For the past 5 years we’ve seen an intense global market war in an industry thats worth over 300 Billion dollars. It has been the most competive global industry of that kind of scale ever seen in the economic history of the planet. We’ve seen a dominating giant collapse, we’ve seen a player from 4th place rush to the top. We’ve seen old powerhouses fail and total newcomers crash into this space. The past five years this blog has followed the ‘bloodbath’ period in smartphones and that was an apt name. Nokia, Motorola, Palm and Ericsson are Top 10 size major players of smartphones from when this started, that have since quit, or died and were sold as scrap. In year 2009 those four brands accounted for 49% of all smartphones sold that year (when we allocate half of SonyEricsson’s total to Ericsson). If we add RIM (arguably Blackberry being another casualty of the smartphone bloodbath wars although they technically are still ‘alive’ today) it would be 69% of the total.
Meanwhile Samsung and Apple had a combined market share of 19%. Chinese brands ZTE and Huawei had a combined share of 3% that year. This year Samsung and Apple will have more than 40% of the global smartphone market. The five major Chinese brands that now fit in the Top 10: Huawei, ZTE, Lenovo, Coolpad and Xiaomi combined have 25% of the market.
The same happened in the OS wars. In 2009 the Symbian partnership dominated the smartphone market with 47% of the market. Apple’s iPhone had 14%, Android had only recently launched with 4% of the market. Blackberry OS was second bestselling OS in 2009 with 19% and Windows had plenty of promise in fourth place with 9%. Today Windows is one third of that and going nowhere but into the toilet. Apple has essentially held its ground (probably ends the year at 13% for 2014) but Symbian is gone and Blacberry is a mere sliver at well below one percent. All the spoils went to Google’s Android who now provides the OS for more then 4 out of 5 smartphones sold globally. (Oh, and if you want to see what I wrote a year ago, last year's Bloodbath review for 2014 written in January is here)
A BIT OF CONTEXT
The decade leading up to year 2010 in smartphones had been a period of stable growth with no major shake-ups, even with Apple’s iPhone launch in 2007 and that featurephone turned into a proper smartphone with its own ‘ecosystem’ of apps etc in 2008. I did occasional stories about smartphones in the years leading up to 2010 on this blog but that was not a big story. Then for 2010, I foresaw a massive shake-up building for the smartphone market, which I labeled ‘the Bloodbath’. (I was not in the habit of calling the upcoming year something that extreme every year, this was the first time I warned it would come and I was of course totally right). There was nobody else raising the alarm that the big global giants were under threat at that time. Notice that the preceeding ten years were very stable, same players, gradual changes, some newcomers. And from year 2010 we had total carnage so huge, no other industry, not cars, not airlines, not PC makers not coca colawars had ever seen such massive volatility and so many deaths of giants in such a short period of time as we saw in smartphones the past 5 years. To call that change is a pretty good call (pat on the back) but note - nobody else called it at the time and this was not just the biggest upheaval in telecoms, it was literally the most volatile market period of any giant industry on the planet, ever.
Some had predicted Apple’s iPhone would kill the market, but those shrill voices came from 2007 and 2008 when it did not come, and by 2010 Apple’s iPhone market share had reached 14%, the level where it is now. That growth period by the way when Apple went from 0% market share to 14% market share, did not damage Nokia who grew their smartphone sales nor Blackberry who gained market share in the same period. Yes, check the numbers. Apple’s iPhone did not damage Nokia nor Blackberry, it did hurt the American (one could say obsolete) smartphone systems like Palm, Windows Mobile; and the original featurephone iPhone of 2007 (later called the iPhone 2G) demolished the position that another US based phone maker had recently regained - Motorla with its popular (fashionable, slim) featurephone Razr. The iPhone did kill giants, not Nokia nor Blackberry but Palm, Windows and Motorola.
Yes, the iPhone did climb momentarily higher but the iPhone market share peaked and is now in decline. Yes the iPhone was the first transformational phone after which the market would never be the same (exactly as I predicted from BEFORE the first iPhone was ever sold). But lets be clear. The iPhone was the only transformational mobile phone handset in 2007 that this industry had ever seen, but it did not disrput the global smartphone market. It only hit the obsolescent US market and its quaint little players like Palm and Windows Mobile in smartphones, but its big scalp was Motorola's featurephone business powered by Razr. Check the numbers. Nokia kept growing and growing right alongside the iPhone's rise, as did Blackberry, all the way to the end of 2010. Did Apple then wipe out their profits? No, both were very profitable, in fact Nokia reported its biggest profits in its corporate history in its SMARTPHONE division for Q4 of 2010. To say the iPhone caused the disruption in the smartphones industry is patently false and has no relationship with facts. We dont' deal with myths here on this blog, we deal wiith the facts.
In 2008 the iPhone became a proper smartphone and launched its app store. The iPhone did not shake up the smartphone market from 2008 either. That market adjusted just fine to the iPhone by 2010 (with the exception of the scalps of Palm and Windows Mobile, and Motorola, which were victims of just Apple's entry into phones from 2007 and started their immediate demises from 2007 not 2008). When we remove Palm, Windows Mobile and Motorola from the global market giving those shares to Apple, the rest of the industry was pretty ho-hum same for the next three years. As I said, we occasionaly mentioned smartphones here on this blog at that time, it was not a rich time for market upheaval. But 2010 was going to be. What shook the market was Google’s efforts with Android, combined with Samsung’s push. The changes from 2007 to 2010 only impacted a reshuffle of the US based brands. What changed from 2010 to 2014 (or in reality 2013) was a global shake-up of a market 4 times bigger than the US domestic smartphone market. That was the bloodbath. And that coincided with the unpredictable market share suicide that new CEO at Nokia, Stephen Elop conducted. In the shadow of all that, RIM’s management took their eyes off the ball and went gaga into the tablet markets and lost their opportunity in the far bigger and more lucrative smartphone space. And for American readers, note that in this global upheaval from 2010 to 2014, your iPhone darling did not gain one iPercent of market share. In fact the iPhone is bleeding market share now, globally, yes when the going got rough, Apple stalled. And is now in decline. So say ALL the major experts, they expect iPhone market share in smartphones to have peaked and is now in gradual decline. Exactly as I predicted (first). Who were the big winners in the smartphone bloodbath? Samsng and the 6 Chinese makers (Lenovo, Huawei, ZTE, Xiaomi, TCL and Coolpad/Yulong). Exactl as foreseen on this blog in my various annual reviews to the industry. You will be hard-pressed to find any mention of Coolpad or Xiaomi in the tech press about mobile phones in the English language before I first warned of their rise on this blog haha)
We on this blog have had a first-row seat premium viewpoint to the whole market share battle. Remember, that was literally a world record in how intensely volatile any global business or industry has ever been. We were really treated to a spectacle. And you, my readers, have had a front-row seat to all the action. We’ve registered 4 million unique visits on this blog in those 5 years, most of those were related to blogs about the smartphone wars. There are tens of thousands of comments on the blog about the story as the events happened in real time. There are not many other blogs who took a wholistic smartphone market view, and tracked the battle from the majors like Nokia, Blackberry, Apple and Samsung to the OS platforms, and to the upcoming players that emerged like who said it first that Samsung would become the world’s largest smartphone player even before there was any evidence of the Nokia collapse? Who said it first that Lenovo, Coolpad and Xiaomi were about to enter the Top 10. Its easier to focus on who used to be great like Motorola, Palm, HTC and LG, than to also monitor who is coming up next - without then being drawn into all the noise of the hopeless bids by Amazon, HP and Microsoft’s Kin.
Yes my blog writing style is long and boring and repeats everything from the birth of the smartphone in every posting, but... no other website chronicled the full smartphone war like this blog did, to the detail we did and with the stats and predictions you got here first. I have not always been right, no forecaster can be, but I’ve been the most accurate forecaster for the industry. In the past 5 years I predicted the start of the bloodbath period and its end (we are now in a period of stability). I predicted Apple’s peak iPhone smartphone market share (nobody predicted the peak at the time). I predicted Nokia’s fall most accurately of any forecaster plus the related fall of Windows OS. I predicted correctly that Samsung (who was at the time only 4th largest smartphone maker behind far bigger shares of Apple and Blackberry) to be the primary benefactor of the Nokia collapse and that it would propel Samsung past Apple to become biggest in the world. Nobody else made that forecast at the time and it was again totally spot-on. A similar case could have been made for HTC or LG or Sony (as some did on the comments to this blog) but I explained why Samsung was going to be the one and it was.
I predicted Android’s dominance and Windows’s failure to capture the Nokia opportunity (as it didn’t. It never for one quarter fulfilled then-CEO Elop’s promise of a 1 to 1 transition. Windows still held 5% market share in smartphones before the Nokia deal was annoucned and has today 3% after the Nokia saga has been run to its end). I predicted Apple’s need to introdue lower-cost ‘Nano’ iPhone strategy (the 5C colorful series of plasticky iPhones) and the need to diversify into more than one model launch per year, and that iPhone had to introduce larger screen sizes as it has done. I predicted Blackberry’s failure to recapture the market with its various relaunches.
But I didn’t get it all right. I’ve also made missed calls like I didn’t see how rapidly Blackberry would fall while the Nokia collapse was happening. I missed the call on Tizen (not because Tizen failed in the market but rather because Samsung has repeatedly delayed its launch. Now the latest promise is February for India). But these have also been openly discussed here on this blog, whenever I am wrong, I will openly admit it and explore the why. And we have the comments including all the original text of any blog entries where I did make a forecast that turned out later to have been wrong. I don’t hide from my past, no forecaster can be 100% correct, that is not possible. I have been the most correct about this industry and I am very proud of that, and of this blog and the value it has brought to my readers.
FUN IS OVER
So yes, readers, it was an exhilirating ride. But it is now over. The bloodbath is gone. Samsung won the hardware war clearly. Android won the OS war, decisively. There are no dark horses left. We just learned a week ago that even the so-called ‘third ecosystem’ haha, Windows Phone, has actually failed to activate one third of all the Lumia Nokia smartphones shipped using that OS. So Windows is in reality a far worse disaster than has even been reported, and the Nokia collapse was the worst corporate management catastrophy ever witnessed. Well, we know all that, Elop the worst CEO of all time and all that. what we now will see in the coming years is more price wars that will cause unforseen profit warnings, more mergers and acquisitions like Microsoft buying Nokia’s handset business and Lenovo buying the Motorola business from Google. We may well see former greats like HTC and Blackberry being sold and buyers from Asia most likely China but could be India or elsewhere in Asia. Japan’s seven handset makers have gone through their own consolidation through mergers and acquisitions already shrinking from 7 manufacturers to 4. The South Korean market is in similar state now with Pantech being on the block.
New brands will emerge to the global scene which could come from China but also the big Indian handset brands, Micromax and Karbonn are in line to gain from the rapidly-growing India domestic smartphone market (its already the world’s second largest handset market ahead of the USA, and passes the US next year in the smartphone market size by units sold). But yes. In the past years I’ve done a preview of the market by the major brands in a series of blogs. There really isn’t much sense to doing that now, as the market volatility is gone and this is going to be a year of ho-hum ‘same old, same old’ kind of ‘news’.
When this Bloodbath series started the world had just sold 172 million smartphones, the first year smartphones sold over half the volume of what the PC market sells per year. The smartphone indsutry was worth less than 100 Billion dollars and the migration rate from dumbphones to smartphones sold worldwide annually was at 12%. This year the world will see 1.5 Billion smartphones sold, for an industry worth over 350 Billion dollars. The smartphones alone sell all types of PCs (including tablets) by a factor of nearly 4 to 1. The phone market migration to smartphones is going to be about 75% of all new phones sold being smartphones this year 2015. The past five years were the decisive years for this market. It was an interesting time.
SAMSUNG
Samsung will not recover to the lofty profits it once enjoyed when the Nokia collapse was happening and Samsung was nimble enough to take over more rapidly from market segments that Nokia was abandoning. That was the golden era for the South Korean giant and those times will never come back. But they are now safely the world’s largest handset maker (nearly twice the size of number 2 and bigger than the next two manufacturers combined) and safely the world’s largest smartphone maker (more than 1.5 times the size of number 2 and bigger than the next two manufacturers combined). This means Samsung will be in the best position of any mass-market handset makers/smartphone makers and should remain the most profitable (or if all make losses, generally the least unprofitable) of those major handset makers who genuinely cater to the global mass market (so not like Apple only luxury end or Blackberry only business oriented etc). Samsung’s management has to now adjust to this reality, and seems to be making some of the hard choices. They also have to learn how to communicate this to their investors who should not be fooled into imagining Samsung can ever be as ridiculously profitable as Apple, and that in reality Apple is not Samsung’s primary competitor (that is Lenovo) but yes, obviously for Apple, Samsung is their biggest threat. This was a communication challenge that Nokia was disasterously bad at the last time we faced a similar ‘propaganda war’ element to the global battle in 2009 and 2010.
What will Sammy be doing? I think their sales management is a total disaster now, utterly not consistent with their new standing as the top dog. They are not globally coordinated and waste huge amounts of effort and market brilliance that is not captured to their branding. Take the Galaxy K Zoom. It was when released last year the most advanced cameraphone ever produced, clearly outclassing everything else in any country including Japan and South Korea and miles ahead of the current iPhones when considered with its camera. For those who don’t know, the K Zoom is the new upgraded updated version of Samsung’s revolutionary Galaxy Zoom a few years ago, with full ‘real’ zoom, ie optical zoom at 10x (plus of course the bogus fake zoom of pixel manipulation which gives it total zoom ability of 20x). For photography nuts, if compared to an equivalent 35mm DSLR like a top end Canon or Nikon professional camera, the focal length of the optical zoom on the Galaxy K Zoom is 24mm-240mm and the maximum aperture ie F-stop is F3.1-F6.3. The camera sensor is 20 megapixels. This is VERY compelling even compared to top Canon and Nikon professional cameras today. And no please don’t write, yes there is more to cameras than megapixels. But 10x optical zoom in your pocket on a flagship Android device. That is golden (plus of course all the other goodies like proper Xenon flash, high-def DVD recording, microSD card support, removable battery etc etc etc). Simply put, this is the best camera on a smartphone that has ever been manufactured.
So we know that for many smartphone buyers the camera is the top choice. Its not for all, but it is for many. Nokia customer research recently found that for existing Nokia owners, the camera ability ranked as their top criterion. Now. What would Steve Jobs do, if the iPhone 7 had by far the most advanced camera tech ever introduced in any smartphone? He’d be strutting on stage telling the world how much Apple has changed the world. We’d see iPhone ads and YouTube videos all showcasing the fancy new tech in every imaginable way. But what does Samsung do with the K Zoom? Is it in your store? Have you ever seen a K Zoom in the wild? Have you even heard of the Galaxy K Zoom before reading this blog? Probably not. Last autmn I was in Seattle, didn’t see it in the shopping malls. I visited Ecuador and the handset stores I visited didn’t carry it. I visited South Africa and at the Samsung store, the sales rep recognized the phone and asked to see it, he had never held one (and they don’t sell it there). In Nigeria I did not see the K Zoom in the phone stores. I was in Nepal and there, at the airport, I did see Galaxy K Zoom advertising on a giant billboard. And when visiting Bangkok I saw it at a handset store. We have it of course in Hong Kong.
So its a very mixed bag for Samsung and why? Why when they do something as radical and innovative as the K Zoom, why don’t they plaster the world with it. And just in case you were wondering, when it was launched in the Spring of 2014, it costs 20% less than the latest iPhone model. So its not like this was ridiculously expensive. Its a proper flagship phone that helps create a desire to a brand. Why is Samsung R&D creating such awesome tech that its marketing and sales then can’t bring to the stores for customers to admire and some then to buy. There is no possible rival to this handset. There is no competition. There should be one K Zoom in every single Samsung store and retail outlet. Every carrier should be proudly offering it as one of their top phones to premium customers on contract. Samsung could charge 50% more than they do, and still find buyers.... This type of product is inherently profitable if done right. I am afraid Samsung middle management hasn’t quite figured out how to exploit its position as the global market leader (yet).
Let me show you one obvious use. Recently Samsung has been celebrating in its marketing that Apple's iPhone 6 series is copying Samsung's Galaxy Note large-screen format. Good for Samsung! But. Isn't the immediate next step OBVIOUS? The consumer should now be fed 'what next'. So this is how you execute part 2 of the Samsung 'Apple is years behind us' marketing strategy. You say "If you're lucky, in about 3 years Apple will give you this amazing camera on the iPhone as we now offer on the Galaxy K Zoom today." Then in the TV ads and print ads, show what happens to an iPhone 6 camera picture when maginfied form 8mp 25x to get the same shot (massive pixels). Then take K Zoom and magnify from the exact same spot, using it 20mp sensor not 8mp, and using 10x OPTiCAL zoom - in video, do this in slow motion and side-by-side wih the iPhone image on the left and Sammy pic on the right. Have some smiling cat or cute purring child in the picture that you show. Then illustrate after full 10x optical zooming the Samsung picture is totally crystal-clear crisp and the iPhone is a handful of huge colored squares like an Andy Warhol picture. THAT is how you play the K Zoom now.
Note, first, that this is GENUINE technology leadership that EVERY consumer understands. Who understands the acronyms and internal processors etc? Everyone understands zoom. And everyone with an iPhone has tried that and been frustrated when they end up wtih just pixels. This will seem like magic and best of all - it works BEST on TV, video and ONLINE ads (and works well in print and billboards too). it can ONLY serve to make Samsung look good and Apple look outdated by comparison. What this then forces Apple to do, is to etiher ignore it and increasingly find people asking for better cameras - or copy the idea and release an 'ugly' fat iPhone (haha that will never happen). Or create a bulky cumbersome accessory like Sony Xperia did (which is suboptimal for its users) or spend TONS of money to try to create a radical new tech to achieve a 'real zoom' on a non-optical solution (like the original Nokia Pureview) which then costs tons and tons - but bonus, would yield for our industry true innovation. In any case, any of those responses gives Samsung now years to brag about their 'next' leadership and mock Apple for having outdated phones.... THAT is how th K Zoom should be marketed. This is not a project being considered, this is a brand enw flagship smartphone that started shipping just before the summer of 2014. WHY isn't Samsung featuring it EVERYWHERE... Dumb. Bad marketing that is what it is. They are abandoning a big competitive advantage through bad marketing, not bad design (arguably the first edition of the Galaxy Zoom was badly designed too haha, this new K Zoom is not, it is a very nice cameraphone).
But not to worry, balli-balli, as I wrote in my fifth book Digital Korea, the Koreans are nothing if not hard-working, they will figure this out soon and Samsung will only become a more competitive rival not less so. So they are still learning and there is much in Samsung's arsenal that most analysts aren't even aware of, such as for example in 2014, Samsug beat the iPhone in the annual American Customer Satisfaction Index (for the first time) meaning Samsung's customer satisfaction is on the rise and... (perhaps a hint of worry in Cupertino?) Apple is in mild decline in its home market.. The financial press are hysterical about Samsung's DECLINE in profits - its still safely the second most profitable handset maker my a massive lead to number 3 - and that is what everybody talks about. Yet Samsung is SAFELY profitable and very creative and doing much of its moves right, with some missteps as is to be expected when they suddenly inherited the number 1 ranking and needed to adjust fast. This is the only big gorilla in the handset room. They ain't going away anytime soon. A disappointing quarter or two - disappointing only by profit measure - is not a sign of trouble. But Samsung still has to learn and improve and adjust. That is going on, and boy do they have still scope to be far more dangerous as a tech company rival globally if they really get their act together.
Now what happens with Tizen? This is a conundrum for Samsung to solve. They are the only handset maker large enough that by their own unit sales volume they can create a third ecosystem. If Samsung wanted, in 18 months Tizen could be bigger than Windows (which is not saying much) but in 5 years could have 10% or more of the global handset market (when all phones sold are smartphones) and that is something Microsoft can never achieve with Windows for smartphones. Only Samsung can do this if they want. If they can get growth towards 10%, they should be able to bring in partners among manufacturers to also use the OS, as the Tizen alliance originally had a dozen hardware makers committed to it all the while ago. But its mostly a mirage of a series of broken promises. Lets see if Samsung does get Tizen up. We did see from bada that Samsung knows how to use its market size to launch a new OS platform (bada grew faster than iOS when comparing their launch quarters). If you want the biggest black horse to shake up the industry in 2015-2017 that is Tizen.
APPLE
So the iPhone? Its now on a steady mild decline in its smartphone market share, for 2014 I project about 14% or 13% share and that will head towards 12% for full year 2015. In all phones Apple has benefitted from the global shift away from dumbphones to smartphones (in 2014 about 64% of all phones sold were smartphones) and that has helped bring Apple’s share of all phones sold to about 9% for 2014. It is about to peak, it may breach 10% but won’t grow much above that, ever. It can’t because that is the luxury/premium end of the market and Apple can’t win if it pursues the battle to the lowest cost end. Apple, much like Porsche or BMW in cars, has to remain a luxury/premium brand for which consumers are prepared to pay extra. If Apple holds that image, it can remain the most profitable handset maker into perpetuity. If Apple stumbles and suddenly finds that the iPhone is as modern as a Motorola Razr, they can fall fast. This is a hit phones-driven industry and at one point the pundits felt that Motorola would rule the world again with the Razr. Fleeting is such fame. If you want to understand the risk of stumbling in this market, the handset industry is the only one that experiences 'The Cliff' phenomenon of how brands die (suddenly) because the replacement cycls if faster than the development cycle.
What to expect this year in the iPhone lineup. I think we will see now a revamp of the smaller-screen model range, the 5 Series, into more of what could be called that 'iPhone Nano' idea I wrote about years ago on this blog. They will create even more differentiation from the clear flagship line (6 Series). The 5 Series is seriously obsolescent now, but just a few tweaks into the lineup could make it very competitive. Obviously add NFC and Apple Pay to both phones. I'd add a significantly better camera to the premium 5 Series and lower the price of the cheaper update model to the 5C. So that the iPhone product line price range is expanded (now ideally to four active models per year across an ever broader price range, with 2 new models released per year). Apple is VERY slowly getting to that strategy I outlined on this blog years ago, a strategy I said they HAD to do to survive and they now are CLEARLY doing. But had Apple done all this 'obvious' stuff 3 or 4 years ago, they would have over 20% market share of smartphones today rather than fighting to stay above 10% this year...
Two items to look for on the radar. Its possible but at the moment unlikely, that some handset maker comes up with a ‘Razr Moment’ for the iPhone by some truly radical differentiation in the form factor, that makes all iPhones seem old and obsolete. That would be poison to the iPhone, if its owners were suddenly ashamed of carrying one (not unlike how Nokia owners felt some years ago, still loving their smartphones but ashamed to show them in public). Because the iPhone is so ‘minimalist’ in its design, I don’t see this as very likely but its possible. As long as other rivals make clear iPhon-a-clones of similar touch-screen slabs, the iPhone can remain the king. And the one challenge was the Galaxy Note but Apple has now rectified that deficiency in their product line with the phablet-iPhones in the 6 series of 2014.
The more likely ‘losing scenario’ is a slower decline but comes from the OS side. We’re past peak app as a hype of a nonsense economy model as increasingly the experts are now coming to my view that the apps space is not sustainable beyond a few narrow categories like gaming. The app store hysteria has helped propel Apple to more than perhaps it otherwise earned on the ‘merits’ of a very me-too handset design of its smartphones with essentially many must-have features deliberately missing (like microSD card support, why on earth not Apple, grow up!). Those are far more relevant in the Emerging World where most of the growth of the smartphone market exists and where the iPhone is not repeating what it did in the US market and a few advanced industrial countries. But yes, app stores. The app developers drank the Steve Jobs cool-aid and believed it was nirvana. Now the see that its a barren desert where a few Angry Birds succeed and 98% of developers don’t turn a profit ever. Over 70% of all existing apps were already ‘zombies’ by the end of 2013, as increasingly the ‘developers’ have abandoned their babies and they just sit in app stores forgotten and forlorn, cluttering the space and earning nothing.
So over 80% of all new smartphones run Android. Over 70% of the installed base are on Android. While Android came later, we’re right now at that point of time where roughly half of all revenues earned worldwide will shift to Android. Its all down-hill for the iOS developers from here. iOS is relevant in the English-speaking and Japanese-speaking parts of the world but for just about all other languages (93% of the planet) its going to be Android already now in 2015 and increasingly also Android for those countries in coming years. And then... it becomes the question when does the real erosion start for iOS as it did for Windows Phone? If you remember two years ago we started to hear of developers quitting Windows as a platform and Microsoft started to throw money at them to still keep their apps alive and do updates to newer versions etc. Thats a sign of a corpse right there, if the developers are only willing to make apps if the owner of the OS pays them to do so... Thats when the medical doctor looks at the patient and can say, this patient has died and cannot be revived..
Now, iOS won’t die any time soon, don’t worry. BUT... if over 85% of all phones in the world run Android, and soon less than 10% of them run iOS, and most of the downloads and most of the money including payments from users and advertising revenue, all come on Android, then why would all developers continue to support iOS? Some will find its not worth it, and that is when the rot starts for iOS ‘ecosystem’ story. We may start to hear such stories already in 2015 but definitely by 2016, that some developers are deciding that iOS is no longer worth doing, and they only do Android. This would be like a Windows-Macintosh moment for Apple, when the reality sets in that iOS will be an ‘also-ran’ and Android truly won the smartphone OS wars, like Windows won the PC wars. And iPhones will be the Macs of the smartphones with many of the apps available on Android not available on iOS in the future (like Macs vs Windows PCs)
There will always be premium areas where the iLove is so strong that Apple will hold developers. Especially the USA West Coast and Japan and a few other places where the iPassion is strongest. But Apple will lose this war and iOS will become a niche OS, not a global mass market OS. That likely won’t even start to happen in 2015 but its something worth watching and at this point, January 2015, its the only viable threat to Apple’s profit dominance of the handset industry. It might spook the investors and Apple might be turned into tech disappointment story, but I don’t predict that happens in 2015, it may start to happen later in the decade, but I want to post this warning on the blog, keep an eye on it. The economics are inevitable. (Understand the word 'inevitable' and recognize, I rarely use that term but every time i have used it, that phenomenon was so clear it was unstoppable. Do not ignore this word in this context. It is inevitable that iOS becomes a niche OS and inevitable that Android is the 'new Windows' for smartphones and by extension, all tech platforms).
Apple cannot grow to a legitimate alterate ecosystem globally, with something above 20% market share. Impossible. The will settle into something similar to what the Macintosh PC was able to do for many decades, in high single digits. The iPhone may even breach 10% globally of all phones sold but don’t expect 12%, not that high. And that means they are the ‘small platform’ not the must-do platform like Android. And don't bitch about 'Tomi said Apple is doign to die'. I never said that. Apple can safely be the most profitable tech company on the planet into perpetuity. Only the myth of iOS being a mass market globally, that will succumb to reality sooner or later. The app store issue will drive that home to many who othewise confess to iLove.
As to the Apple Watch, no it won’t be anything as big as the iPhone or iPad but yes, they will stand in line to buy the latest iGadget. Watch the iWatch become so-yesterday’s-news faster than any other Apple product. People will tire of it and version 2 will be the last iWatch made. Thats my prediction and as always, I’ll be returning here to review the facts as they arrive if I might need to update or correct or change that prediction in the coming quarters and years.
LENOVO
So Motorola then? Lenovo, one of China’s biggest domestic smartphone makers with their flagship the LePhone. They had already launched into many neighboring regions like Russia and India before the Motorola deal and now the Moto business adds about 50% to their global share and gives Lenovo a brand and retail footprint that is global. They are now the third largest smartphone maker by a clear margin to number 4..
So, first, remember what I wrote repeatedly about Nokia in 2009 and 2010 and 2011 and 2012, their primary rival was NOT Apple (as it wasn’t) but it was Samsung (as it was). And yes, Samsung capitalized on the Nokia fall and took the market that Apple was utterly unable to capture. So listen carefully when I say - Samsung’s number 1 threat is Lenovo. Not Apple, Not Xiaomi, not HTC, not Sony and not LG. Lenovo. Lenovo management has clearly indicated a hunger and desire to grow to become a giant in handsets with the Motorola purchase. They now have enough scale and a rare global retail footprint that allows Lenovo to expand. Being a Chinese manufacturer they have a home field advantage into the largest smartphone market and a production competitive advantage against many rivals abroad. Compared to all Chinese rivals except HTC and ZTE, Lenovo now has an established retail presence in essentially the whole world. And differing from ZTE and Huawei, Lenovo brings two potentially ‘premium’ tech brands, Lenovo from the laptop side and Motorola in handsets, vs their only two internationally-established Chinese rivals, Huawei and ZTE which both carry ‘cheap Chinese’ branding baggage.
Taking over Motorola and turning the loss-making handset unit into profitable is not an easy thing to do. When they were the world’s largest PC maker, Hewlett-Packard failed in its Palm acquistion to get any gains out of it in HP’s smartphone business. Google tried with Motorola before and failed. Now we are witnessing how poorly Microsoft is able to get anything of a gain out of its costly Nokia handset business purchase. Mergers and Acquisitions often fail, look at Daimler-Chrysler haha.. But they can work. Lenovo did take over IBM’s PC business and thrives on it. The iconic Thinkpad brand is now purely Lenovo when it was created and nurtured under IBM (they've just celebrated 100 million Thinkpad laptops sold since Lenovo took over from IBM). Lenovo has done this before and could well succeed in turning another giant US tech business into profitable Chinese business. We’ll see. But this is the biggest disruptor threat to the world in 2015, not Xiaomi haha.
GOOGLE
So Google has grown incredibly fast with Android and had its stumbles in the handset wars (Nexus?). The Motorola purchase did turn out as I predicted, Google ended up selling the handset side of that purchase which means what many pundits said at the time including me, that Google’s real interest was the rich patent portfolio that Motorola had in mobile.
Android won not just the smartphone OS wars, but as all phones sold will become smartphones by 2019 that means Android and Google won the handset wars. Android dominating in smartphones is very near the levels Microsoft achieved with DOS and Windows in the PC world. But globally, beyond handsets, Android has also now won the total IT wars, as the installed base of Android devices already now is bigger than that of Windows while new Android sales annually are 4 times bigger than Windows new sales. Google knows its only real threat right now is a newcomer like Tizen or Firefox, that Blackberry and Windows are no longer a threat and iOS never really was more than the rich dude’s smartphone. So Google know for the short run they are safe. They should bend over backwards to Samsung to try to convince them not to pursue Tizen. One of the Tizen delays was arguably timed with and related to the sale of the Motorola handset business to Lenovo. It was a thorn in Samsung’s side that Google was both an OS provider and handset manufacturer rival, so that removed that issue. Was it coincidence that Tizen was then delayed and redesigned or were those issues related, we’ll maybe never know. But of all major players in the smartphone wars, Google can sleep the most soundly, year 2015 cannot bring any real threats to them and the only one who can mess up Google’s dominant position through 2020 and even 2030, is Google if it did some Elop Effect type of blunder.
NEXT 5 CHINESE
So the next group can be considered as a group, they all have similar chances. The next 5 giant Chinese smartphone/handset makers: Huawei, ZTE, TCL, Coolpad and Xiaomi. In any one quarter any of these four could have as much as 5% or even 6% global market share but it can also fluctuate so low as 3%.
Yes, Xiaomi is the current darling of the tech press as the newest shiny obj. ect but in reality, Xiaomi is not about to take over the world. Thats not how handset markets work. And once again its the American analysts skipping over the details and doing a superficial analysis of this market. So, in handsets you need CARRIER SUPPORT and distribution. So said Apple, so said Nokia, so said Nokia’s failed CEO Stephen Elop as the biggest lesson he learned of the Lumia failure (itself being the biggest tech failure in history of technology). So why would Xiaomi be any different? They succeeded in one market, China. Thats just as likely to take over the world as Zoom from Nigeria or MiFone from South Africa or Micromax from India. This is a hit-phones driven business. What propelled Xiaomi to rise in China in 2014 is genuinely obsolete in 2015 and while Xiaomi can hold its ground in China, it won’t be able to translate that into a global success. Each market has to be built individually.
So, who is longest into this? ZTE and Huawei. They were providing equipment for telecoms carriers/operators around the world for more than a decade already. They have built those relationships. ZTE did a better job earlier, selling dumbphones well but struggled then to convert that lead over Huawei into one in smartphones. In smartphones Huawei leapfrogged ZTE and now have a modest market share lead over their cross-town rival in Shenzhen (the town in Southern China that is the tech hub of China, just across the border and over literally one bridge, from my hometown of Hong Kong. Shenzhen to Hong Kong is similar to what Silicon Vallye is to San Francisco).
Next is TCL (aka Alcatel). TCL struggled after it took over the loss-making Alcatel handset business but has slowly turned that around and now has just re-entered the smartphone global Top 10 (first time as TCL but Alcatel was there a decade ago). Like Huawei and ZTE, TCL has to migrate a dumbphone business to smartphones but now seems to be comfortable with that. Like Huawei and ZTE, TCL has the Alcatel (handset not networks) sales network and thus a strongly international footprint while not quite global. TCL in smartphones is smallest of these 5 Chinese makers but in handsets overall is third ahead of the two pure-smartphone makers Coolpad and Xiaomi.
So then Coolpad (aka Yulong) and Xiaomi. They are the newest brands to crash into the global Top 10 smartphone manufacturers. Both brands capitalized on the recent trend in China to move away from heavily subsidised smartphones and especially Xiaomi’s online sales have worked well in a way copying what Dell did to the US PC market in the 1990s. This mostly does not work in handset sales witness for example how Google (Nexus), Microsoft (Kin) and Nokia (Lumia) all failed in the US market attempting to bypass the carriers and sell online. So both Coolpad and Xiaomi have already started their world conquest plans and are about at the same stage as Lenovo was in 2013, before it said ‘enough with this horsheshit’ and just paid to buy the Motorola business rather than try to grow organically in 200 countries.
It is a hit phones-driven industry. Any of these 5 makers could have its Razr moment (or iPhone or Galaxy if you want) but then their global prospects are limited to how broad is their reach. If its truly the year’s ‘must-have’ phone, then a single phone could get far more global sales for ZTE or Huawei than for Xiaomi or Coolpad. TCL sits in the middle.
LAST LEGACY BRANDS SONY LG HTC
Reports record profits. We’ve seen this movie now many times. Its like Die Hard With a Smartphone. One of the legacy brands has a sudden ‘record profits’ quarter. It surges to number 3 in the global smartphone rankings for one quarter. Its CEO is on all the TV screens proud of his smartphone unit. Then two quarters later they are reporting disappointing sales and dramatic falls in profits - in the handset unit. And the next several quarters are losses again... This is a sad pattern but because this is a hit phones driven business, a ‘second tier’ maker can easily have its ‘Xperia moment’ but they are not large enough with scale to truly capitalize on it, before the momentary excitement is gone and that phone model is eclipsed by something a bit more shiny from the next brand.
By then the factories were ramped up to live the wild lifestyle of a Number 3 handset maker and suddenly obsolescent models are overflowing in the showrooms then there are returns to the factory and suddenly huge losses generated. I think this is the common pattern we see to these legacy brands. And some of them will be sold sooner or later. The brand and sales channel is of far more value to one of the rising stars (mostly from China) who want to take over the world than to a legacy manufacturer who suddenly sees big losses.
BLACKBERRY
What of the BeeBee? Yeah, one of the saddest stories in tech. No, the square-screen Blackberry wasn’t the solution as a square wheel was not the successful rival to the wheel itself. We love wide screens because in our hands we can re-orient them from landscape to portrait mode. A square screen is the least practical screen size. Why are all TVs moving from 4:3 to 16:9 formats? Duh. But yeah, cudos for Blackberry for at least trying. The physical QWERTY is a darling and deserved a try. The ‘Blackberry Classic’ is not the answer either, its not Coca Cola’s New Coke moment. Blackberry won’t get to return with this failure. Yes we love the QWERTY but consumers want a LARGE screen rather than keyboard. Or ideally BOTH. Why not Blackberry give us one flagship superphone that has the full QWERTY as slider/folder and with full 5 inch or larger touch-screen? That is the only way to have a large screen and the physical keyboard today. The screen size trumps keyboard. We know that. But some customers would be willing to buy a premium phone if it had both (and pay extra for it). I hope BB tries this before they die or are bought.
Oh Blackberry can technically survive into perpetuity as a pure enterprise specialist manufacturer, like what say Catepillar are to motor vehicles, not selling cars in a traditional sense but selling specialized business vehicles from tractors to construction vehicles. And BB could survive as a pure software or service company and might sell its handset business. Who knows. But they are far too small to return to the Top 10 globally and are soon outside the Top 20.
MICROSOFT (EX NOKIA)
Microsoft will terminate the Nokia/Lumia smartphone business. Not now. The smart thing to do - and Nadella seems a smart CEO - the smart thing is to assume it was bad management. So he’ll fire Elop first (ok, remove him from the VP position and give him a meaningless non-job like Director of Strategy for Microsoft haha). So a new VP will get a chance to revive Lumia. And that new guy will be smart and will honestly try everything - including returning Nokia’s Communicator concepts with physical QWERT keyboards on slider/folder form factors, and refocusing Lumia to enterprise. These are obvious solutions that Elop the Idiot has not wanted to try and has overruled his subordinates (and then fired them for being obstinate).
The new VP in charge of Lumia will not have the emotional baggage of his previous commitments and statements that Elop had, and can make the sensible choices and try the obvious solutions. But it will be far too little and far too late. The Lumia unit is generating massive losses to Microsoft. The profit engine of Microsoft - Windows on PC and Office Suite - are seeing their businesses now in stable or decline mode, so no growth coming from those. This means the perennial loss-making units are a bigger drain of Microsoft in 2015 than they would have been in 2010. This means the Lumia unit is on borrowed time. If the new VP can’t turn it around, expect the Lumia unit to be shut down (or sold).
The techy geeks at Microsoft will always believe that the next version will solve any perennial problems as it did with Windows, with Xbox etc. It will not, the Lumia unit is as dead as were Kin and Zune. And Nadella has less tolerance to keep up with this nonsense that he sees as the final failed choice of his predecessor Ballmer. Nadella will have no interest in giving the Lumia unit ‘one more chance’ but rather can’t wait to have enough evidence to bring to the Board to show it has to be shut down as perennially a loser. As it is. We know it is, we’ve heard all the reasons why. And for all the facts and analysis we’ve done on this blog for the 3 years that Lumia has existed, the worst damning evidence came out just this November that I blogged about last week - that one third of what we thought were successful sales/conversions to Lumia had never bothered to activate the phone. The disaster is one third WORSE than we thought and that was from a Lumia unit that under Nokia and under Microsoft has never once reported a profit. While before Elop the Nokia smartphone business had never reported one quarter of a loss in its history since inventing the smartphone. It is total rejection of Windows and Lumia, not bad management or bad design or bad marketing. It is a dead duck that can’t be revived. Nadella knows this but he has to give it the appearance of ‘enough time’ so he can prove to his Board this must be ended.
What kind of time-frame? Expect Elop to be removed roughly 1 year from when he started as the returning Microsoft employee ie around April-ish. And then the new guy has to get at least a year from when Elop is removed. But not more than 2 years from that point. If Elop is removed in January 2015, expect earliest Microsoft to shut down the Lumia unit to be around January 2017 meaning it could even happen December 2016. But this unit is not viable and I would not expect it to survive under Microsoft ownership longer than say December 2017. And before that, even this year, Microsoft might sell its handset business to someone else, just to get rid of the mess. The new owner will immediately remove Elop from running the unit haha.
FIREFOX SAILFISH UBUNTU BLACKBERRY
There is some noise from the tiny minnows of OS proviers. Firefox could still maybe make it on the low-cost devices. Lets see if they are able to crack 1% market share some quarter this year, that would be huge for Firefox but thats a very long way from a sustainable OS platform for mass markets. The others, are well, dead. Yes, I love Jolla and Sailfish but they are not going to be the next thing. Blackberry OS is at best a large corporation-oriented enterprise platform with some handsets. A software play in the enterprise IT industry. In mobile there is no mass market anymore for BB.
NOKIA CLASSIC
Ok, so 2014 was the year the handset business was formally handed over to Microsoft in April. Nokia today is only a networks equipment provider (as it was in telecoms before it started to make phones haha, Nokia has returned more to its IT roots). But Nokia has already announced its first consumer electronics gadget it will start to sell this Spring which is a tablet. Not on Windows, it runs, of course, on Android. As Nokia also rushed the X-Series into production in the dying days it held onto the handset unit in early 2014, yes, Nokia has signalled loud and clear the Windows experiment was a total failure and Nokia’s only way forward is on Android (exactly as I predicted the Windows selection would end up for Nokia, if they left the Symbian-Meego path of making their own OS, they were bound to eventually go to Android anyway, so the Windows path was pure lunacy even back when it was announced in 2011).
Nokia is the darkest of the dark horses but if you wanted to gamble on long odds, this is the play you may want to consider. At least we know, Nokia is coming back. A tablet that is badge-engineered out of some sweatshop in Asia is only nominally a Nokia, but a cheap and well-made tablet with good features is what we are getting and it keeps the Nokia name in the frame especially in the emerging world markets where the Nokia brand was always strong. But yes, by its last phablets running Windows and now after the Microsoft deal, the first new ‘real’ Nokia device not to run Windows is a clear signal, Nokia will never again do Windows devices. That is good. And they will not pursue their own OS platforms or another tiny player’s offering, they will go with the obvious winner Android. That is good. So now we have a foundation.
Will Nokia expand from this? I think its safe to say they will. There are stories in the press about the exclusivity period for sales of Nokia branded smartphones which suggest that Nokia can’t sell its own branded smartphones until about a year from now. But it (apparently) can sell tablets already now. A good stop-gap move. Meanwhile Nokia can take the time to prepare a couple of very nice smartphones to launch and even I think Nokia was stuck holding onto one factory from the Microsoft deal so Nokia could make those new devices in its own factory if it wanted. There isn’t the sales organization and distribution network that Nokia once had but Nokia did hold onto of course its networking equipment sales organization, so this can be used as a starting point.
Here the carriers are of course absolutely critical. And they did say repeatedly on the Elop Windows Lumia experiment that they hated it and wanted Nokia to go back to Symbian or give the Android but not offer undesirable disappointing returns-prone Lumia. Now Nokia could say to the carriers, you wanted Nokia on an Android? Full Android not the restricted Android we had on X Series? Well, here it is. Please sell these...
Nokia would not be like other start-ups like say Jolla or a local player wanting to expand abroad like Xiaomi. At the very least Nokia would be similar to Huawei and ZTE, a global telecoms equipment provider with established contacts through networking equipment sales to the carriers, but now expanding to smartphone sales. But differing from Huawei and ZTE, the Nokia brand is so strong, most handset retailers have customers walking in every day with an old Nokia handset they want to replace - with another new Nokia branded handset. Nokia is the strongest handset brand in India, Nigeria, China, Brazil, Russia, Indonesia, Egypt, Vietnam, etc etc etc. Essentially in the whole emerging world, Nokia is the strongest handset brand and almost always also the strongest smartphone brand. That is a lot of marketing opportunity there, when the market there is far larger than the USA or Europe or Japan or Australia, even combined.
It helps that Microsoft is now moving away from using Nokia branding and only using Lumia for its Windows based smartphones. So whatever Microsoft might have ‘gained’ out of the Nokia branding is almost all done, and meanwhile those customers utterly ignorant of any Windows strategy at Nokia in the past few years, who just always bought Nokia and want their next mid-priced phone to be ‘of course’ another Nokia they will now not be confused about any ‘Microsoft Lumia’ there would clearly only be one proper Nokia and of course it ran on the biggest OS platform (which happens to be called Android) and all the apps are there of course from Facebook to Angry Birds.
Nokia’s re-entry to smartphones will be interesting to watch and we have to see how soon they will announce their first smartphones (in other words, they can do even more damage to Microsoft by making this ‘premature’ ie to remotely ‘Osborne’ the current Lumia sales haha). The tablet announcement so early last year was no doubt part of this ‘payback’ and ensuring as few loyal remaining Nokia customers are anymore polluted by Lumia and Windows, to know that the real Android based Nokia is coming.
If Nokia does this carefully but deliberately. So not like say the mess Samsung did with Tizen. But methodically and with dedication, we could see real Nokia returning to market shares that would be just inside the Top 10 so around 3% market share as a target say four quarters from the launch quarter of the smartphone return. And probably half of that business would come cannibalizing Microsoft’s Lumia return sales so it would depress Windows Phone OS market share into perhaps 2% range (and push even more losses to Microsoft’s handset business).
We know Nokia is returning to smartphones, this year will be one more of rumors than phones but they are coming back. And it will be on Android. But there is one possibility even more wild. You want a true wild card scenario?
THE HOLLYWOOD ENDING
Ok, I have to mention this as a (very wild but still plausible) possibility. Lets say its obvious that Microsoft can never make Lumia smartphones into a profitable business. The Surface tablets they can but Lumia, no. And it will become increasingly obvious to the new CEO Nadella as he monitors Elop’s blunders in the tech space. One end-state he can see, is to simply shut down the handset unit, transfer as much of the skill and staff as is reasonable to Xbox and Surface etc, but shut most of it down. At tremendous costs. But that is better than sustaining hundreds of millions of dollars of more losses every quarter and THEN still incur the costs of shutting the unit down later in time. When Nadella sees this is not recoverable, there is no future, he has to make a decision of how to end the unit. And then... what of selling it?
Who would want the corpse of what used to be proud Finnish handset giant Nokia? That was totally raped and ruined by years of Eloppian management terrorism? The handset unit that Microsoft now owns, making and selling Lumia smartphones and with still some residual featurephone business left that is in the process of being shut down? What is that worth? To a ZTE or Huawei or LG or Xiaomi or Lenovo or Micromax or Karbonn? I don’t know if Microsoft even has the right to sell the Nokia branding rights along to another buyer now (probably not) but the factories and sales organization and R&D staff that is left is still sizeable. It could sustain a handset business of 200 million units per year globally - that capacity is 3 to 4 times more than ZTE or Sony or LG or Huawei sell per year now. And most of that capacity is very modern factories, situated internationally in key countries and most of the capacity is idling, where sales are far below factory capacity. And the sales organization and marketing organization is also far bigger than what currently is needed for Microsoft and would be a strong boost to any of the second tier brands who wanted a global expansion.
But the unit is incredibly unprofitable and now increasingly locked into the worthless Windows ecosystem. To take it over, and try to migrate all that now to Android, and deal with the various announced layoffs etc, would be a massive headache and very costly procedure. The simper Motorola acquisition by Lenovo is expected to take years to return the Motorola unit back to profitability. Who has that kind of desire to take this, what is so totally ruined by years of destruction by the psycopath Elop. So yeah, its possible that what remains now of the past Nokia handset unit, after half its staff has been fired and the X series shut down and the featurephone business on its last legs, is lets say very roundly about 1 Billion dollars and dwinding fast. Microsoft paid 8 Billion to acquire the Nokia handset business last year. But its generating losses every quarter and what residual sales value it has, is only diminishing at an alarming rate. If you wanted to sell it, now is the high time over at Microsoft to be able to get anything for it haha.
Meanwhile. Over at... Nokia... they want to RETURN to the handset business. The current contract forbids Nokia from re-entry but what if Nokia were to renegotiate that clause in a repurchase of the remaining Nokia unit back from Microsoft?
They would never pay 8 Billion for it, Microsoft has already fired half so it can’t be worth more than half of that. And they’ve shut down X Series the preferred path for Nokia, and they are shutting down the featurephone business which was more than half of the value Microsoft bought. So? What about 2 Billion dollars? If Nokia were to value the whole current handset business at 2 Billion dollars, including the smartphone business, the Lumia brad, the full rights to Nokia brand immediately and the featurephone business.
Nokia clearly doesn’t want Windows so it has no use for Lumia. Microsoft would want Windows to survice and could still try to sell a modest-sized Lumia. It doesn’t need all those factories and their staff. And most of the retail sales support and distribution and design staff that Nokia had was on the featurephone side, not Lumia (when Asha is of course counted also in the featurephone side of the phone business).
So, why not roughly value the Lumia smartphone business (including Lumia phablets) on Windows to be half that. 1 Billion dollars. It would only need one factory to support the couple of million Lumia devices sold per quarter. Then the ‘rump Nokia’ of all other stuff, the discarded X Series, the Asha featurephones, the very cheap dumbphones, most R&D staff, most sales and marketing staff, most factories - lump that all together as the ‘garbage side’ of Nokia that Microsoft would want to shut down anyway - and bundle that with the Nokia brand name that Microsoft doesn’t want to use anyway, allowing Nokia to return to using the brand both on smartphones and dumbphones immediately. And price that at roughly 1 Billion dollars.
Now Nadella could let Elop (or his successor) still continue the Lumia experiment with none of the distractions that are not running Windows. And Nokia would recover what is left of the skeleton crew of what once was a proud Nokia handset division, that is totally rid of Windows and Lumia. With permission to start to sell using Nokia brand immediately everywhere. Would this be worth 1 Billion dollars to Nokia now? You betcha. Would Microsoft prefer to take that 1 Billion now and still keep the Lumia unit, than attempt to sell the full handset unit including Lumia for less than a Billion in coming months to some Chinese or Indian player? Ah, here is perhaps an opportunity. A wild idea yes, but perhaps with merit.
Microsoft would keep its slim chances to turn the Lumia unit around, with literally no more harm and damage and losses from the Finnish phone engineers who did non-Lumia stuff who would need to be fired soon anyway. And they’d pocket 1 Billion into the new CEO’s coffers to try to recover from a hugely costly purchase that his predecessor Ballmer approved.
Meanwhile Nokia would recover maybe half of the staff that Microsoft still has of those who were sold to Microsoft last year. An easy break would be to stipulate that anyone hired by Nokia since September 2010 (when Elop was hired) would remain with Microsoft and all older hires (who were involved with the old Nokia prior to Windows) would go back to Nokia. This way the total Eloppian Windows cancer would be removed from what returns to Nokia. And Elop gets to keep literally everyone he hired but none he inherited when he was CEO of Nokia. Fair and easy way to split the staff. I am guessing it would be roughly half but maybe 2/3 might go to Nokia and 1/3 stay with Microsoft’s side in this split. Remember this is all hypothetical and am just ‘spitballing’ haha... but yeah, this could work.
So Nokia would buy back for 1 Billion dollars now the remains of the unit they sold for 8 Billion last year. And they’d get back about maybe 40% of the talent they sold. Not to mention all the poisonous Microsoftians would be removed without having to pay any firing compensation for getting rid of them all haha. Considering Nokia shareholder interest, this would be a smart move now, as we acknowledge the Windows path was a clear failure but Nokia had not stopped being able to make excellent handsets and sell them well. If we take any Lumia or Asha devices and put them on Android, they’d be hot sellers. It is the utter rejection of Windows that killed the Nokia smartphone business as we now know. So for a bargain price, Nokia could return to being the handset maker again.
Ok. What would come back would be truly a skeleton staff. All the recent hires from the past four years would be removed and most of the best talent from Nokia had of course left soon after they read the new CEO’s group-suicide-pact ie the Burning Platforms memo. What Nokia would get back is not a fully-functioning and complete and capable handset business. They would get the partial remains of a rotting corpse. And one that makes massive losses. And this, without any of the recent even award-winning Lumia designs.
Here’s the thing. Nokia is a rare company that is a MASTER at turning around loss-making tech companies of any cultural background and making them profitable again. Yes. Nokia knows how to revive the dead. Look at Siemens telecoms. Look at Motorola’s networking business. These were corpses that Nokia revived to profits. What it would do with the Nokia handset remains from Microsoft would not be, however, an alien business culture. They would be fallen angles returned to the heaven they once knew. The old Nokia would be back. All of the Eloppian Windows cancer would be gone. Only the old guard would return. To the mothership. To the loving arms of the Nokia networking side, ready to nurture them back to health. To many old colleagues. And most of all, to the old ‘Nokia way’ of doing things again. When decisions were made on the merits and facts and sensibly, not by a delusional madman who will fire you for speaking the truth. If Nokia was able to fix the dead Siemens and the dead Motorola networking businesses, yes they can even more easily revive the temporarily paralyzed ex-Nokia handset business. All they need to do, is let it breathe again and it will recover to health. The Nokia handset unit just before Elop instituted his Burning Platforms madness, had just generated a Nokia record profit quarter! They do know how to excell, if the CEO doesn’t overrule his staff.
If anyone can turn the corpse around and revive it, that is Nokia itself. If the remaining staff from before Elop’s time are ‘rescued’ by the real Nokia, they will feel most of all relief and their morale will jump. If Nokia also announces instantly a cancellation of all scheduled remaining layoffs that Microsoft was in the process of completing, that would further boost employee morale.
Now. It would be a rebuilding project. It would take time. The current product line is slim when the Lumia phones are removed. The remaining product line is obsolescent. But Nokia could do many ‘quick fixes’ of adding more memory or a faster CPU to an otherwise same phone, and get some slight revisions to the product line. Then bring back the X Series fully including the phones that were announced but not released. Now use standard Android on them so they an access all the apps in the Play Store. This would not take more than weeks to take those existing designs onto the factory floors with the software switch and get them into the stores within one quarter. Price them now well below their announced prices from last year and they are still somewhat competitive but they would be the first ‘real Nokia’ smartphones that ran ‘the full Android’ OS. Paired with the Android tablet, there would be a basic offering to start with.
Then rapidly convert all current Lumia designs (existing and in pipeline) to Android and rush to market. Would quickly double the Android product line. Get the Nokia factories to pump these out. And have the R&D staff work on the first freshly designed original Android phones from Nokia for next year’s launches. This is not perfect but it is plausible and would far outsell whatever Microsoft did with its remaining Lumia unit. Why?
Return customers is why. Nokia still has the best handset loyalty on the three continents where 4/5 of all the world’s phones are sold (Asia, Africa, Latin America) and its loyalty in Europe is very strong too. The customers who walk into handset stores this year tended to buy their previous phone in 2013. You know how many handsets Nokia sold in 2013? 349 million. Yes, almost one million per day for the full year Saturdays and Sundays and holidays included. Only 11% of those (37 million) were Lumia smartphones that would have conflicted customers who might prefer to remain with Windows now and buy the Microsoft product instead of Nokia (but contemporary surveys showed most Lumia buyers loved the Nokia brand and often didn’t like the Windows part of the phones).
So even if we ignore Lumia, Nokia brand has 311 million LOYAL Nokia owners returning to handset stores this year, asking for another Nokia phone. From Microsoft they won’t even get a Nokia brand name anymore the new Microsoft devices are only Lumia branded. That is why Nokia should be there and sell something, anything. It need not be sold at a profit now, just to retain those loyal customers so give them a product that is reasonable in specs but very good in price for now. Just hold them now, so they come back next time when the whole line is on Android by 2017.
If Nokia was able to sell another Nokia device to those 311 million loyal Nokia-owning customers who haven’t yet bought into Windows/Lumia, 311 million units sold this year would still give Nokia about 16% global handset market share. Yes, most of these would be very simple basic phones and featurephones and re-heated Asha but still, that is return customers and remember, even when the handset business was sold to Microsoft, the dumbphone side of Nokia was back to making profits! It was only the poisoned Lumia Windows smartphone side that made losses. So, if Nokia returns this way, this unit could be profitable in a year maybe. And yes, part of it would be smartphones, Android based and initially not very advanced and not very competitive. But they would be a ‘place-holder’ for next year, when the real come-back on freshly-designed new Android based proper Nokia smartphones designed and built by Nokia, would then commence. Even if eventually Nokia lost half those customers when migrating them from dumbphones to smartphones - this is a very bad scenario as Nokia always was able to GAIN market share when migrating consumers from dumbphones to smartphones up until Elop changed everything - still, if only half were able to be kept - that would mean Nokia would resume to something like 8% market share of smartphones in about 2 years. And by then the smartphone unit - running all Android of course - would also be safely back to profits. And Nokia would be at least the 4th largest smartphone maker in the world.
If they executed well - and by gosh, the Eloppian cancer would be totally removed and the old fighting spirit back and management would reward performance and excellence and Nokia would be winning awards again. And rebuilding rapidly the world’s best carrier relations. In the best case scenario, Nokia could have something like that 16% market share in smartphones two years after they bought back the handset unit (but not if they grew only organically). And at that time Samsung would clearly see that their biggest rival is indeed Nokia and Nokia would be nearly 50% bigger than Apple in smartphones in two years from when the deal was completed with Microsoft to sell back the unit.
I said it was the Hollywood ending scenario and it is unlikely to happen. I am not forecasting Microsoft would sell its Nokia handset business back to Nokia but stranger things have happened. This is a plausible scenario and clearly Microsoft doesn’t want to keep all it bought from Nokia and Nokia does want to return to handsets. The new Microsoft CEO can see the handset business is beyond recovery. Ballmer would never have sold what he bought. The new Nokia CEO wants to be back in handsets and he would of course not want anything to do with Elop and Windows and Lumia. This situation could happen. And of course as a Nokia fan, I would love to see something like this to happen most of all to the loyal Nokia employees who were tossed into the hurricane of despair that were the Eloppian years. Would it, that they could be rescued to the calm water of the real Nokia again.
So yeah I wanted to put that scenario out there as a possibility this year. I am not predicting it will happen but I say its an outlier possibility because of the new personalities involved. Its far simpler for Nokia just to pursue a strategy of skimming cream from the top, do only a few Android gadgets per year and live with the Nokia branding and play it safe haha.
Ok thats my preview for year 2015. Will be a boring time and biggest news will be the mergers and acquisition business.
The final review of the year just gone by, 2014, will be done after we have all the major stats for the industry both from individual players and the remaining 3 large analyst houses who report on smartphone sales numbers. That blog will be up around early to mid February. And if you need more detail and rare statistics about the handsets market, here are highlights form the brand new 2014 edition of my statistics ebook TomiAhonen Phone Book 2014.
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