why it took Nokia this long to die, is only because the company was so utterly dominant and strong before Elop issued his mad Burning Platform litany of lies.

SINCE THE ELOP EFFECT

But what about after February. What then of the Lumia series? These were to be the new Nokia. Well, the truth is, that the first Lumia handsets that were not even made in Nokia factories but came out of Taiwan from a third-party manufacturer, and just the Nokia badge was stuck on those early Lumia devices? This is like Yugo the Yugoslavian car maker would buy Porsche, and then stick some Porsche badgest on the latest Yugo cars, and try to sell them as 'real' Porsches. This could only end badly. And it did.

So poorly were the first Lumia series designed and manufactured, they came with 101 faults. Nokia was supposed to be 'saved' by the Lumia running Windows Phone. It wasn't. One year after the Lumia was launched, by Q3 of 2012, Nokia's total smartphone sales were down to 6.3 million units per quarter. Nokia's smartphone market share had witnesssed a world-record collapse and was down to 4%. And nearly half of that sales still came from the older Symbian smartphone business. The Nokia profit powerhouse, the smarpthone unit that generated 500 million Euros quarterly profit just before the Microsoft announcement, has never once returned a profit since that time. It has yes, generated a loss every single quarter since, including all those Lumia smarpthones that were supposed to be the savior of Nokia's future. Not a single Lumia running Windows Phone has ever sold at a profit. Not a single one.

 

After the first Lumia series failed, we were next supposed to be saved by the new Windows Phone version, that which was aligned with Microsoft's desktop OS, Windows 8. The new Windows Phone 8. Again, Nokia under Elop, managed to Osborne all its current Windows 7.x devices, and upset what remained of 'loyal' Nokia app developers, once again making their development investment obsolete. But how did the new Windows Phone 8 manage? Now we have the latest results. Q2 of 2013 was the first quarter when Nokia no longer sold Symbian devices, all the sales is Windows based smartphones, and most of those are now on Windows Phone 8. How big is Nokia's current market share? 3%. And Nokia managed to sell a paltry 7.4 million smartphones. Nokia was ranked down in 9th, of the Top 10 smartphone makers - just two and a half years before, Nokia was not just number 1, Nokia could have abandoned half its market - and still been number 1!!!

 

So, under Elop, Nokia exchanged strongly growing smartphone unit sales for record-setting collapse of smartphone sales. Nokia shrunk literally to one tenth its size in a market that tripled in size. Nokia's dominating market share of 35% is now 3% and falling. Nokia's strong revenue growth in smartphones is perennial revenue decline. Nokia's massive profits from the smartphone unit are now huge losses. And the picture in the dumbphone unit is nearly as dire, while it has occasionally generated a tiny profit, that was done with the gimmicks such as selling the headquarters building etc.

 

Now, if you go back to February 2011, and suggested that Nokia's handset unit - that generated 29 Billion Euros (38 Billion US dollars) in annual revenues and an operating profit of 3.3 Billion Euros (4.3 Billion US dollars) - this would have been a powerful Fortune 500 sized company, all by itself, just Nokia's handset unit (smartphones and dumbphones). If you wanted to buy this highly profitable unit from Nokia in January 2011, you would have paid 'multiples' of 29 Billion - as the valuation is of profitable companies. Maybe paying something like 58 Billion Euros (75 Billion US dollars) just for the handset unit. That is with a very conservative 2x ratio for the annual revenues. Today Nokia's handset unit was sold for one tenth that value - 5.3 Billion Euros (6.9 Billion US dollars). Note that when Google bought loss-making Motorola, it paid 12 Billion dollars for it, and Motorola's market share in dumbphones and market share in smartphones at the time was worse than Nokia's is now. And Nokia's patent portfolio is far bigger than Motorola's was then. This is how massive the damage has been to Nokia. Total massive wipe-out. Elop has cost Nokia shareholders at least 50 Billion Euros (65 Billion US dollars) in value, and probably far far more than that.

(I think Elop must be investigated for fraudulent behavior, for breaking his fiduciary duty and I think this whole deal should be carefully scrutinized. If Elop caused the damage, why is he allowed to now sell this unit that he destroyed? And why if Nokia Board is willing to sell its 'crown jewels' then why isn't Nokia openly offering to sell it to any buyers like say Sony or Lenovo or Huawei or Samsung etc, all who have expressed interest in Nokia in the past year or so)

 

In Nokia share price evaluation (which includes obviously the networks unit, which wasn't impacted by the Elop Effect like the handsets unit was) Nokia share price has fallen more than 57% from the time Elop announced his strategy. The irony is, that when Elop was executing the previous strategy (the one with growing unit sales, growing revenues, and Nokia record-setting profits) the Nokia share price had climbed 11% in the first five months that Elop was in charge...

 

Oh, one more thing. Every single industry analyst, who released an estimate or forecast of the smartphone market for the future, released during 2010, predicted that Nokia was so incredibly strong in the smartphone field, that Nokia would remain the biggest not just through 2011 but also through 2012. Not one industry analyst who specializes in handsets, saw Nokia to fall from first place using the old strategy. But after the Windows strategy was announced, almost every forecaster predicted immediately that Nokia would see a decline. Not one forecaster who had given a growth forecast, predicted Nokia to hold onto the growth. (Incidentially, nobody else predicted it to be as bad as I saw it, but while I was the most accurate forecaster once again, even I couldn't foresee how total the carnage would be).

In 2010, nobody in their right mind would have suggested that Nokia could ever sell its profitable smartphone unit. Maybe, some day, Nokia might sell its featurephones unit, but the standard assumption was, that Nokia would sell the networks unit, because the big profits were in the handsets and the networks business was often not generating any profit. The networks were the history of Nokia, the dumbphones were the current, and the smartphones were the future. You don't sell your future. And if someone were to buy Nokia's handset business, they would have paid a pretty penny indeed, before the Elop Effect. And even the pure featurephones unit, if sold only at a 2x multiple of annual revenues, should have sold for something like 28 Billion Euros in early 2011, not the pennies they got for it now.

Today Nokia's handset unit, dumbphones and smartphones, and the services business including maps- plus a 10 year lease on all Nokia patents - all bundled together and sold for 5.3 Billion Euros (6.9 Billion US dollars). Elop came to Nokia, demolished the handset business and now sells the scraps to Microsoft. This was a crime that we witnessed. He was the assassin who came in to wipe out the biggest handset maker in the world and the most beloved handset brand on five of the six inhabited continents. The brand so strong, in the world's largest smartphone market - China - Nokia had 70% market share in smartphones. The world's second bestselling app store behind only Apple's iPhone but get this - Nokia's Ovi on Symbian back in Q4 of 2010 was the bestselling App Store in every country where the domestic language is not English or Korean or Japanese - and in Japan, while Nokia's own phone brand was nonexistent, the largest carrier, NTT DoCoMo used Symbian as its platform for its phones, so Symbian also dominated Japan while Nokia's own Ovi store did not in that country. Imagine that. If you take the English and Korean-speaking populations - they account for 8% of the planet. Nokia and/or Symbian was the bestselling smartphone - and the bestselling app store - for the 92% of the planet whose national language is not English or Korean. That, my dear readers, is owning the future. That is what Microsoft hated and feared. That is why Microsoft had for a decade tried to get Nokia to join the Windows world and Nokia had said no. It wasn't until Microsoft managed to implant the destructive mole into Nokia management, Elop as CEO, that they finally were able to break Nokia's lock on the future of computers (smartphones) and convert Nokia to join the Windows way of doing smarpthones.

Incidentially joining Microsoft's Windows smarpthones is a way that has only damage to its history, from Sendo to LG to Dell to Palm to Motorola to now Nokia, going to Windows is a sure fire way to turn profitable smartphones busines into loss-making. All the past Windows partners have either left the operating system like Sony or diminshed their involvement in it to almost meaningless like Samsung and HTC. There has not been one successful Windows based smartphone brand. Not one success ever. So lets talk about Microsof then.

MICROSOFT MOBILE MAD

So, a few days ago I blogged about why the Ballmer departure combined with previous Gates statements and the fact that Nokia had tried to sell itself to Microsoft, was proof that Microsoft didn't want Nokia (and that Elop could not become Microsoft CEO). Ok, I was partly right, Elop won't become Microsoft's CEO (at least at this time). But wow, Microsoft and Gates really wants mobile. Ok, now lets re-examine Gates's statements about how Ballmer had mangled Microsoft's position in smartphones - to the point Gates suggested no victory was even possible, ie unrecoverably destroyed. If you remember, during Gates, he believed strongly in smartphones and Microsoft grew to become the second largest smartphone OS behind only Nokia's Symbian. At its peak, Microsoft handset partners owned 12% of the smartphone market using the Windows operating system. That crashed under Ballmer's mismanagement and lack of focus. By 2010, Windows only held 5% market share in smartphones and had fallen from second place behind Blackberry OS and iPhone iOS and Android. From second place to fifth, and with the difficult transition in place from Windows Mobile to Windows Phone, actually the Windows Phone OS would fall one slot further down to sixth, behind Samsung's new bada OS at the time.

I thought that Ballmer's departure was proof Gates was sick and tired of the costly attempts by Microsoft to get into mobile. Boy was I wrong. Now that Microsoft buys Nokia, they are clearly throwing rather big Billions (nearly 7 Billion US dollars) into this deal, to follow the 2.5 Billion they've already paid Nokia in marketing support for launching the Lumia series, and the countless Billions more they have paid to carriers/operators and the various app developers who refuse to make apps for the dead OS platform known as Windows Phone.

I stand corrected. Actions speak louder than words. If Microsoft is willing to toss 7 Billion dollars at Nokia to keep the Windows Phone world alive, then clearly they have a madness for mobile. Now looking back at Gates's words, one has to interpret them differently. Now we see it as 'Steve Ballmer was not doing mobile well enough'. That under better leadership, Microsoft could do a lot better with its mobile ambitions. Obviously over time, the conviction that Gates has held - that smartphones are indeed the future of computing - has only become more true not less. Last year for the first time, more Android powered computing devices (smartphones and tablets) were sold than all Windows powered computing devices (servers, desktop and laptop PCs, tablets and smartphones, combined). That gap is only growing, we might see twice as many Android powered devices sold this year, than all Windows powered devices. If Microsoft is not playing in the smartphone race, it loses the future of computing. (Or, as I wrote last year, has already lost it)

There is a history of Microsoft in platform wars. Windows 1.0 was a disaster, as was Windows 2.0. The first usable Windows version wasn't until 3.0 about year 1989 if I remember correctly and its next variant, Windows 3.1 is the first that is considered 'user friendly' enough to power Microsoft into the modern era of personal computers, using the mouse, etc. Apple reinvented the personal computer space and dominated the new market for really five years with the Macintosh even as IBM and its clone-makers would sell more basic DOS powered PCs at the time.

Microsoft learned a powerful lesson then and it has been distorting Microsoft management thinking ever since: Apple envy. The Windows OS was a clear case of Macintosh-envy at Redmond. The Zune music player was a case of iPod-envy. Surface is iPad-engy. The termination of Windows Mobile, and the release of the bizarrely-incompatible new Windows Phone OS instead, is a clear case of iPhone-envy. Ex Microsoft dude Stephen Elop and his mad decisions about the product line of early Lumia - not one camera better than the iPhone, no QWERTY versions even as more than a third of loyal Nokia smarpthone owners at the time had a QWERTY based Nokia E-Series or other Nokia smartphone etc - that all can be explained away by iPhone-envy. The error-ridden Burning Platforms memo, for which even Elop himself has since that memo revised his opinion on many aspects he claimed wrong at the time - was again a case of Microsoftian Apple Envy.

Nokia - the past Handset Maker (not the new networks equipment provider only) main competitor was not Apple. It was then, as is now to Apple - Samsung. Samsung made not just smartphones but also dumbphones (that Apple doesn't). Samsung was in every country and on essentially every operator/carrier (that Apple isn't) competing head-to-head with Nokia. Yet one year after the Burning Platforms memo, Elop said to a press interview in South Africa that he doesn't see Samsung as a big threat to Nokia. He wasn't losing any sleep over Samsung were his exact words. Only two months after that, Samsung was certified to having passed Nokia as the world's biggest handset maker (doing that profitably while Nokia was making losses). Samsung also passed at that time Apple as the world's largest smartphone maker - a title it today holds by dominating level.

That Apple envy drives a lot of the thinking at Microsoft. Microsoft is also rich and willing to play long games. Look at its investment into Xbox. The platform was a perennial drag on profits, but they kept at it, and today its the bestselling gaming console platform. Sad thing is, that while that happened, Android became the world' bestselling gaming platform overall... Angry Birds and all that.

But Microsoft has the belief, that mimicking Apple is a good thing, and also, that they can play the very long game, for years and years, decades even, to become a major player in a strategic platform play. It worked with Windows for the desktop and with Xbox. Perhaps Bill Gates feels that Microsoft didn't play long enough with Zune, who knows. But yes, a decade of Microsoft Windows based smartphones, at 4% current market share with Nokia, HTC, Samsung and the others all added together - and Microsoft believes they can turn this around.

CAN MICROSOFT TURN NOKIA AROUND

That Microsoft buys Nokia's handset unit, and keeps Elop in charge of the new Microsoft handset unit means only one thing. It means that Bill Gates thinks that Nokia managed by Microsoft directly in its ownership, will do better, than an independent Nokia run by ex Microsoft dude, and producing 100% only Windows smartphones. Gates does not see Elop was the problem (or he might, lets see what happens after Q1 of 2014, if Elop is quietly reassigned to run some non-relevant strategy unit in April or May of 2014, then Gates didn't like Elop's management and only held him long enough to complete the Nokia handset unit purchase).

So, we have clearly seen a difference in philosphy that is very stark. Compare Symbian based smartphone portfolio to Lumia running Windows Phone. The early Lumia were all total iPhon-a-clones. No QWERTY variants. No better cameras (even Nokia's own N8 had a better camera than the iPhone and all Lumias up to the current flagship 1020). The early Lumias didn't support full Bluetooth, didn't have microSD slots, didn't removable batteries, no TV out, no HDMI out, etc etc etc. All feature sets taken from Apple's iPhone and differing from Nokia past. Nokia had previously made bigger screens than (then) iPhone, Lumia did none of that (on early models). So we can see what was 'Nokia thinking' ie a wide product portfolio that caters to many Nokia customer types and regional international differences, vs the Apple envy view from Redmond, epitomized by Elop and the early Lumia line. Make them clones of the iPhone.

The Symbian based 808 Pureview changed some of that. So now at least Elop was willing to create something that goes beyond the iPhone (Lumia 1020) and we're now seeing the rumors of the phablet with the massive screen, likely announced in a few weeks.

If Elop had been fired 18 months ago, and Nokia had somehow still continued with Windows Phone, today we'd see 'typical' Nokia portfolio of a very wide range of Lumia handsets not all looking alike, and with very wide range of features and abilities. That was how Nokia always was before. It changed when Elop came in, and he said repeatedly that Nokia was still supporting too many niches and the portfolio was too broad and needed to be culled. And as I said, the Lumia line is essentially variants on one theme. How could the Nokia brand be stuck on an iPhone, with just enough differntiation so that Nokia isn't sued.

Now look at Samsung. They have taken every niche that Nokia abandoned, and produced devices for it. Both in smartphones and in dumbphones. And they dominate the handset space and keep growing and generating ever bigger profits. The strategy was not wrong, Samsung is proving it can be done. But Elop's vision ruined Nokia (handsets).

If Microsoft had bought Nokia smartphone unit and not taken Elop with it, we could expect a big difference in how the new Microsoft-owned 'Nokia' would perform, compared to how Elop ran the company the past two and a half years. But because Microsoft bought both smartphones and dumbphones, and took Elop and left him in charge, it means that the internal squabbles that Elop has had with senior management, are now over. No more debates about does anyone want QWERTY for example (Elop admitted his staff had lobbied for QWERTY variants for Lumia but Elop overruled them).

(By the way, why also dumbphones? Microsoft is 'smart' in buying both - because they know Nokia is strong in handsets, they would not want to compete with unloved Windows Phone based Lumia, against 'real' Nokia featurephones on Asha. They want to kill any competition from Nokia itself. Smart. But it kills the rest of Nokia's handsets obviously as well)

So, if you think that Nokia could 'come back' now with Microsoft money, the opposite is likely. The issue before for Nokia was an 'Elop Effect' inside Nokia, trying to turn the dominating global powerhouse into an Apple iPhone-clone, and abandoning profitable market segments (to Samsung). Now those arguments of a counter-view, of Nokia past knowhow, no longer hold. Now we will see pure Microsoftian 'Nokia' where the designs come all from Seattle, not Espoo. If you enjoyed the '101 failures' of the original Lumia line, expect it to be more like 202 failures by next generation Nokia when the Finnish influence is extinguished.

This is like the Hummer Division of General Motors, suddenly buying Toyota and forcing the over-sized car designs onto all Toyota platforms.

So, first, the next generation of Lumia under full Microsoft ownership, will be no closer to what we all loved about Nokia, but will be ever more distant from it. They will be, however, all the bad things you hated about Windows or Office or Zune or Kin or Surface. The best people of Nokia's true talent have long since departed. The last remaining good skill people know and can see the writing on the wall, they will quietly depart too. The Microsoft purchase of Nokia handsets is a dead end. It cannot ever succeed, so as a career move, its bad news for those who were employed by Nokia handsets.

CASE KIN

Why do I say dead end. We have a case study. Microsoft wanted its own handset unit. It found a popular high-loyalty youth handset maker, called Danger. It bought it. It then did the Microsoft-magic to the devices and released the Kin series of youth phones. They had big fanfare Microsoftian announcements about how it would be the new revolution in handsets and they claimed many carriers/operators were in line to sell them. Then the launch date came and the carrier support wasn't there. Six weeks later Kin was killed. The fastest death in the mobile phone handset history. Microsoft's previous play in making their own branded phones.

The Microsoft Kin phones did not die because the phones were bad. They did not die because the consumer tastes had changed. The Kin phones died because of one reason only - the carrier support vanished. Mobile operators were completely disgusted by Microsoft's move into handsets and killed the support. Note - the carriers were this clever about it - they didn't warn Microsoft beforehand. They WANTED Microsoft to waste its money on designing and manufacturing a phone that they won't let be sold. They tricked Microsoft into wasting all that money...

This is a lesson Microsoft has not learned. They are still living the memory of DOS and Windows. There was a time in the PC industry, that it didn't really matter which brand hardware you bought, as long as it ran DOS (and later, Windows). The profits went all to Microsoft and the hardware makers like IBM, Dell, HP, Compaq etc were all just 'slaves' to Microsoft, box-movers with thin profits. If you bought a current version of the PC, that had the current processor mostly from Intel, and you bought it with the latest version of Windows, then there was almost no difference on the desktop - the keyboard is the exact same, the screen size was essentially the same, etc - and even on laptops, there were mostly only cosmetic differences between brands. Microsoft made all the money.

Microsoft believes that it can do that magic somehow now with the handsets. That if it can somehow 'do it right' with the Nokia unit, and gain the global dominant position it held with DOS and Windows - then Microsoft can make all the profits and the other manufacturers have to join the Windows Phone world and pay royalties to Microsoft again. They want the smartphone races of the decades of 2010s and 2020s to be like the PC world was in the 1980s and 1990s.

The difference is, that in the PC world, there is no national gatekeepers to what brand of PCs are sold. Each country has its own retail systems and many PCs are sold by VARs (Value Added Resellers) some which literally are the size of mom-and-pop companies. Get your brand in there, do a lot of marketing, and you're set. Spend your money and be aggressive in pushing what is legal (or not) and even though they might call you the Evil Empire, you get to win all the marbles in the end. Be ruthess. Crush the little guys, crush the competitors.

Except that it didn't work when the other guys are big enough and fight back - Sony in gaming. While yes, Xbox currently is number one in the console races, if you add Sony's PSP and its Android smarpthones, Sony sells more gaming-capable devices than Microsoft sells Xboxes. And Apple alone sells more iPhones per quarter than either of those, and yes, obviously, the most used apps on iPhones are .. games. It is a gaming platform. While the Xbox can be claimed to be the current leader in the 'consoles' race, when we count Android, iOS and total Sony, Xbox is at best in fourth place in the gaming race. Sony didn't fight against Apple when Apple relased the iPod, because the conventional business thinking at the time suggested that the market for portable music players had peaked and was in decline (Apple changed all that with the iPod). Sony focused on PlayStation and flat screen TVs and DVDs and its movie empire instead. Now with gaming platforms, Sony is fighting back against Microsoft. After Microsoft's Xbox got the top dog ranking in consoles, it couldn't crush its rivals the way MS Word crused WordPerfect and MS Excel crushed Lotus 1-2-3, and Windows Server crushed Novell Netware, and Internet Exploder crushed Netscape, etc.

Now what about Samsung - far bigger tech company than Microsoft. Samsung won't take it on the chin and give up when it faces off against Microsoft. No, Sammy will bring its best to the game. They are competitive in South Korea like nowhere else. Sammy ain't giving up. And Sammy is not just providing the occasional Windows Phone device, it sells most of its smartphones using Google's Linux based Android OS, and you know what, in a few weeks we'll be seeing the first of Samsung's own Tizen OS smartphones - Tizen also being Linux Based. If Nokia, fighting on all fronts, fully focused on mobile, and already 100% of its smartphones were running Windows Phone - was losing to Samsung, what happens now, when Microsoft takes full control, and Microsoft's Nokia handsets become ever less like the old Nokia (and like Samsung) but more just USA-focused niche devices for the rich world? Who wins? Nokia, Samsung's biggest threat and rival, became a true paper tiger today. Samsung will own the handset world.

The thing that Samsung feared the most, was Nokia joining Android. Now Samsung execs can sleep in peace. They know that the carriers will never tolerate Microsoft strong in smartphones, and Nokia will no longer be able to join Android, being owned by Microsoft. Today is a great day in Seoul.

 

And Google, yeah, the people at Microsoft may be smart, but the smartest kids on the block are the guys and gals over at the Googleplex. They aren't as big as Microsoft (yet) but by far big enough to put up a fight and where Google might be smaller (yet) in total revenues, they make up with smarts.

 

In the handset wars, Microsoft faces far more foes, that are bigger or stronger than it is. And now Microsoft's strongest ally, Nokia has been demolished. And Microsoft's other 'partners' are jumping off the sinking ship.

ITS THE CARRIERS, STUPID!

But Microsoft? How can it not see the obvious? This is the particular personality flaw of Stephen Elop. He is delusional. Delusion, the type of insanity, is the ability to face facts, and substitute your own imaginary fantasy instead of the reality. Elop is delusional, we've seen it time and again, in his evaluations of Nokia's situation and his decisions and actions.

So. What is the reality. Microsoft knows this, Bill Gates knows this personally as does Steve Ballmer. The reality is that the carriers/operators decide whose handsets will be allowed into any given market. Nobody can ever bypass the carriers because of the little thing they control - the airwaves. The carriers/operators have built Billion-dollar networks of 'base stations' - ten thousand of those refrigerator-sized dense computer networks-in-a-box, hooked to the antennae that dot every city and most of inhabited land. And why would any fool invest a Billion dollars and two years of labor to build such cellular radio networks? Only because the licenses to operate these tend to run 15 to 20 years. And there is a limit in the radio spectrum, in most countries limiting the number of competitors to 4 or so, per country. So its an automatic oligopolistic market. Not true competition. The carriers rule. This is why mobile telecoms is so different from the PC market or the gaming market or the music market or anything else that Microsoft has ever witnessed.

So the carriers decide. Never, has ANY brand, been able to bypass the tyranny of the carriers. Never. Not Nokia or Motorola or Samsung as traditional handset makers - and typically larger than most carriers. Not Blackberry or Palm or HTC as pure smartphone makers. Not Apple - the most powerful tech brand on the planet. Remember how much we waited to see the US carrier monopoly on AT&T be broken until Verizon got its own iPhones.. That is what I mean. Still today, Apple can't get on China Mobile's network even though millions of China Mobile customers do have gray market iPhones but China Mobile isn't supporting the device, hence Apple's share in China is tiny. If the Apple brand cannot break through, nothing trumps the carrier/operator control of the handset market. Listen to me. If Apple - come on Apple - back when Steve Jobs was in charge, that Apple - cannot force itself into any market where the carrier says 'no' - then what on earth makes the morons at Microsoft think they can somehow succeed where even Apple failed?

Nobody can break this, not through business customers and dominating positions in the enterprise field and desktop PCs as learned by Dell and HP. Microsoft tried this with HTC (and failed). Microsoft tried this synergy again in the previous 'partnerhship' with Nokia, back when Elop was still a Microsoft employee. And when Nokia was the undisputed gorilla of the handset space and massive global enterprise customers to rival Blackberry - it didn't get Microsoft any benefit. And now its been tried with Lumia and Nokia enterprise sales. Nothing. A lousy deal here or there, we just heard a couple of thousand airline staff took Lumias a few weeks ago. Haha, that is their big success. The enterprise and Windows integration is an old story, tried a dozen times by Microsoft and always failed. Elop himself tried it three times and failed. It will never be the way in. Because of the carriers!

Google couldn't get its own original Nexus smartphones to the market when carriers said no. Google tried even to set up its own online stores, to no avail. And the ultimate lesson is Microsoft's Kin. Good phones, killed by carriers.

So Microsoft just needs to cozy up to the carriers then? Take the CEOs onto golfing trips to Tahiti or something. Yeah, been there tried that. The carriers might have taken Windows as 'the third ecosystem' in February 2011, when Elop and Ballmer stood side by side to announce this idea. That was then. One thing happened between then and now. Skype.

MICROSOFT'S MOBILE DREAM DIED WITH SKYPE

Microsoft bought Skype in May of 2011 and after that the carriers have spoken. Loud and clear. They don't care which brand phone has Skype (Skype had been on smartphones years before Microsoft bought the company). Skype was on Androids, and was NOT on early Lumias. But carriers/operators hate Skype because it threatens their very survival. Skype steals voice traffic - especially the most lucrative voice traffic - international calls. Skype threatens messaging traffic and Skype threatens video calling traffic. Telegeography, the industry analyst that specializes on international telecoms traffic statistics, reported in February of this year, that after Microsoft had bought Skype, Skype's total traffic was up 44% and today Skype accounts already for a third of all international voice minutes. Skype is pure poison to carriers.

And if you talk about the other OTT providers like Whatsapp and iMessage and Blackberry Messenger and MxIT etc, those pale in comparison to Skype, because of Skype's incredible position on the desktop internet. Skype has over 1 Billion registered users, making it by far the biggest telecoms player by reachable audience. And on mobile, Infonetics counted in July that active mobile users of Skype - ignoring desktop - was already 256 million which made Skype the biggest OTT player - and for comparison, just Skype on Mobile alone (ignoring desktop) they were the fourth largest telecoms operator by users, after only China Mobile, Vodafone and Bharti Telecom.

Carriers/operators yes they dislike all OTT providers, but they truly hate Skype. And Skype is now owned by the filthy-rich Microsoft with endlessly deep pockets, to keep Skype alive and a thorn to the sides of all carriers forever. And Microsoft very arrogantly promised that it will bring Skype to every pocket and the carriers/operators can either live with it - and share their revenues with Microsoft - or not, but Microsoft's mission is to bring Skype to every pocket.

So, do you think this makes Microsoft and its Windows Phone the darling of the carriers/operators or not? There resulted an immediate carrier boycott against all Windows Phone handsets by all manufacturers, reported in various international media already in June of 2011. Since then we've had this sales boycott (or sales reluctance) proven in secret surveys of carrier-stores from the USA to the UK to Finland to France to China and so forth and so forth. As recently as last month, we heard again that there is the ongoing carrier reluctance to sell Windows Phone, they just order them in nominal numbers and when customers walk into the stores, they refuse to sell Windows Phone, they push Android and iPhone instead.

This is not a figment of my imagination. It has been reported by the press. But if you dont' trust the press, it was confirmed by Stephen Elop himself when he spoke to the Nokia annual shareholder meeting last year. That carrier hate Skype. That some of the carriers have even taken the extreme step that they are refusing to sell Windows Phone devices by any manufacturer. The same story repeated by those who left the Windows world like Sony, Dell and LG; and similar complaints by those still remaining in Windows nominally like Samsung, HTC and Huawei. The same story was repeated by departing or existing handset division bosses both at Nokia and at Microsoft. But once Elop admitted this to Nokia shareholders, the fact is beyond dispute. Carriers/operators are not willing to support this platform - the reason not being because Skype is or isn't on Windows Phone. That has nothing to do with it. Its the EXISTENCE of Skype, that Microsoft now sustains - FOREVER. They hate Skype the company, not the software on a phone. Microsoft owning Skype means all carriers, fixed and mobile, despise Microsoft more than anything else on the planet. That means, the carriers/operators will all select 'anything else' rather than Microsoft's Windows Phone. In 2011, in 2012, in 2013, and forever. Nothing changed about that hatered today, with this purchase.

 

The Windows Phone platform died as an alternative for carriers/operators that May in 2011 when Microsoft bought Skype. I was the first to report on that event (not that Skype was bought, but what it meant to carrier relations) here on this blog and that was when the whole Windows dream for smartphones died. The horse is dead. No matter how much Elop - or now Gates - beats the dead horse, it will no longer run. It died then, it is very definitely still dead now. More dead now than then...

This is not something I invented (although I was the first to report it). This is now verified by Stephen Elop, when he spoke to the Nokia shareholders' meeting. It is a fact. It is a fact, that carriers don't like Windows Phone, not because Skype is on it (it was NOT on Lumia smartphones at that time! And Skype WAS on Android phones which the carriers were happily selling). Listen to what Elop said, he said its true that the carriers hated Microsoft - hated Microsoft (not hated Skype) because Microsoft had become Skype's owner. The boycott is against Microsoft (not Skype) and is because Microsoft now funds the existential threat to carriers - Skype.

Elop knows this. Ballmer knows this. Why, because Elop told the Nokia shareholders that he, Elop, had been personally present when Ballmer - had personally - been meeting with carrier execs to try to get them to adopt Windows Phone as the third ecosystem - and that not one of the carriers had agreed to this poison-pill of a 'solution.'

Does Gates not know this? Or does Gates think that somehow Microsoft can take two YEARS of utter failure by Elop and Ballmer, to convince carriers that Microsoft is no longer the Evil Empire and Skype is not worth worrying about - when the carriers SEE from their own data that Skype is devouring their international voice business - remember, since Microsoft took over Skype, Skype has grown 44 %. If carriers feared Skype in 2011, they truly hate it now.

TWO TURKEYS NOT ONE EAGLE

This is two turkeys now. Nokia was a powerhouse before Elop. After the Elop Effect Nokia is now damaged goods. Nokia cannot retain its current customer base when it migrated from Symbian to Windows Phone - Nokia lost literally 9 out of every 10 attempts to conversion. Now Nokia has no existing smartphone user base that was on anything other than Windows. Now Nokia has to try to move the dumbphone users to Windows Phone. If smarpthone users ran away at 9 to 1 ratio then what luck is dumbphone users, where Microsoft's own R&D engineers and Nokia's own R&D engineers have said repeatedly, that Windows Phone is not suited for the lowest-end of smartphone market price levels. That is where the dumbphone segment is. Not the 100 dollar low-end smartphones (Lumia cannot get to even that level today) but the 30 dollar basic phone. Nokia's dumbphone ASP in Q2 of 2013 was 27 Euros. Try to get those customers - customers who often live on literally earnings of one dollar per day - to buy a 150 Euro basic Lumia (these prices are without handset subsidy, most of the world's phones are sold without contract and subsidy, not like the USA where most phones are sold with the contract). If you earn a dollar a day - as for example 40% of Egypt's population - then you need to save half a year - not eating nor paying rent - just to afford this 'cheap Lumia' device. Good luck with that, bozos.

During the past two years, that Nokia Lumia has been sold, the carriers - who decide who wins and loses - have been conflicted, having to select between Nokia, the brand their customers love, and the evil Microsoft who supports Skype that the carriers hate. The result was Nokia smartphone market share collapsing to one tenth it was.

Now the carriers have a new proposition. There is no independent Nokia left, its all just the Evil Empire Microsoft. Will this be seen as 'an improvement' or 'getting worse'. Obviously, it means the proposition just got worse today. The carriers find nothing left, that is desirable in Microsoft-owned 'Nokia' brand. Nothing. The sales will continue to fall.

CONSUMER DONT BUY MICROSOFT

 

And then a few words about consumers. Carriers/operators are the gatekeepers. But then comes the consumer demand. Nobody walks into a store wanting a Windows handset. Microsoft doesn't get this, because it used to be true, that people did walk into PC stores asking for a Windows based PC. And after Xbox's recent successes (hit games) there are also consumers walking into electronics stores asking for Xbox.

But nobody buys Windows Phone smarpthones because it runs Windows. They buy the Lumia device because of the Nokia brand, not the Microsoft brand. Nokia has fierce loyalty, even today. Most who bought Lumia, had no idea what OS that phone has, and so too was the case with their previous smartphone - Nokia is the only legacy handset maker (ie not pure smarphone maker like Apple) who has recurring customers who more have owned smarpthones in the past than not. Remember Nokia invented the smartphone. Nokia's current level of smartphone sales? Nokia was doing that level of quarterly smartphone sales as far back as in.. 2008! And those customers, most of them, are blissfully ignorant that their past phone ran Symbian and the current one they just bought runs Windows Phone. They just want to know does it run Facebook and Angry Birds. If so, fine, I'll take it...

 

There was a time, in the middle of the previous decade, when yes, there were some enterprise customers who were asking for Windows onto their smartphones, to find compatibility with their desktop world. That was effectively killed by Blackberry, iPhone, Nokia E-Series Symbian and Android. Today nobody asks for that compatibility. They rather hate the fact, that their business apps that were running Windows Mobile, were suddenly obsolete with Windows Phone 6.x. Which was incompatible with Windows Phone 7.x. And once again incompatible with Windows Phone 8. There is nobody left who can be fooled that there is some 'synergy' to using Windows on both PCs and smartphones, especially when most developers are deserting Windows now and Microsoft's own tablet, the Surface, even was a total fiasco.

Tablets are not sold by carriers (for the most part) and Microsoft messed Surface up totally - but again following their Apple-envy strategy. If Microsoft cannot succeed with Surface, what makes you think that they take the highly successful Nokia in handsets, gut all the true competence out of that company under Elop and the past few years, and now insert a Microsoft mindset to this ruined body, and somehow create magic out of it. No, this will only get worse. People do not want Microsoft or Windows on their phones. That is before the sales staff at stores tell them to stay away...

MICROSOFT MIRRORS AND SMOKE

 

What can Microsoft do? I think first, they will soon rebrand Asha as Windows Lite of some kind, to create an illusion that their smartphone business is doing better. They will no doubt stop reporting the details we have been accustomed from Nokia quarterly reports - you see Microsoft has long since stopped telling us how few Windows devices are sold - because the news is all bad. It will keep getting worse.

The other handset manufacturers that remained. They will not like it that Microsoft now competes directly with them, owning Nokia. So what little remained of the 'ecosystem' in terms of manufacturers, essentially HTC and Samsung anymore - will vanish. Their contribution might not go to zero simply as a precaution so Microsoft won't start suing them (Microsoft has that history too, suing all who depart the system) but it will be less than a million per year, by all other manufacturers, in total. Those manufacturers sold 3.4 million smartphones running Windows in the last quarter before Nokia was selected as the 'preferred' partner into the Windows world.

On the 'classic' smartphone unit of Nokia - what once made Symbian and now makes Lumia - that will see continuing decline of sales, because what little good will remained towards Nokia is now gone, and only the bad will remains against Microsoft. Nothing that Microsoft can do, can change this reality. The carriers had two years to consider the merits of a 'moderated' Microsoft where Nokia acted as their friend. That is gone. Its now pure Evil of the Evil Empire. What success Lumia had, cannot be replicated with Microsoft as Nokia handset unit's new owner. The smartphone market is still growing at about 40% per year, so numerical sales may still grow but market share will not.

Then Microsoft probably plays the image game with Asha and Windows branding, to create an illusion of Windows growing. Note that Asha is 100% incompatible with Windows Phone 8. So its not the same thing. And Asha are featurephones, not smartphones, so say every industry analyst. But Microsoft may try to create some illusion of success. The Asha line has hit its peak performance now, and as Microsoft is Asha's new owner, not Nokia, the good will there is gone and only bad will remains. The overall Nokia featurephones unit will see perpetual decline in unit sales from the next quarter on till the end.

The Nokia smartphone unit was generating a loss, every single quarter that Lumia was offered. So the only customers who buy it, bought it at a loss. If real profitable prices are introduced, the Lumia line needs to hike prices by 15% or so, ABOVE the current prices, for all devices. If Microsoft is serious about profitable business, that is a trend they will start to insist on. Not yet this year, but soon. Bill Gates is no fool. The more you raise the prices, the more people will reject the Lumia series as a bad bargain.

And the loyalty is atrocious. We've had several surveys by independent organizations of Lumia and of Windows Phone loyalty, which all say the same - the majority - often by huge margins - of those who currently own a Lumia or Windows Phone smartphone - will not buy another. Typically consumer surveys have two out of three existing Lumia or Windows Phone owners saying that for their next phone, they will buy 'anything else'. So the returning customers are not even asking for Lumia now. And that is before the store staff get to have their say - more than half of all phones sold, the phone sold is different from what the customer wanted walking into the store - such is the power of the salesguy. They all are pushing iPhones and Androids now. That means even those few loyal customers that remain, part will be persuaded to buy anything else.

The Lumia side of the Microsoft Nokia handset purchase is a disaster already. The better half of the bargain is the dumbphones unit. Nokia is still currently the second largest handset brand globally and in pure dumbphones, outsells Samsung's dumbphones (because Samsung is further along in the transition from dumbphones to smarpthones). This gives the illusion, that even as Nokia failed in the first migration attempt, from Symbian to Windows Phone, there is a second chance, migrating Nokia dumbphones to Windows Phone.

I say this - the opportunity was far stronger from Symbian to Windows Phone than it is now from remaining Nokia dumbphones to Windows Phone. If Nokia achieved 9 lost customers for 1 converted in the first attempt, don't expect better in this second attempt.

Microsoft buys a modestly healthy dumbphone unit, and if it gives us the performance data separated, we'll see the Lumia unit sales flat and dumbphone unit sales decline, from period to period. The dumbphones unit may produce modest profits but the Lumia unit will produce losses.

In the long run this is a dead unit. Its not because the phones are bad - clearly Nokia can make great hardware. Its because the carriers/operators decide who gets to play in the handset game, and they have spoken loud and clear - no Microsoft, ever.

 

Microsoft's total handset market share now is about 14% (Nokia total share of all phones, most of these are obviously dumbphones). That will decline to about 10% by this time next year and then dwindle down to 5% by end of 2015 and 3% by end of 2016 and under 2% by 2017. Somewhere after that happens, Microsoft will end its futile handset journey as a failure.

MR BURNING PLATFORMS

As long as Elop is in charge of Microsoft's handset unit - and now that he is back 'home' he feels more empowered - he will continue to make Elop'pian errors in judgement. He has nobody there to challenge him, his errors will get ever bigger. He will cause even faster damage to his handset unit than he was able to do when Nokia was independent and he had a Board to occasionally ask some questions. I am confident that Bill Gates will now look at Elop's performance far more closely, and will see very soon, that it is mismanagement that is troubling his handset unit and Elop is the biggest cause of the problems. He will replace Elop soon. Expect Elop gone from running Microsoft's phones unit by end of 2014. He will probably be reassigned to some non-job.

But Gates (and Microsoft's new CEO) will be led to believe, that the problem was only Elop - so they will give the handset unit more life after Elop is removed, believing that Microsoft can make it in handsets.

We've seen this movie. We saw the highlights version in Kin. Now we see the TV full-season drama version of the same disaster, but in greater size. This purchase by Microsoft will never turn successful. But it will further anger Microsoft's PC and tablet partners. And obviously scare away what remained of smartphone makers. It will perennially draw profits into the futile attempt to make a success of the dead Nokia remains.

Windows Phone (proper, not including Asha) will not match the peak of 4% market share it had briefly this year, ever in any upcoming year. It may momentarily hit that level on some quarter, maybe, on some momentarily hit phone, but the carriers will make sure Nokia never again hits these levels in annual share. Never above 4% is my solid prediction. Soon we will have 'third ecosystems' that do better than that, my bet is on Tizen but we might have others too, like Firefox, Sailfish, perhaps even a recovery by Blackberry, not to mention Palm's WebOS via LG and HP's return to smartphones.

Asha (likely renamed Windows Lite or something like that) to see ever diminshing sales, and the ultra-low cost Nokia handsets will see a low but continuous decline into oblivion. But the Microsoft phone unit is likely to survive for several years to come, producing a continuous drag on its profits and ever increasing complaints by analysts and investors.

Nokia? Now returns to its roots. I started on that side of Nokia when I joined from working for carriers/operators. My first job at Nokia was with networks working on gateways to provide fixed and mobile convergence (my competence, I ran the team that created the world's first fixed-mobile converged network solution in Finland for Radiolinja, Finnet and Helsinki Telephone prior to that). Then later I moved to Headquarters and Nokia's 3G project, the first unit that went across all divisions, networks, handsets and services at the time.

Nokia was a wonderful company back then. The most admired tech company of Europe, it embodied European ideals of cooperation - Nokia for example invited all its rivals to co-own the Symbian OS. Nokia was always for open sources, open interfaces. Nokia built ecosystems and built them from the interests of all parties, not to be dominated by one, like Microsoft. If Microsoft is a bully, Nokia was the least bullyish market leading tech company on the planet. The total 'anti-Microsoft' if you will. Nokia was a powerful proponent of the Linux world. Nokia made its mistakes too, but learned (through the Club Nokia and N-Gage problems) to become the best friend to the carriers/operators and even when Nokia's Symbian was severely delayed in some versions or some handsets were truly atrocious releases (like the N97), Nokia held top dog position due to its unparalleled carrier relations - a key strategic asset Nokia claimed in its various strategy documents.

Those carrier relations were severely damaged by Elop and the Elop Effect. The bad party was continuously Microsoft. Elop has repeatedly complained that the carriers and retailers are not supporting Lumia, that the devices are good but the sales support isn't there. Now the Nokia handset unit is purely Microsoft. The part that carriers hated before Nokia came in (remember Kin). The part that truly upset them when Microsoft bought Skype (so testified Elop to Nokia shareholders, this is not my imagination). Now those same handsets will be peddled by Microsoft.

Can the phone get better to suit the market where most phones are sold (Emerging World) when Nokia shifts designs from Espoo to Seattle? No. Can the sales of low-cost phones improve when resource-hog Windows software is shoe-horned into them? No. Can customer loyalty with Windows improve as app developers are deserting the OS and consumers find the perennial problem with always-incompatible software? No.

And most of all, if carriers/operators were punishing the pair, where the Evil Empire Microsoft was in bed with their past best buddy, Nokia, and now Nokia is owned by Micrsoft, can this get better or worse? It can only get worse. Nokia was once the most used brand on the planet where one in six humans alive had a Nokia branded device in their pocket. The Nokia tune ringing tone is the most recognized song on the planet. Until Angry Bird came along, the Snake game was the most played videogame of all time. More people use a Nokia branded camera today on their phones, than any other camera either made by camera brands or other handset makers. More people tell time on a Nokia phone than any branded wristwatch. It was the Brand of the Decade of the 2000s decade. This could have been Nokia's second decade, until Elop came along and wrecked it all.

I am crying for Nokia today. It was once the most admired tech company of Europe. I was always proud to say I used to work for Nokia. I proudly showed my Nokia phones in public anywhere I was. Sometimes Nokia - a client of my consulting services for years and years - would give me top Nokia phones but often when they didn't, I loved them so much, I would buy the top model on my own money, they were that good. I wanted to own the latest top-model Nokia.

No longer. But the good news is, that Elop the cancer is gone, and while Nokia lost two thirds of what it had in 2010, Nokia still survives today, and as a networking technology company, it still has a bright future ahead of itself. Good luck to all my friends at Nokia. Its a good day for Finland that Elop the cancer is gone. Such a shame that he destroyed so much of the company along the way.

Microsoft will play in mobile for a long while, trying desperately to make it happen. It never will. Microsoft will see ever dwindling sales of its handsets, until at some point late in this decade, the perennial loss-making handset unit will quietly be closed. Like Kin the prototype of this crazy strategy.

 

I never said Nokia was perfect before Elop came along. Nokia the corporation had plenty of problems, most of those related to its 'execution' of its strategy. The strategy itself was sound. Nokia was in mobile money before Google (who beats Google in innovation?). Nokia's new MeeGo OS was so good the first handset on it, the N9 beat Apple's iPad for the best design in the 'Oscars' of design (who beats Apple in design?). Yes, there were parts where Nokia messed it up, mostly in execution - the N97 for example, or the long delays to the N8. But even before Elop was selected, Nokia's Symbian was already scheduled to be terminated and Nokia's smartphone business was to migrate to the compatible MeeGo OS that was open source and based on Linux, a cousin of Android in fact. Nokia's Ovi store was the second bestselling app store on the planet - closing fast on number 1 Apple's iPhone. Nokia's smartphone unit was indeed caught with its pants down, when Apple's iPhone came along, but Nokia recovered and during 2010, added more sales than Apple was able to. Being more than twice as big as Apple, Nokia was pulling away from Apple during 2010, Apple was not even closing the gap to Nokia in smartphones.

I agreed with Nokia Board decision to fire Elop's predecessor Olli-Pekka Kallasvuo. I congratulated Elop for his appointment as Nokia new CEO. I fully supported his actions to correct 'execution' problems at Nokia during his first 5 months as CEO. The Nokia shareholders agreed, the Nokia share price grew by 11% during that time.

I strongly disagreed with his moronic Burning Platforms memo, writing that if Elop wrote that, he is not suited to be Nokia CEO, only a delusional psycopath could author that memo. Well. I saw it first. We've since seen Elop walk back a dozen of the mistaken statements he made disparaging his own company - even in areas where Nokia was indeed the global leader. Elop has since admitted the memo was destructive to Nokia's handset business.

 

I strongly disagreed with the decision to go Microsoft in February 2011. I was not alone in that criticism. In fact every analyst house who had forecasted Nokia certain growth in smartphone sales and a continuing number 1 ranking - every market analyst thought so, using the then-current strategy of Symbian and MeeGo - every one of those analysts downgraded Nokia projections to diminishing sales with Windows. Most of the big houses foresaw that the partnership would lose half of its business and end with about 15% to 18% market share now. I was the most pessimistic of any analyst, and predicted in my first forecast that the share would collapse to 8%. I was wrong. Even I could not see how badly Elop would mess this up. But I was the forecaster with the least error, I was least off, I was the most accurate (once again).

I said in February 2011, that the Microsoft strategy was a huge and unnecessary gamble but that it might work. I said we would not know if it succeeded until earliest in 2013. So I was not calling this a failure in February of 2011, I said it was too risky and there was a huge chance it would fail, judging by Microsoft's past performance in mobile and 'partnerships' that killed just about every past partner.

So I didn't condemn this strategy in February 2011, I was dubious of it. I didn't call for Elop to be fired. I didn't say the strategy was dead.

I called the Windows Strategy dead, when it died - that was when Ballmer bought Skype. That is when this idea dropped dead. That is when it was buried. It was no more. It had gone to meet its maker. It had ceased to be.

Even then I didn't call for Elop to be fired, until his idiotic statements about Nokia's alternative OS, MeeGo which was supposed to be developed as a testbed for high tech, alongside Windows, but for premium products in smaller volumes. When the N9, running MeeGo receive the strongest positive reviews of any Nokia phone ever, the first handset of any brand considered better than the iPhone - what did Elop do? He said that no matter how well the N9 sold, Elop would never allow another MeeGo based device to be sold by Nokia. Imagine Apple saying that about the iWatch now? They would launch the brand new supertech iWatch, and in the very next interview the next day, Apple CEO would say - by teh way, its a nice tech, but no matter how well it sells, we will never make another. What the fuck!

 

Yes, that is what moron Elop said to Finland's largest newspaper, Helsingin Sanomat one day after the N9 was shown to the world. I did not call for Elop to be fired when he released that ridiculous memo. I did not call for Elop to be fired when he announced his Microsoft strategy. While I said the Windows strategy died with Microsoft's purchase of Skype, I did not call for Elop to be fired at that point. Only when Elop said that no matter how well Nokia's brand new flagship sells, he will never authorize another device to be sold using that Nokia-owned operating system that the tech press called better than Apple's iOS. At that point I said Elop is no longer qualified to be Nokia CEO.

So why did it take this long for Nokia Board to get rid of Elop? Why did we have to witness the total destruction of Nokia's handset business in the interim? At Q3 of 2011, Nokia's handset division sold 106 million units (today sells half that). Nokia's handset division generated revenues of .. 5.3 Billion Euros (yes, ironically the same amount Nokia now was sold for - yes, at the time when I called for Elop to be fired -and I was the first analyst to suggest that - Nokia's handset unit generated 5.3 Billion Euros of quarterly sales ie 21.2 Billion Euros still of annual revenues - the handset unit would have been a Fortune 500 sized company even after half a year of Eloppian destruction)

 

Slowly the voices increased and there was growing pressure to get rid of Elop. Many Nokia private shareholders were demanding it, even that the Finnish shareholders' Association boss admitted it was the majority view among his membership. And there were increasingly big experts in the industry calling Elop a failure and suggesting he should be fired. That then took now 2 more years, and now we finally are rid of him. If Elop had been fired in the summer of 2011, we would have a healthy Nokia today, selling mostly MeeGo based smartphones and some residual low-end Symbian devices. The short-lived Windows experiment would have been ended as it should have, when the first Lumia devices were clearly failures in the market.

I wasn't against Elop at the start. I was recognizing Nokia failuers before Elop. I saw the flaws in the Memo and the risks of the Microsoft strategy but I said it might succeed. I was the first to explain why the Windows strategy failed (with the Skype purchase) and I was the first to call for Elop to be removed from office. Took too long. I would have preferred that Nokia today had still its handset unit as well...

Yes, I think I have to write a book about this.

Comments

[AKX]

"Nokia was 50% bigger in the total industry than its nearest rival"

I think you meant "100% bigger" (twice, *2).

[AKX]

Oh, never mind, I just understood you were speaking about the global handset industry and not the smartphone industry.

[Ykä]

Technically there was no reason for Nokia to fail.
But where Nokia completely failed after Apple came up with the iphone was the marketing and branding.
Apple and iphone was cool, Nokia something for the parents.
Even Apple came up with functionalities years after Nokia, their brilliant marketing machine managed to sell it as if they would have invented it.
This is one thing where Microsoft needs to improove a lot too in order to make this a success.

[AtTheBottomOfTheHilton]

Now when Nokia is destroyed, Microsoft is back at square one. Yes, they have killed one strong competitor but in this world, there will be new contenders rising up quickly so that killing Nokia looks like a waste of time.

Now, Microsoft controls what is left in Finland and now they can make same mistakes as before and even more mistakes.

Stephen Elop forced Nokia to sell their phones at an undercut price in order to destroy the company as one goal but now that advantage is gone. Now the Windows Phone price will increase and the HW will be mediocre again.

THE main strategy failure of Microsoft was infesting desktop with mobile limitations. Ubuntu/Asus is going the other way, http://www.indiegogo.com/projects/ubuntu-edge, that IS the right way to go. Put the power of the desktop into the phone and not limit the larger devices to the smallest devices.

Welcome Microsoft, to the real world again. How many Goldman Sachs type dirty tricks do you have do implement now to compete?

[jj]

R.I.P Mobile Nokia.
Can you die if you are annoyed too long?

[Paulo Gomes]

Weird times we live..
If Nokia had embraced Android for high end devices (smartphones) and also maintained Symbian on low end devices things would be quite different today, Samsung market share would be smaller for sure.

[KilroyWasHere]

its been a while since I have been here. Just had to drop by to see if you posted a eulogy for Nokia today. I immediately though of you when I read the news. However, before acted on that thought, I immediate went to my banking website to dump the NOK shares I had while the price was ticked up.

"Boy was I wrong. "

wow. that is a big admission for an ego of that magnitude. I wonder if you ever figured that out about your beliefs on American politics. Don't know. I didn't come back to check on your post-presidential-election thoughts. I told you that if Romney ran as a liberal republican that he would lose...and he did just that. But, I was just a "kook" as I recall.

ok. back to my "kook" activities. catch you another time.

[The Recusant]

Congrats Tomi for calling it as it is. Most of your critics here are apparently from the US and view all these through the US prism, which explains the irrational fanboyism for crApple iFruitcake products, etc. The phones and networks (Motorola flip-phones, CDMA & PCS networks that don't even support SMS & MMS or 3G videocalling) they use before 2007 was waay behind those in other parts of the world which explains how bedazzled they were with the 1st iPhone, which for the 1st few generations can't even be called smartphones.

The rest obviously own shares in Apple, Google, etc. so it's in their own interests to promote those companies at every turn. Seen that behavior in other other tech forums I frequent.

[logic001]

@ Paulo Gomes - Yes true however I do question if any company can compete long term against a vertically structured company. ie Samsung made so many parts themselves they must have had a much lower cost of production. Perhaps the only way a company can compete is by differentiating itself. It most cases this is best done via OS. Perhaps each manufacturer needs its own OS.

[Boris]

Tommi,

Yugo wasn't Yugoslav car manufacturer - it was Zastava and Yugo was just a model ;-).

Anyway, your analysis of gaming consoles' market is way off - Nintendo won last generation with Wii and especially DS which is the most succesfull handheld gaming console ever and the second best selling video game console of all time. They ripped almost all profit last generation.

Sony was the huge loser with PS3 which completely wiped Sony's profit from PS1 and 2 period just in the first two years! Sony is bleeding money like crazy and if Kaz didn't become real estate agent, Sony would be in deep red 5th year in the row.

MSFT lost huge money on Xbox and 360, but recoupled some money last years. Good news is XO is huge trainwreck and I hope it will stay.

If somebody thinks MSFT can do anything in smarphone market - no, they can't nothing especially because PR China manufacturers chose Android.

And btw Tommi, Lenovo is going to start sell LePhones in Europe from this month (excluding Russia) and they will start this from my country which is weird as Serbia is small market...

[Tester]

I'm not sure I'm buying all of this but the big question really is how the carriers will react to Microsoft owning Nokia now. If they really hold a grudge like Tomi says things will turn truly nasty - of course not now but after the deal is done. And if that happens there won't be a third ecosystem, there won't be any Windows Phone or any Microsoftian dream of mobile dominance.

So I guess we have to wait for 6 months or so to see if the boycott really exists or not.

[khim]

It's funny how you accuse others in US-centric view on phones, but still use US-centric view of XBox360 "success". Boris already pointed out that Nintendo won last round (seventh generation of game consoles), but this is not even the full truth!

Now, lookie here:
http://www.vgchartz.com/article/250980/playstation-3-lifetime-sales-overtakes-the-xbox-360/

XBox is *NOT* "bestselling gaming console platform". It's not even "*second* bestselling gaming console platform"! After all these years, after all these billions it's in *third* *place* *out* *of* *three* *possible*!

And if you'll actually go and check facts you'll find out (to you great astonishment, I'm sure) that "first-time failure of a console" (orginal XBox) was actually NUMBER TWO (PlayStation2 was number one and GameCube was number three) while "uber-successful comeback of second attempt" is NUMBER THREE today.

I applaud Microsoft PR guys: they are great. They can portray transition from second place to third one as some kind of achievement, but... we are guys of numbers here, right? Numbers don't lie: this time battle was much, *much*, *MUCH* less one-sided then previous one (back then you could have combined sales of number 2 and number 3 then TRIPLED the result and STILL it'll come short of number 1), but XBox360 is STILL a loser in this battle. Number three out three despite all the Microsoft's posturing and bravado.

P.S. It's also interesting to see that SONY was *MORE* dominant in consoles the Nokia was ever in smartphones. In fifth generation it was *THREE* times as big as number two. In sixth generation they were *SIX* times as big as number two. They had no Elop - yet in seventh generation they barely managed to outsell number three.

[CoolmanBlues]

Hi Tomi,

I think this is one of your best articles.

Awesome analysis and very true.

Congrats

[Paulo Gomes]

@ logic001 - but investing in a new OS is an huge effort in terms of time and resources that Nokia did not had, and differentiating only by the os is not enough in this business (look at blackberry).

Adopting Android would permit put on market devices at reasonable price in short time, without lacking apps, and at same time could invest on MeeGo as future replacement (also based on Linux so better interconnection with android apps).

[ChrisG]

In my view Tomi your sentimentality for Nokia blinds you to the board's full participation in this bloody self-flagellation that has been wreaked upon it by Elop. There was no danger he would ever be fired. The board lapped it up. He and they all ought to be before a court for corporate misconduct. And what is this nonsense that the trouble is over - those crooks and imbeciles are still in charge.

[KilroyWasHere]

It is a shame what has happened to Nokia. Back when I bought their stock, they had the technology portfolio (MeeGo, Qt, web services) to actually build an alternative platform to iOS and iCloud/MobileMe. Even though I own Apple stock, I bought Nokia stock to hedge my bets in case Apple stumbled. At the time, I figured Nokia was in the best position of all the companies to benefit if Apple stumbled because they had the technology and resources to do it. Then this Elop clown guts the company of all the interesting technology they had and makes the company the equivalent of a PC manufacturer making beige boxes for Microsoft. I figured the game was up then, but I was already in the toilet on my stock purchase so, I stuck with it hoping that MS would actually buy the company. What does MS finally do? Buy the only remotely interesting piece left. Time to ditch while I can...and cut my losses. Fortunately, I didn't lose much money and Apple is continuing to perform well so that I am still way ahead overall.

I have no idea why a board of directors would allow a CEO to gut the company of what made it valuable. I don't know what the law is governing these matters in Finland, but I have to wonder why there hasn't been an investor lawsuit against the board members for allowing Elop to destroy the company. I have to wonder if this wasn't an intentional strategy by MS to devalue the company enough to acquire it for its sales channel and carrier relationships. If it was, they even botched that effort as Nokia doesn't even have that asset anymore. Add one more disaster to Balmer's resume of disasters.

Its absolutely amazing to me how clowns get put in charge of major institutions.

[So Vatar]

I hope they get rid of Nokia's board members and the interim CEO Siilasmaa at once. Even more than Flop these actors should accept responsibility for Nokia's demise. And even at this stage they are not capable to get a decent price for the assets they sell. How much is it? EUR 3.6B for the full handset business?

I find sad that Nokia never seemed to fight to stay relevant and independent. For sure in 2010 they still had sufficient resources to compete against Samsungs and the like. Instead of competing they sold their soul to WP exclusivity, thinking that MS will be able to deliver competitive Software. Which they did not. And even if they thought that WP would be good for them, a company of the size of Nokia 2011 cannot put all their eggs into one nest only without hedging their bets.

But this is mute now. Nokia as a consumer oriented corporation is gone. They remains will or will not be able to compete in the infrastructure area. HERE (maps) are a niche business and will never be able to contribute profits in any meaningful magnitude.

For shareholders it is disappointing how little money it takes to purchase Nokia's handset business with all the assets therein (factories, inventories, contracts). There is no bidding war (yet?), no other suitor seemingly interested in purchasing Nokia handset assets.

It was fun for a long while, the fall was fast and abrupt, and totally avoidable.

[Jan]

I would maintain that biggest problem was Nokia board. They hired elop, they ok'ed his visions and his strategy, they oversaw complete destruction of Nokia brand, company value and jobs. At the end of the day, Elop did what he did best, pushing Microsoft interests and products. Board should be sacked. One who makes bad mistakes will continue to make bad mistakes. Yet they will still lead Nokia. Nokia sold for less than Skype, how does this sounds?

[The Recusant]

Nokia willfully ignored the lessons of past companies who have had the misfortune of "cooperating" with M$. They were either ruined outright due to grossly lopsided deals or M$ came up with products that shamelessly copied those of the company they teamed up with; they realized too late that M$ only wanted to get close to them in order to steal their secrets. I mean, no one in the Nokia board even managed to read one book about Bill Gates???

I don't know who was more criminal, the Trojan Horse Elop or the Nokia board that naively allowed him inside in the 1st place.

[jcdr]

Sadly Microsoft still have a large financial asset able to support and to push Windows Phone for many coming years. What's more interesting is the fact that Microsoft is again showing to the world that there is absolutely no way for an other company to have a profitable and sustainable contractual collaboration with them. The only two possible final outcomes are: destroyed by termination, or destroyed by digestion. With the coming CEO transition, Microsoft will face a market far more complex than it used to be at his glorious PC time. And the history have show many times that a complex market cannot be dominated by a single entity that want to keep control on everything. Microsoft will face big and irreversible decisions in the coming years. And the time is now against them as every decision not made today will be done by a concurrent tomorrow. In short term the next war is about the legality to have mass market devices open or close. The short technical response is that only open devices can reach every aspects of a complex market. Some company will do anything to prevent this, and to keep there position.