Communities Dominate Brands

Understanding OTT - Why Carriers dislike BBM, hate iMessage and fear Skype (updated)

I was just speaking in the Netherlands doing a keynote at the Mobile Convention. As I was in town, the news broke that the local incumbent fixed and mobile operator, KPN, was laying off 5,000 employees in an austerity measure, and simultaneously, Carlos Slim's America Movil was making an offer to buy about a quarter of the company. KPN has significant telecoms presence in several European countries like Germany and Belgium. America Movil is the giant telecoms giant out of Mexico, and Carlos Slim is obviously the richest man on the planet. Why would this be relevant to OTT, Over The Top business? Because KPN was the first major telecoms operator to report a significant decline in its core SMS text messaging business, that drives more than half of the profits for most European mobile operators. KPN made that announcement a year ago. Since then they have had disappointing market news quarterly, and their share price had fallen so much, that clearly Carlos Slim felt they were a good value in terms of a step into the European telecoms market.

GET DOWN WITH OTT

With that, rather clumsy intro, lets look at OTT. What am I talking about. I'm talking about BBM, Blackberry Messenger. I'm talking about iMessage and Facetime on the iPhone. I'm talking Google Talk, MXit, Whatsapp. And of course I'm talking about Skype. Over The Top providers will offer bypass services, typically for the most profitable parts of the telecoms business, via apps loaded to smartphones. If you want to save money from your SMS messaging costs and you have a Blackberry, then use BBM. If you have an iPhone, then its the iMessage. In those cases, your friends will also need to have the same service that exists only on that same platform. Or if you have friends with different smartphones, you can install Whatsapp, and send and receive mobile messages free, shared with any friends who also have Whatsapp. 

Skype we all know, we can do free phone calls via the internet, in addition to the messages, and we can also do videocalls over the internet. All free.

Consumers love OTT services, obviously. And businesses like those savings too. But the telecoms operators hate them. And then the hatered comes in flavors, depending on who it is and what they do.

OPERATOR ECONOMICS 101

So lets look at the very basics of telecoms operator business. In 2011 the mobile industry earned 1.3 Trillion dollars. Most of that was not the costs of our handsets or other 'hardware' such as the telecoms networking infrastructure. Most of the business - 77% of it actually - was on the services side. Most of that 1.0 Trillion dollar service revenue pie, went to the telecoms operators. And of their income, 65% came from voice calls, and 19% came from messaging. So out of the total mobile telecoms revenue pie, 84% came from voice and messaging. That a large share for essentially just two services.

But more important than revenues is profits. Roughly speaking 50% of global mobile operator profits came from voice calls, and 45% came from mobile messaging. So voice and messaging generted 84% of revenues, and 95% of profits for the mobile industry's biggest players. Now you see? These are truly the 'cash cows' that keep the industry alive. A dramatic threat to either one of these two services would be a catastrophic menace to the very survival of the mobile operator involved. If anything were to actually jeopardize both voice and revenues - that would be the existential threat to the very industry.

UPDATE - May 12 - AT&T CEO Randall Stephenson was interviewed at NY Times. He says he stays awake at night because of OTT services like iMessage. (So I'm not just making this stuff up, it really is an existential threat here we are discussing. OTT services are the biggest headache for mobile operators/carriers worldwide)

Now the rapid rise of iMessage or Whatsapp takes a brand new meaning. It is nice for us consumers to make calls on Skype but the revenue and profit drain is enormous. Lets now look a bit at recent stats reported about the OTT business.

WAY, WAY OVER THE TOP

The UK is a highly competitive telecoms market with many similar-sized real network operators, and also many viable and sizeable virtual operators (MVNOs) and a market where voice call tariffs and SMS messaging tariffs tend to be among the lowest in Europe. The bundles to get big buckets of free voice minutes or messages are plentyful on all networks. Roughly speaking half of the market is with prepaid customers and half postpaid accounts. There are both subsidised handsets and unsubsidised handsets. There is no dominant domestic player and unsually for most markets, the past national monopoly service, British Telecom, sold its mobile asset, so there is no dominant major legacy player with both a fixed and mobile network to run. The UK has been near the lead in most of the major technical and user-adoption issues for mobile, an early indicator market for Europe and considered one of the more advanced mobile markets also globally. The UK is a very good test case for many mobile matters. A test laboratory, if you will.

We just heard from a survey by MyVoucherCodes of the UK's OTT market. 81% of British mobile phone users have installed an app for at least one OTT service. Four in ten UK mobile phone owners with an OTT service, have also shifted away messaging traffic from traditional SMS, either partially or completely. That means 33% of the total mobile phone user base in Britain.

One third of British mobile phone owners has not only installed an OTT app, and uses it, but likes it so much, they have already shifted part or all of their messaging traffic away from SMS. That is massive. Remember, 19% of mobile operator revenues and 45% of profits globally come from SMS. And in Britain already today, a third of the user base is shifting or has shifted away from this vital piece of the mobile operator business, sapping revenues and profits.

The even more damaging part of this evolution is, that the shift is most rapid and most complete, with the heaviest users. The youth. The heavily travelling. The expat foreigners. Those who used to generate a disproportionately large volume of the total messaging traffic (and revenues, and profits).

How big is the damage overall globally? Ovum measured for 2011 globally and found OTT cannibalization of lost revenues to mobile operators out of text messaging at 14 Billion dollars. When the remaining real SMS market was worth 126 Billion dollars, the theoretical revenue pie would have been 140 Billion. And messaging OTT provider have thus cannibalized about 10% of the total global revenues of SMS text messaging. How rapidly did this threat emerge and materialize? I count the start of mass-market OTT service in mobile from the year 2005, when Blackberry Messenger started to be adopted in many markets by the youth. So in the next 6 years the cannibalization of SMS revenues and profits has gone from zero to 10%. And if we project a standard S-curve to this number and the past 6 year growth pattern, we get the cannibalization level at about 20% by the end of this year 2012.

BAD BADDER BADDEST

Yes, I know thats bad English. I just like the Badness of it all. This is a blog, I can be a bit more casual with the language, get over it. But yes, lets look at a few of the OTT providers. The UK survey by MyVoucherCodes revealed that the biggest OTT provider in Britain is iMessage which is used by half of all who use OTT services. Blackberry Messenger came in second, used by four out of every ten people. Whatsapp had 37% and Skype 33% of UK messaging users who use OTT services. Kik was ranked 5th at over a quarter of all OTT users.

UPDATE May 11 - I have just spotted US stats to help further understand the market

A day after this blog went up, I found a US survey by Acision, which says that of US messaging oriented OTT services installed specifically on smarpthones (remembering that OTT apps also often are available on mid-range featurephones) Acision measured the US adoption rates among smatphone users as follows: Facebook 37%, Skype 17%, Twitter 17%, iMessage 11%, BBM 10% and Whatsapp 5%. And similar to the UK finding, most who use SMS have not stopped doing so even with OTT services. In the USA, even among smarpthone users, 91% send SMS regularly and 45% of smartphone-owning SMS users, (and many in this group even while having access to OTT provider solutions) say they would be lost without SMS. I should point out, that the survey was commissioned by a mobile messaging provider (Acision) but the survey size was significant at 1,000 US mobile phone owners. There is tons more data and findings about US messaging users both SMS and OTT in the survey, which was reported at Mobile Enterprise 

BIG REGIONAL DIFFERENCES

The OTT market is still quite fragmented and there are many regional or local players. The domestic market use of OS brand-specific OTT providers, iMessage and BBM specifically, depends very strongly on domestic penetration rates of that platform (iPhone, Blackberry) in that country (and specifically among consumer users when we consider Blackberries). iMessage is big in France but nearly invisible in India. BBM is nowhere in China but huge in Venezuela. And so forth.

So if we want to consider the level of fear and loathing from the side of operators/carriers, then there are roughly four levels of threat.

First there are the small players and regional players. These are certainly a threat, and in some markets - take MXit in South Africa for example, they can be a huge disruptive player. But globally, a carrier group would rate them still as the least dangerous threat.

Secondly come the OS specific platforms, specifically currently Blackberry Messenger and iMessage. Blackberry has some 75 Million users worldwide, so it is less of a threat than iMessage, which reaches about 150 million users of iOS devices, not just iPhones but also iPads and iPod Touch devices.

Third are the global cross-platform messaging companies, specifically currently Whatsapp. While the user number is still less than BBM or iMessage, Whatsapp has the threat to be on all smartphone platforms breaking past the barrier of one OS family. The global installed base of smartphones is over 900 million today (plus you can double that easily, if you add Java/Brew capable 'featurephones'). But still, Whatsapp has a long way to go to approach anything near that large a number of active users.

Fourth, and on the top with Over The Top, is one and only one: Skype. Skype has over 900 million users today, so just by virtue of being the biggest, it is the biggest threat. But where most OTT providers are single-service plays (mostly on messaging), Skype is a triple threat, doing voice calls, messaging and videocalls.

 

METCALFE'S LAW

 

And now we gotta come do some math. Don't worry this is not going to hurt. But telecoms operator staff tend to be engineers and they love their math. And they all know Metcalfe's Law. Metcalfe's Law is a law about communication networks. The law says that the utilty of any network increases in the square of the increase in its users. When you double the network use number, you increase the network utility to all users, not by double, but by quadruple (2 times 2, or in math terms, '2 squared' or 2 to the power of 2). So if your network user number grows by 3, the utility to all users grows by 3 x 3 = 9. This now gets interesting.

According to pure user numbers, iMessage is roughly twice (when measured by number of current iOS device owners, not necessarily active iMessage users) as big as BBM. But according to Metcalfe's Law, iMessage is four times as dangerous to carriers simply as a network to transmit messages.

What about Skype? It is 6 times bigger than iMessage (ie 36 times more dangerous) and it is 12 times bigger than BBM (ie 144 times more dangerous).

You notice how this gets frightening really fast. If carriers/operators 'disliked' BBM and tried to stiffle its growth, they honestly fear iMessage and are doing all they can to prevent its growth. How then would they react to Skype? Pure terror might be an appropriate term for their spontaneous unprompted reaction, I would say. 

And hey, that is Skype today, before Microsoft gets into bed with them. Now Microsoft is promising to integrate Skype into all their platforms, starting with Windows 8. Soon it will be on Xbox360 and on Windows Phone etc. Take you 900 million current active users, and add in 1 Billion Windows desktops. Yes, there is bound to be significant overlap, but even if we say the resulting Skype plus Microsoft juggernaut comes out at 1.5 Billion, that is 10 times bigger than iMessage - yes, not 36 times more threatening as Skype is today, but yes, 100 times more a threat when powered by Microsoft.

Thats just messaging. Messaging which delivers 19% of operator revenues and 45% of operator profits. Skype also kills voice calls where 65% of revenues and 50% of profits are today. And finally, Skype also destroys the future, because it cannibalizes consumer videocalls, something operators/carriers wanted to be a future revenue and profit stream in the 3G and LTE networks, using smartphones with the second, forward-facing cameras.

For whatever dislike, mistrust, fear and hatered any mobile operators have for BBM or Whatsapp or iMessage, that is simply exponentially more towards Skype. And I have not even started about the role of international calls and international call roaming to the profits of the mobile operators. Skype is like a guided missile, aiming for any place where a mobile operator has its best profitability.

THE EMPIRE STRIKES BACK

So how is the carrier community reacting. Any operator can react to low cost or cheap or free voice or messaging provider, by the obvious marketing tool - cutting its own prices. The operators tend to not lower their main public price for the voice minute or SMS text message, for example, but rather they use other methods by which they can focus the damage, for any price cut means directly a cut in profits too. So they give big (or ever bigger) bundles of free calls and messages at some price plan or point.

Then the operators try to set up something similar. For Skype VOIP calls and various Skype clones like Vonage, the operators have already been deploying VOIP based discount call services, such as those used for international calls. Typically you would need to dial some special prefixes on that operator's network, to access those cheaper VOIP technology based international calls. And on the messaging side, some operators have been starting to roll out clones of OTT messaging services like Whatsapp. In the USA, T-Mobile launched Bobsled, while in Spain, Telefonica has launched Tu Me.

And of course the operators also try to limit, cripple, shut down or charge extra for uses of those services, just like TeliaSonera in Sweden is now doing for Skype. Their (new) contract terms say their unlimited data plan explicitly excludes access to Skype and if Skype is used, those data charges will be above the standard all-you-can-eat package.

LEAST THREATENING OPTION

Now we are approaching the point where operators are making those hard choices. The actual decisions depend very much on what is in their home market, what kind of smartphone platfroms are popular etc. But consider for example BBM and iMessage. Clearly both are undesirable for the operator. But consumers want smartphones. Which one to support in marketing terms (from in-store promotions to handset subsidies)? So first, iPhone is already bigger by reach than Blackberry. But when you add the global iOS family of product to the iPhone side, and the few sold Blackberry tablets to the BBM side, you get a very lopsided picture, the reach of iMessage is far bigger. Then lets add data loads. A Blackberry often has a smaller screen, it is less optimal for web surfing, they are very well suited for messaging which has a trivilal data load footprint compared to modern web content like YouTube videos. Then compare to iPhones. They have excellent data consumption elements, a large screen, great intuitive browser and typical Apple goodies. And for messaging, an iPhone with its touch screen is never gonna beat a Blackberry QWERTY keyboard. Remember the UK stats, for most users who have installed OTT messaging services, they don't quit using SMS. So having a good messaging phone will increase the traditional messaging traffic versus a bad messaging phone. 

So an iPhone causes heavy data loads and is not causing increased messaging to the same degree as a Blackberry. Meanwhile a Blackberry has on average less web traffic but has far higher uses of messaging, both on BBM and on SMS. Then add the data compression which on the Blackberry solution is far better than any other smartphone. Finally add BBM and other Blackberry data plans, with most Blackberries, there is a revenue opportunity for the operator already built-in on BBM, which Apple of course does not give to the operator. On all these things, while yes, operators hate BBM too, the overall Blackberry package is far far less harmful for the operator total business, than an equivalent iPhone.

The same goes for Whatsapp, and yes, for Skype. Whatever option is out there, Skype is literally the most dangerous, the most harmful and most threatening. That is why carriers hate Skype above all others. That is why when Microsoft bought Skype, they were faced with an instant, global sales boycott of all Windows Mobile and Windows Phone smartphones - even as these did not come with Skype pre-installed. The carriers know that VOIP and OTT messaging are inevitable. But Skype is not inevitable. They will fight Skype till the last minute and message and videocall. And mark my words, the operators win in this game. We've seen this movie before. Nokia tried to bypass carrier services and make revenues for itself with something called N-Gage. The carriers said no you don't. Nokia's market share had a severe drop globally from 40% of all mobile phones to 24% and Nokia went back to the operators, apologized, and immediately ended the N-Gage app store with its side-loaded games and operator-bypassing software sales. Why could Apple then do it successfully? Its the Blackberry vs iPhone problem of today. When Apple launched the iPhone App Store in 2008, they were tiny in smartphones, only 10% of all smartphones and 2% of all phones sold. They were not a threat (then, they are now). Unfortunately it seems that Nokia's Stephen Elop has managed to fire or scare away all the senior management talent who knew the N-Gage story, as Elop clearly has not learned this lesson. As Churchill said, those who fail to learn from history are doomed to repeat it.

And if you think the carriers don't have this kind of clout anymore, ask Apple last year. Apple thought the iPhone loyalty and fan support is strong enough, that Apple could deploy a virtual SIM card to the 2011 new version of the iPhone (what later became the iPhone 4S). The carriers said no. Apple lost four months of sales, had to rush a redesign of the iPhone 4S with a real SIM slot and the carriers won. They won against Apple. Who wins against Apple?

And if you are a Microsoft fanboy, what of Microsoft then? The carriers promised to launch the Kin youth phones, Microsoft's first phones ever (two years ago). Then they didn't like Microsoft's arrogant bullying tactics, and after they took the marketing launch campaigns, and the phones hit the stores, they stopped supporting them. Microsoft pulled the Kin phone from the market - in six weeks. The shortest life of any phone ever created. Yes, the carriers have this power. They used it against Nokia when it was biggest in handsets, they used it against Apple when it was biggest in smartphones, and they have used it against Microsoft specifically, even before Microsoft angered them totally, with the purchase of Skype. Now the matters keep getting worse for Microsoft (and Nokia Lumia) as we just learned yesterday, that Nokia CEO had been telling the Nokia shareholders how dramatic world domination plans the Axis of Evil (Skype + Microsoft + Nokia) now have. But read that blog to hear the Nokia story, this blog is not about Nokia, this is about OTT platforms and why carriers dislike BBM, hate iMessage and fear Skype.

For those readers who might want to know more explicitly about the danger Skype poses to mobile operators, I wrote a blog about that last year. This is far more detailed and specific, and obviously only about Skype. Read: Why Do Carriers Hate Skype: Let Me Count The Ways.

OUR PREFERENCE IS NOT THE ISSUE

Please note, I am here to explain how carrier business works. Obviously for us, normal people, consumers, the OTT services are excellent and help drive innovation and lower costs. Those are all good things. I am not in any way suggesting OTT is not coming or will not take over for messages and calls. I do want my readers to understand why there is such a big difference among the OTT providers, and why the carriers are so nervous about this matter. As I mentioned, MY PROJECTION says 20% of all messaging revenues is going through OTT within a year, doubling from what it is today. I am not in any way suggesting we try to go back to a previous decade haha.. I am not saying what we want. I am saying what the operators/carriers think, and they decide which handsets are in the stores and which are sold to their customers. Thus the carriers control this situation. And if Microsoft were, for example, to put a premium price Skype on Windows 8, where the calls are not free, then nobody would use that, they'd go to free alternatives, obviously. So the purpose of this blog was to answer the question from many on this blog and on Twitter, who asked me to explain this part of the telecoms economy and competitive landscape. I am not here to defend carriers or suggest OTT should or even could be eliminated. What I AM saying, is that the carriers have power to pick one over another, and in that contest, Skype is already doomed.. 

WHO IS THIS GUY?

Oh, and those who ponder who is this silly Ahonen with his weird views? I'm the most published author in the mobile industry with 12 books out already and explicitly, I wrote the industry's first business book, how to make money with mobile (M-Profits a multiple bestseller, translated etc). In that book I discussed this opportunity and threat - literally 10 years ago - so I didn't discover the OTT issue with iMessage last year or BBM a few years ago, haha. Before I worked at Nokia, I was employed at Elisa Corporation (Finnish carrier/operator) in the 1990s. and as the head of our international products I oversaw our trial of an early VOIP service in 1997. I've been personally actively involved in the BUSINESS of this opportunity for 15 years, literally, and written 'the book' about the mobile carrier/operator business. If you think Tomi is a weirdo, think again: I am referenced in over 120 published books already, by my peers. If you think my thoughts here are weird, the real experts of this industry - the ones who write the books - they trust me. You might consider re-reading this blog with that in mind.. And I'll be here in the comments to chat with you too. Just remember my rules of comments on this blog - don't be rude to my readers, stick to this topic of this blog article (you must illustrate in your comment that you read the full article else I remove your comment as a waste of the time of my readers) and don't use profanity. I also remove spam and some obvious troll comments but you don't have to agree with me, I keep very hostile comments here on this blog critical of me and calling me mad etc. Thats all fine, I will be here ten years later after another 10 books and those comments will be very petty by then haha..

What Do We Now Know after Nokia Shareholder Meeting? - That the Future is Far Worse than we Thought (updated 2X)

I have a lot of news about Nokia to report, but I will keep this blog relatively short, only about the news relating to the Nokia Annual Shareholders' Meeting that was held in Helsinki. We learned a few items that foretell of ever worsening Nokia issues heading into the future.


TOTAL UPDATE 9 MAY
This story has completely evolved. Nokia panicked, and released the full video of the question and answer. Nokia has then tried to spin the story as something else than what Elop actually said. You the reader may want to go read the fully updated story, that has the full transcript, and the developments over the past week. 


STOP PRESS:
May 4, 2012: I just learned via the comments to this posting from regular visitor "zlutor" that on 3 May 2012, a class-action lawsuit has been filed against Nokia Corporation and Stephen Elop and other Nokia directors. The lawsuit was filed in New York City and the cause of action is based on violations of the US Securities Exchange Act. A class-action lawsuit is one where many people join who have been harmed. If anyone reading this blog has shares of Nokia bought on the New York Stock Exchange and feels they have been harmed by Nokia's actions and communications, you may be entilted to join that lawsuit and seek damages (see the link for more info). Thank you zlutor for mentioning this development in the comments.


Before I go further, let me say, Thank you Jorma Ollila for changing Nokia from a troubled multi-business conglomerate into a highly focused telecoms company under your tenure and guiding it from a minor vendor to the world's largest handset maker and the biggest company of Finland and the biggest tech company of Europe. That was an amazing run you had in the late 1990s and into the mid 2000s. Unfortunately your successor Olli-Pekka Kallasvuo did not do a good job running the company and now Elop has pretty well destroyed what was left. But Jorma, regardless of perhaps a weak ending as Chairman of Nokia, you did a great job in the early part of your career on the top. All Finns were very proud of the Nokia you brought to the world. Personally, I met you 3 times, twice at the HQ, but you will not remember me. I always felt you were an excemplary CEO when I worked for you, and after I left, that you carried on running Nokia in quintessentially Finnish class and style. Around the world, many people equated Nokia with Ollila.

And welcome Risto Siilasmaa to the position of Chairman of Nokia. You've been on the Nokia Board for a while and know the tech industry well from running F-Secure. Nokia is in very troubled waters, your guidance is desperately needed. I personally think Elop is incompetent to run the company, but that is my opinion. Regardless, Nokia now needs strong management and a clear head to evaluate what is the reality, address the real problems rapidly, and help Nokia survive and revive itself, to be back better and stronger than before. Your job as Chairman will be very important, especially after Ollila's departure where much of the image of Nokia internationally was seen as the same as Jorma Ollila.

Now lets move to the news of the day. I have three truly significant items. I will deal with them only briefly here, because they have been dealt with in the past. But we have developments. 

Addendum - we've had some very lively debate about what was said and what was not. I decided to add this clariflying comment here at the start - I was NOT present at the shareholders' meeting. I am here in Hong Kong. I wrote this article based on the reporting of Finnish press (see links) and translating from their exact story and quotations as they have used. Apart from the direct quotes, the rest of this article is my analysis of what has been said, what it means, what it proves. I think some may have been confused, thinking I was present and am now misrepresenting what had happened. I was not present. I report based on what Finnish media told us about the Annual Shareholders' Meeting and clearly, they did not report the full discussion, we have for example in the comments to this blog story, a lot more details about what was said etc.

RESELLER BOYCOTT IS NOW CONFIRMED

First, lets go to CEO Stephen Elop's statements. In response to a question from a shareholder about Nokia market share, Elop's answer was that he hoped "that sales staff in retail outlets would offer Lumia handsets to customers asking for a mobile phone." (source Yle.fi - text in Finnish, translation is mine) 

So Nokia CEO Stephen Elop thinks that Nokia market share can be improved if retail sales staff would offer Lumia handset sales. This means, obviously, that Elop knows and admits openly, that currently the handset phone retail sales staff do not offer Lumia to customers. This is explicit admission of the problem reported in the press that retail sales staff are reluctant to sell Lumia, as reported in independent press stories from Finland to France and from China to the USA. I have reported the 'retail sales boycott' on this site, and have been ridiculed for even suggesting it. Elop has previously already in conference calls relating to quarterly results, admitted that Lumia support is 'mixed' where the good news has been on the side of awards and press reviews and problems have been with retail. He has also already admitted that specifically in the UK they have problems with retail. Now we hear Elop admit openly, that it is sales staff at retail outlets who refuse to sell Lumia (and that Elop hopes he can somehow change that).

I have reported repeatedly on the worsening global reseller boycott against Nokia, which started on the Elop Effect in February of 2011. I have explained in very explicit detail, that if the reseller channel refuses to sell your product, your company dies. And I have shown that Elop as CEO has made the reseller channel problem worse throughout his tenure. I have argued that therefore, as long as Nokia continues on the Lumia strategic path, this road is a 'Certain Road to Death' - something that is very rare in business. With this certain road to death, Nokia has set a world record in destruction in its market share, falling from 29% just over a year ago, to 8% today, and will continue to fall reaching 3% by the end of this year. Nokia will not survive this kind of carnage. Everything Nokia tries, will be costly to get out of this boycott, including price cuts and sales incentives which drain profitability, yet they have been tried already and do not work. 

UPDATE 4 May 2012 - a person who left 2 comments on this blog, Asko, says he was present at the Shareholders' Meeting, and reports that Elop had spoken about the lack of country success of Lumia, saying that only in one country, Finland, was the Lumia series selling well, and in only one other country, the USA, was the Lumia series selling reasonably. His evidence of that USA performance, was citing Amazon sales rankings.

I need to point out a few critical facts about this. One, Elop admits that most countries where Lumia has launched, are performing poorly! Secondly, with Nokia headquartered in Finland, almost any phone released by Nokia will sell well there, so it is not a strong sign that Lumia might sell well in any other markets. Thirdly, the Amazon initial sales success claims (Amazon number 1 ranking) has fallen drastically. Less than one month later, Lumia had fallen to ranking number 9, and now this week, the Lumia price has been cut in half at Amazon USA, which only returned Lumia to 5th place ranking. Even if we take the Amazon ranking as accurate, even the flagship Lumia 900 is not a top-selling smartphone. One should add, that most phones are not sold in the USA through Amazon, so even any good news on Amazon correlates poorly with sales success and the real performance of Lumia in the USA is likely to be far worse.

The most alarming aspect of this news, is that while the Lumia series has been launched in over 15 48 countries already including very large vital Nokia markets such as Germany, UK, France, Italy, Russia etc, it is finding good or medium success in only 2 of them! European carriers have been quoted saying Lumia series is not competitive and needs to be completely redesigned. The only two countries that have better performance (Finland and the USA) are countries where Lumia was launched late, it is possible this level of performance is the same early momentary sales success spike witnessed in each of the European markets, which almost immediately fizzled away.

Nonetheless, regardless of which countries sell well or poorly, the explicit confirmation by Elop that there is indeed a retail sales staff reluctance to sell Lumia, is a far bigger problem than the operating system, or the app store, or the features of a given phone, or even its customer reviews, its customer satisfaction or its return rates (all of which are bad with Lumia). The reseller problem will definitely kill Nokia. And Elop is defenseless against it.

SKYPE IS CAUSING LOST SALES

The second big news that came from the Shareholders' Meeting is the issue about Skype. Elop was asked by a shareholder "Nokia seems to be having a problem with the distribution channel due to Skype" asking how will Nokia deal with this problem. Elop answered "If the operator doesn't want us, it doesn't want us. We will appeal to them with other arguments. We have more to offer to them. It is a good point to start the discussion from Skype." (source HS website. Text in Finnish, translation is mine).

UPDATE May 4 - again our reader Asko who says he was personally present at that meeting, adds that Elop had explained, that Nokia, together with Microsoft, is now attempting to convince carriers/operators to accept Skype against their wills, by marketing/pricing/sales gimmicks. This admission says to me, that the carriers are truly hostile towards Nokia about the matter and this negotiation attempt is futile.

Nonetheless, Elop clearly admits that there is a reseller problem relating explicitly to Skype. He furthermore admits, the Skype issue has resulted in some carriers actually refusing to carry Lumia. I was on this blog immediately when news broke that Microsoft had bought Skype, that this would kill all Microsoft ambitions in mobile. That the carriers will simply not allow Microsoft to power Skype, to expand the already dominant Skype to the Windows 8 Desktop, and then to spread like a cancer to smartphones and poison the three wells of carrier/operator voice calls, text messages, and videocalls.

I reported on this blog that carrier boycotts were found against Microsoft. I reported on this blog that all Microsoft smartphone sales started to fall. The market share of Microsoft in mobile fell by half in six months. I reported that carriers are increasingly hostile towards Microsoft due to Skype. We have even seen TeliaSonera of Sweden (one of world's largest telcoms groups) go public in their hostility to Skype already. And we heard Microsoft's ex boss of Windows Phone admit late last year, that during 2011 the already strained carrier relations of Microsoft got far worse, because Microsoft itself angered the carrier community. Some have tried to argue that Skype already exists, or its app is available or Skype is good for consumers. These are moot points. The carriers do not hate the individual app or the consumer using Skype. They hate Skype the business for already devastating their landline cousins' business (in almost every country one of the biggest mobile operators is also the previous PTT and thus a big fixed landline operator too) and most senior staff at mobile operators today came from the fixed landline business a decade or two ago.

The carriers/operators hate Skype with a passion, as I have explained, for many reasons, but in particular they hate the unfair competition, where Skype business is deliberately unprofitable, but its investors keep pumping money into the loss-making operation, thus bleeding the carrier business with subsidised, unfair competition. THAT is why they hate Microsoft now. Because Microsoft subsidises the free calls of Skype, while Skype continues to generate a loss, but Microsoft can easily afford it, as Microsoft calculates, this will help them win on the desktop and the internet side of their business.

Now we have Elop explicitly admitting that Skype is hurting Nokia Lumia sales. He admits there is a reseller problem due to Skype. He admits that some carriers/operators have taken the extreme step of refusing to sell Lumia, only because of Skype. I have argued this point since June. People came here to ridicule me. Now Elop admits this is true. Now it stands as fact. Indisputable.

Note that some of the carriers who refused early Lumia sales did it while those early Lumia phones did not have Skype on them! This is against Microsoft, this is not against the app or phone. Now think about Windows 8. If carriers were willing to reject the whole Lumia line because of Microsoft just owning Skype, how much more will carriers hate the Windows 8 based Nokia smartphones, which will have Skype pre-installed. And when Windows 8 itself will have full Skype functionality. The future prognosis for Lumia and Nokia Microsoft smartphones is dismal. It will be far worse than today. If Nokia ends this year with 3% market share, and then Nokia rolls out Windows 8 based smartphones next year - the Nokia market share will continue to crash. It might end at 1% by mid-year 2013. Motorola died before it hit 1%. Palm died before it hit 1%. Siemens died before it hit 1%.

Elop admits that Skype is causing carriers to reject Nokia Lumia now. It will only get worse with Windows 8. This is a Certain Road to Death. 

TABLET STRATEGY

And the last bit of disasterous news we had today, came from just before the Shareholders' Meeting, where Ollila gave his farewell interviews, and said Nokia has tablets under development and will be launching them. We have heard previously from Elop that these will be on Windows Phone.

This is sheer madness. In mobile phones, Nokia does not go head-to-head against Apple in most of Nokia's product segments, geographic markets or price points. Even so, Apple takes almost all of the profits in the handset industry. In tablets, Apple dominates the market and Nokia would go directly head-to-head with Apple. The correct strategy for Nokia is to focus on its core business, put the effort to fix what is wrong, find the profits out of handsets that it is capable of generating, using Nokia's natural strengths, such as its diversity in a portfolio, its wide distribution channel, its efficient sourcing and factories, etc. If Nokia cannot be profitable in those areas today, why would it be in tablets?

In the tablet PC market - one that is far smaller than the smartphone market, itself far smaller than the global dumbphone market - there are almost no synergies for Nokia in components, in distribution, in retail, in branding, in pricing, etc. But Nokia would have the enormous backlash and hatered of the Windows OS, and the Windows Phone rejection. Nokia would enter one of the most difficult markets, where major IT/tech players like HP, RIM and Motorola have already suffered severely.

The tablet project would be a disasterous drain on Nokia marketing and profits. It would be exactly like RIM which was profitable, but diverted its sales and marketing from its core business of smartphones, to launch a tablet, that was very difficult to market against the iPad and failed in its launch, and drained resources, plunging RIM to loss-making. That was for a company that was very profitable before it started on this foolish path. Nokia is already loss-making. This is a huge risk venture with almost no upside potential, but one that carries definitely huge additional costs to Nokia, as a further drain on profitability and enormous downside. It is yes, to Microsoft's advantage to see tablets in the Windows Phone or Windows 8 environment. It would be utterly foolish for Nokia to produce any, as it is nothing near Nokia's natural strengths or its core competences.

CONCLUSIONS

We know Elop is fully committed to the Lumia path. We now have seen that Elop himself admits there is a reseller reluctance to sell the Lumia. Apart from all other bad news that comes relating to Lumia (such as the return rates of Lumia are the highest ever recorded by any Nokia smartphones), this reseller boycott as I call it, is the single most damaging news about the current Lumia strategy. It will kill Nokia. It is a life-or-death situation. It is an existential threat to Nokia. Thus, no matter what you or the Nokia CEO or Nokia Board thought of the Lumia strategy in the past, this road is now a death-march. It will kill Nokia.

We know now that Elop admits Skype is a factor so severe, carriers have refused to accept Lumia simply due to Skype. This was not an issue when Elop selected Microsoft in February of 2011. This is a new problem that arrived to sink the Lumia strategy, last June. The current Skype problem is so severe that many carriers refuse to sell Lumia even as current Lumia models do not have Skype. The problem will get far worse with Windows 8. This means, that for all the problems Nokia has now, on the path to Microsoft Windows Phone, the problems for Nokia will get worse when Windows 8 arrives. If you think the loss-making business, collapsing market share, junk-ratings of rating agencies and crashing share prices are a problem now - they will get far worse with Windows 8. That is a fact. Elop admits Skype is such a big deal to carriers, they are already now refusing Lumia because of Skype. This, before Skype is integrated into the OS and the phones.

And we know that Nokia is set to destroy even more of its profitability on a futile adventure to try to sell tablets, even after Motorola, RIM, HP and others have seen it a total loss-making nightmare. This is something Nokia cannot afford in its weak state now. Nokia cannot afford for any of its remaining talented experienced telephone marketing and sales staff, to go learn how to sell personal computers and their markets, rivals, resellers, pricing, segmentation etc. Nokia is not a strong brand in PCs, it would be enormously costly to do the marketing launch for a tablet. The volumes of sales are far smaller than for smartphones and the competitors - Apple and Samsung - are incredibly strong. This is a fool's errand. It will make Nokia even weaker, pushing it even deeper into the red this year. This is utter madness.

WHO QUITS?

I end with three quitters. Why did Colin Giles leave? Colin had 20 years of sales experience at Nokia. He personally delivered 77% market share for Nokia smartphones in the world's largest smartphone market, China. Colin had been promoted to run regional Nokia sales, but when Elop fired the China sales head, Elop sent Colin back to China to try to fix the China sales collapse. So this is the guy, who had so platinum-level credentials and reputation, he had 77% market share in the biggest smartphone market. Note, Apple never had that big a share of the US smartphone market, neither did Blackberry, ever. That is how good he is. And did he succeed? No. China so steadfastly refuses to sell Nokia now, Nokia's market in China has collapsed. And Colin? He departs Nokia 'for personal reasons'. You don't leave Nokia after 20 years if you believe Lumia is about to be a success, and you are the head of sales, and you would earn yachts and private islands and corporate jets - types of annual sales bonuses if the Lumia sales were to be successful. Colin resigned two weeks ago. The news about Lumia future prospects is devastatingly bad, globally, from Nokia's internal perspective as seen by Nokia's top Lumia salesdude.

Is that an anomaly? Microsoft's Marketing Chief for Windows Phone was Gavin Kim, was headhunted from Samsung. He is a 12 year mobile and IT veteran, he's only been 5 months at Microsoft. If he believed that there was any chance in hell that Windows Phone might succeed, he would stay glued to Microsoft, to collect fat bonuses to ride the success now, at the big growth stage of Windows Phone, as Nokia comes onboard and supposedly 'the third ecosystem' would start to grow dramatically. He resigned 'for personal reasons'. This guy jumped away from arguably the hottest ride in mobile, Samsung, to join the Windows Phone team. If there was any chance whatsoever, of Windows Phone succeeding, he would stay at Microsoft to see it through, to prove to the world he, the bright marketing man, made the right choice. Instead he quits. This is independent confirmation that Windows Phone is doomed, when examining from the Microsoft side as witnessed by Microsoft's top Windows Mobile marketing guy.

What of LG? LG was a long term Windows Mobile partner. So much so, that LG signed a 'strategic partnership' with Microsoft. Then it was a launch customer with Windows Phone. LG has been providing WIndows Phone based smartphones for nearly two years now. And what did they do? LG announced they will discontinue their Windows Phone smartphone lineup, and do Android instead. Is Windows Phone destined to be the success Steve Ballmer and Stephen Elop keep promising, or is one of their biggest handset vendors knowing something Ballmer and Elop won't tell us. They invested heavily into the development of Windows Phone smartphones. The development cycle of handsets is 18 months. This is an enormously costly change for LG and one that no handset maker takes lightly. Why does LG announce this end of Windows Phone now? Because they have heard from their clients - the same carriers and retailers that Elop admits are boycotting Nokia Lumia - that Windows Phone is a dead end, and LG has now said in public, this path is a dead end, they will not continue on it. I said Windows Phone is a Certain Road to Death. Nokia's top Lumia salesguy resigned, seeing the sign. Microsoft's top Windows Phone marketing guy resigned, seeing the sign. Now LG the handset maker quit the road, seeing the sign, that Windows Mobile is a certain road to ruin.

Nokia. You are on a Certain Road to Death. Anyone reading this blog, these signs were seen last year. I warned about them. I am the most accurate forecaster of the industry, I forecasted that when Nokia's market share was 29%, it would collapse to 12% by end of last year and Nokia would be plunged from profits to loss-making. That was unprecedented not just in handsets or telecoms, it is literally a world record in management failure. I have since forecasted that this year Nokia will fall from 8% now to 3% by year end. That takes the worst management failure and compounds the damage. And now we hear that Nokia's retail problem is so well known, the CEO admits it in public. The Skype problem is so severe, carriers/operators refuse Nokia as a customer because Nokia's partner Microsoft owns Skype. And Nokia's plans now include wasteful launch of tablets that will not help Nokia recover but drain desperately needed resources. Now the prognosis for the year ahead, 2013 is so bad, Nokia will hit 1% by mid-year 2013. Is this the road you want Nokia to be on? Its not the one I want. At some point, the new Nokia Chairman Risto Siilasmaa has to wake up and take notice. The evidence is overwhelming. This Lumia Microsoft and Tablet strategy will kill Nokia. Elop must be fired and the Microsoft path must be ended. Now.

So - 1. Whatever you thought of the Microsoft strategy for Nokia, now that CEO Elop admits that there is indeed a retail sales boycott against explicitly the Lumia series and its so bad, that in most Nokia countries already Lumia sales are bad, which means Nokia cannot recover. This is a road to certain death. 2. Whatever Nokia manages to do with the early Lumia series, the situation will become significantly worse, when Windows 8 comes, due to the acknowledged boycott against Skype and the hostility of the carriers about Skype. And 3. Whatever profit or loss Nokia can now do, while it only sells dumbphones and smartphones (and networks) will get worse for profitability of Nokia, when Nokia makes a costly launch attempt to sell tablets. The future is doomed. It is getting worse. And it is getting worse still. What am I missing? The sales boss of Lumia knew. The marketing boss of Windows Phone knew. One of the handset makers has already stepped off this dead train. What am I missing?

PS - if you are a first-time visitor here to the Communities Dominate blog, and are honestly interested in how Nokia might be saved, I of course have written that blog too. Its a long blog, because Nokia's problems are deep, and started before Elop came along. But the good news is, that Nokia can be saved. The bad news is, this opportunity is diminishing by the day. But if you want to see, now recognizing there IS a reseller boycott, this is how it can be done, now, even in early May of 2012: Nokia can still be saved.


THIS STORY HAS A COMPLETE UPDATE on May 9. Please read the update, it includes now the full transcript of the Skype controversy.

(I have far more bad news about Nokia, Lumia, Windows Phone etc, coming but I wanted to get these out now after the Shareholders' Meeting) 

Video of my Keynote in New Zealand on Future of Telecoms

This is a video of me in Auckland New Zealand two weeks ago, where I delivered the keynote to the Telecomnz confernce called Tel.Con. 




The presentation looks at how will money be made in the future of telecoms. I discuss such critical topics to telecoms as 'Peak SMS' how long can text messaging revenues and profits sustain mobile, smartphone migration rate, how long will it take and can all phones become smarthpones, and my latest view to the Grand Convergence we will see this decade. I talk about the astonishing developments in mobile money, the 9 Unique Abilities of Mobile, and what happens when money and advertising merge - ie Advocurrency. The presentation runs 50 minutes and the video is very well produced. Oh, and even if you don't want to see the full video, check out the video at about 47:30 what happened on stage haha, this is a memorable event for me for that reason (was first time for me haha)

Emerging World Stories in Mobile, these should cheer you up

I picked up a couple of great stories in a recent Twitterflood I ran on Twitter. I couple of these stories came via Emily Turrettini @textually who consistently finds the best stories in mobile. Lets start from India

Simpa Networks has started to provide solar electricity systems for villages beyond the electrical grid. These are intended for very poor households. How can they possibly afford a modern solar energy system? Well, they pay on a pay-as-you-go principle of about weekly use of electricity in doses. When the right amount of payments have been made, in about 3 years, the person becomes the owner of the solar power system and the electricity will be free from that point on. Pretty nifty eh? Note, that the electricity is used in similar ways to how currently they use kerosene in the villages for lighting, cooking etc. Electricity not only is cheaper, it is far better for the ecology when the electricity is solar powered. Brilliant idea, right. So how do these poor villagers pay, as they often don't even have bank accounts, far less get loans or have credit cards. They pay.. by SMS. One premium SMS of 50 rupees or about one US dollar, will buy about one week's worth of electricity. Three years later,the villager owns the small solar power unit. And the savings are cheaper than equivalent kerosene powered systems. I love it.

Then a bit of news from the World Bank and mobile money. Already 20 countries have reached the point of mobile money, where 10% or more of the national population use mobile money. A good example is Haiti, where a mobile payments system called TchoTcho has been launched one years ago by Digicel and various partners. Out of Digicels 4 million mobile subscribers, 12.5% or 500,000 have already signed up to the service. They now report 300,000 transactions per month in the network. 3,000 retail establishments in Haiti already accept payment by TchoTcho. Remember, this is a very poor country and most of the nation's population are unbanked.

But now lets go to Africa. This is my favorite story right now, and I openly nominate this to any awards of any international mobile innovation and marketing awards. MTN in Ghana has handed out 150 solar powered tricycle wheelchairs to the disabled. That is nice. Why? So they can also act as MTN's dealers to sell SIM cards (mobile phone subscriptions) and airtime. The disabled have a very hard time finding work in Ghana where much of the work is quite intensive 'labor' ie on farms, mines etc. This is a beautiful updated adaptation of the story of branded umbrellas to the disabled in The Gambia by Gamcel, where also they recruited SIM vendors and the umbrellas not only protected the disabled from the scorching African sun, but identified where you could go to get a SIM card or top up your minutes. The electric power wheelchairs have of course sun-visors to keep the sun away and include MTN branding again so the buyers can spot where to get the SIM cards and do top-ups. Brilliant idea MTN. This is 'can-do'. I am very proud of you, this is a truly excellent case of caring for your people while marketing your company and helping the disabled. Excellent idea, deserves to be copied everywhere!

Certain Road to Death and Definition of Insanity (updated)

Remember that scene from Monty Python's Holy Grail, where the cowardly one of the Knights of the Round Table, Sir Robin, is at a cross-roads, and in one way are signs to 'Certain Death 1 km' and every sign in that direction is 'Certain Death 1 km' while the opposite direction is the road to 'Camelot 54 km' back to safety and his friends.

In real life there rarely is a situation of a genuine road to certain death. Even in some very dire military situations, like say when German General von Paulus found himself encricled by the red Soviet Army in the city of Stalingrad, that was not yet certain death. Hitler promised relief and to supply von Paulus via air, as the German Luftwaffe did try for a while. When do we see a clear road that leads to certain death? Even in management it is very rare to see certain death on a given path, and while many paths lead to eventual death, the path may be lucrative from a business point of view for years before death becomes imminent. Look at the VHS vs Betamax battle of video cassette recorders. Sony was arguably on a road to certain death when the VHS alliance gained a clear upper hand, but Sony milked its technology leadership, and sold premium quality Betamax VCRs for many years further.


(NOTE - this story has an update, see bottom of story, it is marked. Three significant developments directly related to this story)


The Road to Certain Death is mostly a mythical road, one that has very rare real life examples. Sure, taking heroin as a drug is probably a Road to Certain Death, but that would be on an individual level. As an organization, a company for example, is very rarely on a clear, genuinely 'Certain' Road to Death.

Nokia is on a Road to Certain Death, right now.

Lets be very clear. I am not saying Nokia should go back to its misguided ways it had under previous CEO Olli-Pekka Kallasvuo's leadership. I am not saying Nokia was 'fine' before Elop. I am not saying Nokia's old Symbian OS is somehow competitive today in all markets and could 'save' Nokia. I am not saying Nokia's handsets are world-beaters. I have been very critical of Nokia long before Elop came to town. I was fully on board with the strategy to shift away from Symbian - before Elop came to town! Yes. I was fully on board with Nokia's strategy to shift away from Symbian, before my vocal blogs here calling for Elop to be fired. It is not about a return to how Nokia was, nor is it about somehow a silly return to Symbian as Nokia's main platform.

This is about the Road to Certain Death. We have the facts now, we can see, the evidence is indisputable, that Nokia is on a Road to Certain Death. Right now. Nokia will not survive this journey, if Nokia continues on this path.

Which brings me to the quotation I thought of that is appropriate. Its the definition of insanity, attributed to many famous people like Benjamin Franklin, Mark Twain and Albert Einstein. The famous quotation is "The definition of insanity is to do the same thing over and over, and expecting different results." I understand that the real original source of that quotation is from a mystery book "Sudden Death" by Rita Mae Brown. If we know the current path that Nokia is on, is causing Nokia added pain - while that road leads to Certain Death - then it would be insane to even proceed along that path, while causing Nokia ever more pain. That would be insane. Insane for the CEO, insane for the Board, insane for the Chairman.

MASSIVE DOMINANCE OF AN INDUSTRY

So now the facts are in. The future of the handset industry is smartphones. Nokia invented the smartphone. Nokia had aggressively pursued its transition from 'dumbphones' to smartphones and was ahead of the curve, ie Nokia's internal handset sales migration rate from dumbphones to smartphones - was ahead of that of the global industry. The USA reached the half-way point last year, when half of all new phones sold were no longer dumbphones, they were smartphones. Europe reached that point in 2010, here in Hong Kong and other advanced Asia-Pacific region countries, we did that already in 2009. Worldwide, 32% of all new phones sold currently are smartphones. By this time next year, the world will be at half-point. Sony and Motorola will become the first traditional dumbphone manufacturers to complete the transition to becoming only smartphone makers, this year. Samsung, LG and the others, are all pushing hard to move from low-cost dumbphones to the higher margin smartphones.

Whatever Nokia might do in the low cost dumbphone sector, the future of Nokia hangs on its success in smartphones. So, what happened. Sixteen months ago, at the end of 2010, Nokia's market share in smartphones globally was 29%. Nokia was massively bigger than any of its rivals. Nokia in its smartphones alone, was more than twice as big as its nearest rival, Apple's iPhone. And regardless of what you may think of Nokia's 'obsolete' Symbian or its 'failing' appeal to customers, the facts don't lie. Nokia was growing unit sales of smartphones (actual smartphone handset sales) AND growing smartphone revenues, AND growing average sales prices of its smartphones AND growing profits of its smartphone unit, when Elop had taken charge, in the fourth quarter of 2010.

This is nearly unprecedented in any competitive global industry, where one global rival so towers over its rivals, that the nearest rival is less than half its size! Imagine if Toyota or Ford or General Motors or Volkswagen could have this awesome lead in car manufacturing. Twice as big as the next biggest rival! Imagine Airbus vs Boeing. Imagine Coca Cola vs Pepsi. Imagine Sony or LG or Samsung flat screen televisions. I dare you to come up with a global competitive industry where the market leader is that dominant. The only industry I can think of is the PC industry with Microsoft holding essentially a near monopoly, but that is no longer a competitive industry. Nokia has over 20 global Fortune 500 sized rivals making and selling smartphones. Yet Nokia was the genuine giant among lilliputs. I am not kidding you, try to find another global industry, where several Fortune 500 sized companies compete, where the market leader is twice the size of number 2. That is rare! And any CEO would love to be in that position, provided the business itself was also profitable. Twice as big as your biggest rival? Come on! That is the stuff of legends.

 

So understand the facts. Just over one year ago, Nokia towered over its rivals, so supremely, it is difficult to find current analogies to it. We have to go back in history, to say the 1970s when IBM towered over its computer-maker rivals known as 'The Bunch' for Burroughs, Univac, NCR, Control Data and Honeywell. Yes, just over a year ago, Nokia was literally more than twice the size of its nearest rival and .. Nokia was profitable .. and Nokia was growing its smartphone business enormously. Nokia's smartphone unit grew smartphone unit sales by 36% in the previous year. And yes, under Elop's leadership, in Q4 of 2010, Nokia's smartphone unit set a Nokia-record sized profit in the smartphone business. Anyone who tells you Nokia was in any way 'in trouble' or 'losing to Apple' or 'falling behind' in the smartphone races is patently wrong and clueless about the global races in smartphones. In the USA yes, Nokia was nowhere. China is a far bigger smartphone market where Apple's market share was puny and Nokia the dominant one. And so forth. When you are TWICE the SIZE of Apple AND you are profitable - Boeing would love to be 'falling behind' like this in airplanes. Ford would dearly 'fall behind' Toyota like this. Pepsi would fizzle forever to be 'falling behind' Coca Cola at this rate. American Express would pay to 'fall behind' Visa at this kind of level. No. The only fact is, a year ago, Nokia was winning the war in smarpthones, nothing else is anywhere near the truth. Apple made the most profits, yes, but Nokia towered over Apple, more than twice the size while Nokia made Nokia-reocrd profits in its smarpthone unit - all this under Elop's new leadership. And don't talk to me about app stores bullshit. The only markets where Apple's App Store was a global success were those that spoke English. Try the bestselling app store in Chinese? Its run by Nokia, used to be called Ovi. What of Portuguese? Ie Brazil.. Ovi. What of Spanish, most of Latin America. Ovi. German? Ovi. 

Nokia was winning in the smartphones races, and winning by a mile. A mile. If you still want to argue this point, then show me another global industry with many Fortune 500 competitors, where the market leader is twice the size of its nearest rival, and tell me that is somehow not winning? Nokia's smartphone unit alone generated 548 million Euros (712 million US Dollars) of profits. On an annualized level, the 2.8 Billion dollar profit level would qualify as the 175th most profitable company total profits on the Global Fortune 500 list for 2011 !!!

 

No, Nokia was not Apple. Nobody is. But this side of Apple, Nokia's smartphone unit in Q4 of 2010 was healthy, strong, growing massively, generating strong profits. And Nokia towered over its rivals at 29% market share. Any other CEO of almost any other industry, airlines, banks, garments, home electronics, cars, petroleum etc - would LOVE to be twice as big as its nearest rival, while making record profits.

ELOP EFFECT

That was just over one year ago. Then came the Elop Effect. CEO Stephen Elop took a lesson from the Osborne Effect. He not only repeated the tragic communciation disaster of Osborne, he even improved up it. He created in effect a series of Osborne Effects. Elop yes, Out-Osborned Osborne. (The Osborne Effect ruined the Osborne Computer company and is studied in MBA classes as one of the classic management blunders leading to certain doom, never to be repeated).

Elop then decided it was not bad enough, he then copied the Ratner Effect. But just like with Osborne, Elop further made the Ratner Effect worse, by not just calling his own products crap (as Ratner did, factually true, Ratner's jewelry was of lousy quality), Elop went further, he invented problems Nokia's products did not have, he in fact called his products worse than they really were. He out-Ratnered Ratner! (The Ratner Company almost died, and was saved by total rebranding and firing of the CEO. The Ratner Effect is studied in MBA classes as another of the classic management blunders leading to certain doom, never to be repeated).

 

What did I say about a Road to Certain Death? Nokia CEO discovered a map. On it there was not one Road to Certain Death, but two Roads to Certain Death. He decided not to avoid one or the other. He decided to take BOTH of the Roads to Certain Death. Again, readers, I did not invent the Osborne Effect. It caused Osborne Computer company to go bankrupt. I was not the only one who looked at the Elop Effect and saw it was clearly the modern era most blatant copy of the Osborne Effect - and by every measure, it was stupid of Elop to embark on that mission. It was idiotic. There was a clear road-map to that path. It was a clear Road to Ruin. He decided to take it.

And worse, the parallel and equally damaging Ratner Effect. Elop also embraced this method of destroying Nokia and he copied the Ratner Effect, not just meticulously, but he 'improved' upon it, he made it even more powerfully - destructive - to Nokia. Elop out-Osborned Osborne while also out-Ratnering Ratner.

WORLD RECORD DESTRUCTION

 

Nokia's Q1 results are out. Nokia's smartphone sales have utterly collapsed. From 28 million smartphones sold in Q4 of 2010, the industry has grown by 60% - if Nokia only held its market, it should now be selling 45 million smartphones per quarter (Apple's iPhone is projected to sell in the 35 million range, Samsung is expected to sell over 40 million smartphones this Q1). What did Nokia do in Q1? It sold 11.9 million smartphones. Nokia's market share that was 29% just over a year ago, is now 7%. Yes. Nokia has lost 3 out of every 4 customers it had just a year ago !!!! One year ago, Nokia was twice as big as Apple and three times as big as Samsung, its two strongest rivals in smartphones. Now, after the Elop Effect, Nokia has shrunk to one third the size of Apple and perhaps one quarter the size of Samsung.

 

Never in the economic history of humankind, has there been such total comprehensive collapse of a global market leader. Never. Ever. Ever. This is a genuine world record in market destruction.

Please understand what this means. It is literally a 'world record' in business. World Record means, it has never been done before. You loved Steve Jobs? Me too. He created world records in business excellence, in achievement. Apple now generates record profits for example. But Elop did the opposite. He created world record failure. Not just the worst CEO that Nokia has ever seen. Not just the worst management that a handset manufacturer has witnessed. Not just the worst executive that telecoms has ever had. Not just the worst President of any tech company, ever. No. This is a world record, the absolute most damaging actions by the CEO of any Fortune 500 sized corporation in the recorded history of business corporations. A world record at management failure.

Again. Understand the context. Take the most spectacular global management disasters in recent memory. Think of New Coke. Think of Toyota's catastrophic failures with its brakes. Think of British Airways fiasco with Terminal 5. Think of the Tylenol scare. And of Mercedes Benz A-Series the car that was too dangerous to drive into curves.  Think of the BP oil spill, or the previous global oil spill disaster, the Exxon Valdez. Never. Never in the recorded history of business, has a global market leader lost 75% of its business in a period of one year! I have been asking my readers to submit their worst cases they can remember, and we have not been able to find one instance of a company that was the global leader of its industry, which in a one year period lost even HALF of its customers, far less three out of every four!

And Nokia came to this situation not as a badly damaged weakling on the brink of collapse. Nokia was dominant, towering over rivals - many of whom were generating operating losses in their handset business like SonyEricsson, Motorola and LG - while Nokia's smartphone unit was vastly profitable - profits which alone would qualify at rank 175 of Fortune Global 500 in profits - and growing smartphone sales - while towering over its rivals like Apple and Samsung.

 

This has never happened before. Not in smartphones, not in overall telecoms industry, not in high tech, not in any industry ever. That the market leader lost more than half of its customers in a period of 12 months, that the market leader lost 75% of its market in a period of 15 months. This is a world record in management failure. Literally. A world record.

SNATCH DEFEAT FROM JAWS OF VICTORY

The market reaction has been brutal. Before the Elop Effect, in the first five months that Elop was in charge as CEO of Nokia, the Nokia overall sales grew, overall profits grew, the Nokia smartphone migration rate had progressed (from dumbphones to smartphones), the market share in smartphones was 29%, Nokia's smartphone unit sales grew strongly, the revenues of smartphones grew strongly, the average prices of smartphones set a Nokia record in growth and yes, the profitability of the smartphone unit jumped at a Nokia record. The investors of Nokia appreciated this new CEO so much, that they rewarded the Nokia share price with a climb of 11% in value in just 5 months. The previous CEO, Kallasvuo, had seen Nokia go from profits to losses, and seen the share price fall by 55% over a three year period and was fired. Elop had already in just 5 months, recovered one tenth of the value that Kallasvuo had destroyed. Elop was a hero.

 

Nokia's ratings by the three independent ratings agencies were all at one notch below perfect. Nokia was clearly on the come-back under Elop. The brand value of Nokia globally was ranked 8th most valuable brand on the planet! Not of tech brands, of all brands, by the Interbrand annual survey.

Then the Elop Effect. Since that fateful February, Nokia's climb-back in the share price took a suicidal dive. Last time Nokia lost 55% of its share price value over a 3 year period, and the previous CEO Kallasvuo was fired. Now Elop has once again proven he is the most incompetent manager ever. He has taken Nokia, and plunged its share value to lose over 60% in just 14 months! He destroyed more value, in half the time. Its like the famous US lite beer commercial, 'Tastes Great, Less Filling' Elop is 'More Destruction, in Half the Time'

Each of the three ratings agencies have repeatedly, consistently downgraded Elop's management and Nokia's future, from the fateful Elop Effect. They keep downgrading Nokia. All were at one notch above 'junk' status as of yesterday. Today Fitch is the first ratings agency to push Nokia to junk status. I am not a financial analyst (anymore) and this is not a Wall Street stock price related blog, but I would be curious to hear, has there ever been a global company of Fortune 500 size, that is the market leader of its own industry, in any industry ever, that went from such glowing ratings to junk in under 15 months? Has this ever happened in any public corporation ever? Elop is once again proving, he is the most incompetent manager any business has ever seen. Why is the Microsoft Muppet allowed to remain in control of this train wreck? I mean, we all saw he is pushing Nokia on that Certain Road to Death - three independent ratings agencies have repeatedly warned that Nokia is going down the wrong path, its future is ever more bleak. Why is this clown allowed to remain in charge?

Understand what that means. This is a World Record in Management Failure. It means, that no MBA book can give you a case study of how to fix this, no company has ever seen it this bad. No CEO has ever destroyed his or her company this comprehensively in this short a period of time. After I coined the term 'Elop Effect' as the combination of the Osborne Effect and the Ratner Effect, each which individually leads to Certain Death for the company, I started to call for Elop to be fired. And if your CEO establishes a world record in destroying your company's market, and thus a world record in destroying the viability of the very business itself, that to me is reason alone to fire the CEO (and to sue him!). But that is, really, yesterday's news. Because Elop was not done.

DEFINITION OF INSANITY

Remember that definition of insanity, doing the same thing over and over again, expecting a different result? Well. Look at Mr World Record in Management Failure. Elop wanted to prove he learned his lesson. He made mistakes, he knew how to repeat those mistakes. Now lets take MeeGo and the N9 and N950.

Nokia had been developing the MeeGo operating system to replace the Symbian OS. This development was started long before Elop came to town. It was built with the kind of Nokia integrity and attention to all partners and stake-holders, that while it was not the fastest or cheapest way to do software, Nokia built a 'migration path' for developers and apps built for the Symbian OS, to be ported to the new and technically quite different MeeGo OS. (This is something, that the selfish Evil Empire, Microsoft arrogantly refused to provide for Windows Mobile and now seems to again be screwing its developers and smartphone users where there is not a clear path from Windows Phone to Windows 8).

Both operating systems, Symbian and MeeGo were, along Nokia's long-standing principles, open source software (something again, Windows Phone is not), and both platforms had many rival handset makers providing handsets to it (like still in 2011, Fujitsu, Sharp and Panasonic were providing Symbian handsets; and for MeeGo Nokia and its partner Intel had signed up Huawei, ZTE and Panasonic among its many committed providers). MeeGo was even more friendly to developers as it was based on the Linux technology which has of course also lots of happy developers in Finland, home of Linus Torvalds, the creator of Linux. There even was the Qt developer tool environment, to allow development with efficient tools to deploy to all operating systems, past presnent and future, that Nokia supports from Symbian and Maemo and S40, to MeeGo, to even Meltemi of the future. Oh yeah, the only OS not supported by Qt is .. Windows Phone.

When Elop made his fateful communciation errors of the Elop Effect, in February 2011, there were no MeeGo devices yet in the wild, so we as an industry could not really tell if MeeGo could amount to anything. Since then we've seen netbooks like launched by Fujitsu in Singapore and now later in 2011 we had at least two handsets manufactured by Nokia, the N9 and N950, running MeeGo.

Symbian was definitely past its prime. Symbian, even in its best-selling incarnation the S^3 edition, was not on par with the iPhone or latest Android versions. When one looks at Symbian just as an operating system alone (even ignoring the Ovi store and other sides to it), Symbian shows its age. And a CEO of Nokia would be wise to consider moving away from Symbian. Like I said, this decision was made long before Elop came to town, and I have supported the decision to gradually move away from Symbian. It is no longer viable in the long term. But. We hadn't seen what Nokia can do with MeeGo.

Now we know. The N9 flagship smartphone (for you American readers, if you love the looks of the Nokia Lumia 900 - those were copied from the N9). The N9 is not just a highly rated Nokia flagship. It is not just rated better in every side-by-side comparison to any Lumia device. It is not just rated better than any contemporary Symbian device. It is not just rated better than any other Android or Palm or Blackberry or Windows Mobile or Windows Phone based smartphone. Most reviewers rate the N9 with MeeGo as good as the iPhone 4S - this has NEVER been achieved by any Nokia handset before. And better yet, many tech reviewers - not most, but many - actually rate the N9 with MeeGo as better than the iPhone 4S. Better than the Jesusphone? I do not make this stuff up. That is the honest actual tech review opinion coming from markets across the globe.

I am no longer a programmer and am not competent to evaluate the intricacies of software or of an operating system. All I can do is report the facts. But every previous Symbian version based smartphone by Nokia, was rated consistently 'not as good as the iPhone'. Every Lumia review I have seen, says it is 'not as good as the iPhone'. But most N9 reviews rate it at least as good as the iPhone, and many indeed, for the first time in Nokia's history, rate the N9 with MeeGo as better than the iPhone!

Note also, that Nokia did not stop the development or production of the MeeGo OS or its handsets. Two actual smartphones running MeeGo are currently in production, the pure touch screen version N9 and its QWERTY sister variant, the N950. So in terms of management decisions, there is no 'either or' decision here. Nokia had decided to go ahead and produce the MeeGo OS, and to manufacture two smartphones using it. And they are in production today. There is no significant savings now to try to shut down this MeeGo unit.

And consider the market reaction. As good as the iPhone? Motorola would die to get that kind of reviews. Sony would give the baby of the Playstation for that kind of endorsement. LG would be happy to rename the company iLG if it got that kind of reviews. Nokia gets these not 'occasionally' but regularly. The reviewer in Germany for Der Stern weekly magazine, was so enthusiastic, the magazine recommended German readers should travel to another country like Austria or Switzerland to buy the N9, it is that good (and was not being sold in Germany, where Nokia tries to push the Lumia series to unwanting German customers). An independent review site of smartphones has the N9 with the highest statisfaction levels of any smartphone on any brand.

If you want to save your company that is generating a loss, this is your key. MeeGo is the savior of Nokia. The N9 is the hottest smartphone on the planet right now. And what does the smart CEO Stephen Elop 'I know how to out-Osborne Osborne' do for his encore? The day after the N9 was launched (and Nokia's dramatic share price decline had reversed into its first significant climb for months) Elop tells the biggest Finnish newspaper, Helsingin Sanomat, that even if the N9 is a big success, there will be no more smartphones from Nokia running on MeeGo !!!

 

You own the most desirable handset and the most praised operating system since the original iPhone. You have the press of the world singing praises to this device. It is that good, that the media even suggest customers fly to other countries to go get one, its that good? Never, has Nokia had this good a reception for a new phone. Nokia the biggest company in handsets. Never in Nokia's history. And the CEO then jumps on the story, kills it by declaring it is Osborned. Even thought Nokia has spent years developing MeeGo and it is clearly a superior OS to Windows and Symbian, arguably the best out there right now, Nokia's CEO kills the story by Osborning it.

The definition of insanity is to do the same thing over and over, and expecting a different result. The management of CEO Stephen Elop is the Certain Road to Death. He is proving it consistently in his behavior.

THE RAZOR MOMENT THAT WASNT

The last time the global handset industry had a phone so overwhelmingly loved, was the original iPhone in 2007. But that is not a good point to compare, because Apple started with zero market share and grew from there. The previous time the world of handsets had a superhot global hit phone product by an incumbent handset maker, was the Motorola Razr in 2004. This is a lesson we should study a bit. This is what could have been. This is what should have been. In fact, this is, what might still become. HelloMoto, Razr.

So yes. Motorola was once the world's biggest handset maker. In 1998 Nokia took that title from Motorola, relegating it to second place. That MotoMoto held till 2004, when Samsung passed it, and MotoLozr was ranked 3rd in the big global tables. Motorola's quarterly sales of handsets was 23.3 million for Q3 of 2004, and its market share 15%.

Then came the Razr, the hottest mobile phone on the planet. In one year, powered by the Razr, we saw the MotoRtrn and handset sales exploded to 38.7 million at the same time 12 months later (a 66% growth) while Motorola's market share recovered to 19% and obviously MotoMoto recovered its second place ranking pushing Samsung back to third. That growth continued to 2006, when at Q3 exactly 24 months after the Razr was launched, Motorola was selling 53.7 million handsets per quarter and had 22% market share - and now people were seriously saying Motorola may dethrone Nokia in the top. All the while, powered by a highly desirable Razr line, Motorola generated enormous profits while growing strongly and capturing market share.

That is rare in telecoms. It is rare for you to have a legitimate global hit product. It is very rare. My only point here is, that when you do have a hit product, like Nokia right now has with the N9 and MeeGo (and its sister phone, the N950) - you do not suppress its sales! Only a complete moron would kill that sales success. Only an Osborne sized Ratner-brain would prematurely terminate the sales success of this product! But that is what Elop did. He out-Osborned himself! He now promised the global telecoms market that no, no matter how great the N9 and MeeGo will be. No matter how much Nokia customers may love the phone and its features and operating system. He, the CEO will not allow those customers to ever experience that kind of bliss again. He will personally forbid any future sales of subsequent phones running on MeeGo.

Nokia has never had a hit phone like the iPhone or the Razr. But Nokia now sits on such a phone, the N9. It has had the most favorable early reviews and actual end-customer user reviews of any Nokia phone ever made. It is the Razr of today. Nokia could, just by selling the N9 alone, grow Nokia's total smartphone sales something like Motorola did with the Razr. Even if we only use one N9 and use only the Motorola Razr as the comparison, it would mean not shrinking Nokia smartphone sales by 39% in one quarter! But by growing Nokia smartphone sales by 66% this year, and more than doubling it in two years. Not by generating massive losses in the smartphone unit, as Nokia now does pushing the utterly undesirable Lumia series - a smartphone series so poorly designed and so lousy in consumer experience, that it is setting a Nokia record in return rates by dissatisfied customers. But the N9 would propel Nokia to profits, so big profits that if it was just released to all Nokia major markets - who are begging for it from the UK to the USA to Italy and France and even India - that action alone would return Nokia's smartphone unit (and all of Nokia corporation also) back to profits.

??? you are now confused? Yes. You understood correctly. Even as the world loves the N9 and wants it, the delusional dictator Elop refuses to release the N9 for sale in most of Nokia's biggest markets!!!!  He only allows it to be sold in tiny markets like New Zealand and Singapore and in some countries of the Emerging World like Nigeria. Even with that, the analysis of Nokia Q4 results revealed that the N9 outsold all Lumia phones - by 3 to 1. Nokia was very careful to not reveal the needed data now in Q1 results, and I am sure it is still true, that the N9 is outselling the whole Lumia line. Elop is ashamed of that fact, yet his ego is what drives this equation. Elop's Ego is now killing Nokia. Rather than take the profits and market share recovery that the N9 and MeeGo would provide, Elop rather sees Nokia producing 'surprising' losses and issues profit warnings and cannot provide long term guidance to investors.

NO YOU CAN'T HAVE IT, SILLY RABBIT

If anything makes me weep, it is the sister product to the N9, the N950. The N9 is a typical 'iPhone clone' in its form factor, a touch-screen slab format handset. Its like the various Samsung Galaxies and Sony Xperias and other smartphones that litter the handset stores. And at least, while not in every market, it is sold somewhere, if you are lucky enough to find it (Hong Kong apparently was too big for Elop, he did not allow it to be sold here). But what of the N950? It is a QWERTY slider format smartphone running MeeGo. It is the latest in the long line of 'Communicator' super-premium top phones more aimed at business users and heavy texting youth, that the Nokia fanatics love, from the original 9000 Communicator to the 9500 Communicator to the E90 Communciator to the E7 of last year. Because of its form factor, it first of all would have a huge installed base of hungry loyal Nokia 'Communicator' users who would welcome that form factor smartphone (like me!). Secondly, there are no near rivals from Apple's iPhone or Blackberry or many other handset makers! So there is a clearly addressable market, where there is NOT an overabundance of competitors. Nokia would have most of this market segment to itself. Better sales, less competition, clear differentiation, an established loyal even fanatical user base, less need to discount the device - means more profits!!!!

There is no management decision to be made here. The phone does not need to be desgined. Its parts don't need to be ordered. Its factory tooling is not needed to be made. The N950 is being manufactured, today, in Nokia's own factories, in small numbers. Its literally 'good to go.' Nokia could mass-produce the N950 starting Wednesday this week, if Elop allowedit, and using Nokia's airplane-based shipping, could be in your stores next week Monday in any country of the world!

There is no conceivable 'savings' from 'not producing' this phone. Its not a hypothetical project somewhere, that would require tons of R&D and production costs to finish it. It is being made! Yet.. Elop refuses to sell it! Anywhere! For this reason alone, Elop is a criminal who should be fired (and sued) (..and tarred and feathered). Nokia could stick almost any price on that superphone and ship it to its major markets and it would be the darling of the tech press and tons of CEOs and tech nerds would want it just to show, how cool this new MeeGo based superphone from Nokia is. But No. Elop again has out-Osborned himself. Its not just that he said at the N9 it will be the end, he then took the N950 and said, even though Nokia manufactures this device, Elop refuses to let it be sold. The definition of insanity is to do the same thing and expect a different result. Elop is once again acting deliberately against Nokia's best interests with the N950.

I mean... What weird alternate universe is it, where Elop's brain lives? Its the kind where Captain Kirk finds Spock wearing a beard, and the crew of the USS Enterprise as evil torturing sadists. Nokia has not one, but two globally superhot phones, and one it only sells in tiny markets, and arguably the better phone, the one that goes 'beyond an iPhone' or being perhaps, the 'if you could have an iPhone with a QWERTY slider real keyboard, this would be it' superphone, the N950? And Elop refuses to let it be sold, anywhere. Yet Nokia factories do produce it in small numbers to hand out to some developers. I kid you not. If Elop was the biggest failure in corporate governance, this stunt alone justifies a whole chapter more of the idiotic dictatets of the Microsoft Muppet.

Because we know why this is happening. Even though the market wholeheartedly rejects the Lumia series running Microsoft Windows Phone software, Elop is still pushing it. Elop is not looking after Nokia's best interest. He is acting against his fiduciary duty, clearly in the cases of MeeGo, the N9 and N950, Elop has a conflict of interest where he took actively the position that is in Microsoft's best interest (suppress MeeGo sales) and against Nokia's best interest (reducing Nokia profits and overall smartphone sales success, to say nothing of Nokia loyalty and customer satisfaction).

 

Lumia evidence is now compelling. The sales channel hates it, the customers are returning the Lumia in record numbers. The independent secret surveys of in-store sales staff behavior, from Nokia's home country of Finland (where Nokia is revered) to Microsoft's home country and best market, the USA, the surveys of handset stores have revealed that the store staff are reluctant to sell Lumia to customers, even when they ask for it by name!

When your reseller channel refuses to sell your product, you die. Let me repeat that. When your reseller channel refuses to sell your product, you die. And what has Elop got to do with this? He has caused a reseller revolt, and then made matters worse, all through last year and into this year. It is so bad, his global head of Lumia sales just quit. When your top sales guy of supposed the 'savior' product, the Lumia smartphones - quits, that means there is no salvation coming in the form of Lumia sales this year. I calculated that for every reluctant Lumia customer converted by Nokia, it loses 4 to Samsung or Apple. Nokia is bleeding loyal customers now, yes 4 out of 5 existing customers refuse Lumia so comprehensively, they churn to Apple or Samsung. And I dare say, if in smartphones, you lose a customer to the iPhone, that customer is gone for life. This is a certain Road to Death. Why is Elop allowed to ride Nokia further down this Certain Road to Death. Is it not a definition of insanity if you repeat the same action and expect a different result? If the resale channel refuses to sell your product, you die. This is a Certain Road to Death. Why is Elop allowed to remain in charge of Nokia?

NOKIA TROUBLES

I could go on. I am not suggesting Nokia was in perfect health before Elop. Nokia was in dire straigths before Elop came along, and all of Nokia corporation was plunged into loss-making under previous CEO Kallasvuo. Elop came in when change was needed. Elop precided over his first 5 months of a remarkable return, powered by Nokia's smarpthone unit. He also inherited the future amazing success of the MeeGo software and the N9 and N950 (and likely others) handsets which actually reversed Nokias sales decline in Q4 and the 1.75 million N9 smartphone sales even in those obscure markets it sold, actually pushed Nokia to a modest recovery in smartphone sales for Christmas. Note, the sales of the first two Lumia phones in the same period, in Nokia's best markets, with the biggest marketing push ever seen by Nokia and supported with such fantastic gimmicks as free Xbox 360 gaming consoles to buyers of the Lumia 800 - yet Lumia sold only 600,000 units in Q4 - the N9 alone outsold both Lumia by 3 to 1. Even now, in Q1 of 2012, the three launched Lumia phones including the launch in the USA, managed only 2 million Lumia sales. This while Nokia smartphone overall sales collapsed 39% in the same period (falling 7.7 million units in just one quarter!). Yes. Nokia traded 9.7 million Symbian based customers for 2 million Lumia customers while gifting 7.7 Million new happy users to the iPhone or Galaxy. This you call leadership? This is total comprehensive market failure, a world record destruction of a brand. And Elop is in charge. He needs to go. No. Not go. He needs to be fired. Now!

Nokia is more than smartphones, it is also networks (a business unit that is perennially in trouble) and dumbphones (which now form the bulk of Nokia's handset revenues - a sad state of affairs, Nokia has truly regressed. While Motorola and Sony achieve total migration from dumbphones to smartphones, Nokia reversed itself, and is now killing its smartphone business to apparently become only a low-cost dumbphone manufacturer with ultra-slim profit margins at best. Hon Hai of Taiwan better known as FoxConn the manufacturer of the iPhone has profit margins at a razor-thin 3%. Is that what Nokia investors want? When Elop took charge a year ago, the profit margin of the smartphone unit was 12.5%)

 

Nokia had bloated bureaucracy, yes. Nokia was slow in adopting new technologies and slow in using its own innovations, I agree. Nokia had notoriously delayed product delivery schedules, the N8 smartphone was literally delayed by a year. I have been critical of all that, long before Elop came to town. Elop was hired to fix these kind of 'execution' issues. But even here, it would be the top of the product line, the smartphones, that help boost the desirability and appeal of the whole line. What is happening in dumbhpones? We have not yet heard the official number from Samsung, but the trends are pretty unavoidable, it has happened, right now in Q1 of 2012, that Samsung has passed Nokia now to become the world's biggest handset maker overall. Nokia's reign as the world's biggest handset maker has come to an end, an inglorious achievement by CEO Stephen Elop who torpedoed Nokia's market share in less than two years of his leadership.

So even if you thought Nokia could compete in the dumbphones segment, Samsung has eaten that cake too. Before the Elop Effect? Nokia was 50% bigger than Samsung in total handsets and generated bigger profits in the handset unit. Today that is all lost. Today even the total handsets division of Nokia (dumbphones and smartphones combined) has been plunged into loss-making, thanks to Elop's mismanagement. This while Samsung reports record profits in its handset unit.

WHEN EVERY BIT OF NEWS IS BAD

Nokia has set a world record in destroying its market share in the future of the business it invented, the smartphone business. A business so lucrative, it drove Apple to become the most profitable company on the planet, but Nokia now produces record-level losses in its smartphone unit. A year ago Nokia was bigger than its two biggest rivals combined, now its less than a third the size of either. Nokia has managed to frighten away 75% of its loyal customer base in less than 15 months, establishing a world record in the obliteration of a loyal customer base. This has also resulted in Nokia abandoning its leadership in the overall handset industry. So how is this performance then rated?

Nokia's ratings by the three independent ratings agencies have been repeatedly downgraded. Two have Nokia at the last level above Junk, one has already classified Nokia as Junk. Nokia's share price has been in free-fall falling more than 60% from the recent peak under Elop and at least for Nokia this is the fastest and biggest drop it has ever seen in any 14 month period. I am not enough of an expert to know about Fortune 500 sized companies, if this is a world record in share price collapse. But when Nokia's share price fell 55% over 3 years, that was so bad, Kallasvuo was fired. Now its fallen over 60% in 14 months. The Nokia brand has been so tarnished, it has fallen out of the top 10 global brands and fell to the rank of 14th. I forget how many billions of dollars of brand value Interbrand calculated were wiped out by that drastic fall.

NOT LEARNING FROM HISTORY

I discuss a lot of the mobile industry history here on this blog. Its partly because I so strongly agree with Winston Churchill who said "Those who fail to learn from history are doomed to repeat it." So Elop, Elop, Elop. What have you learned? Not much it seems. His predecessor, Olli-Pekka Kallasvuo's management had a long line of smartphone releases that featured production problems and bugs. The N97 was a dog of a phone. The situation with the N8 was so bad, Anssi Vanjoki had to personally step in, and delay its launch several times because of prevailing problems in early phones. This was something that was supposedly fixed by the time Elop came in. So, then Elop in his infinite wisdom promised that Lumia series smartphones would be delivered in record time. 

I did warn on this blog that pushing such fast delivery dates threatens the quality of new Nokia phones. It was exactly the problem that had plagued Nokia quality and eroded its reputation. So I said that some of Elop's early Lumia phones might have production problems. Now we see massive catastrophic problems with each of the first Lumia phones. Each of them. The 'flagship' Lumia 900 had so big problems in the USA and Canada, that Nokia had to resort to a 100 dollar rebate coupon. A 100 dollar discount on a phone that costs about 400 to 500 dollars in its unsubsidised price? Thats a 20% to 25% instand cut in its revenues. It kills any profits that Nokia made! And each of the first three Lumia phones had massive problems from battery issues to wiped memories to freezing handsets. This was predictable, but Elop doesn't know the history.

And what of those price cuts? Elop's predecessor, Kallasvuo, was fired partly when it emerged that as a market share boosting gimmick, he started to buy market share, artificially boosting Nokia share with unsustainable price cuts. A price war in effect. And what is this we hear of Lumia? The whole series has seen drastic price cuts while the oldest Lumia phone is less than 5 months out of the gate. What is wrong with this picture. This is what the previous CEO was fired for, but Elop happily proceeds once again on the path his predecessor walked, and was fired for. What did Winston Churchill say? Those who don't learn from history are doomed to repeat it. Elop is repeating mistakes his failed predecessor did. How utterly incompetent is this dude? 

CERTAIN ROAD TO DEATH

 

I have shown that Nokia was a strong company, rated one notch less than perfect by all three ratings agencies, in the first 5 months Elop was in charge. Nokia was not 'cured' of its bureaucratic and execution problems, but Elop was working to fix those. Then came the Elop Effect and Nokia collapsed. Since February 2011, Nokia management has repeatedly made blatant - foreseeable - failures and errors. I have only mentioned a few here in this long blog. I could list dozens more. It doesn't matter anymore. We have seen that Nokia is now on a Certain Road to Death. Nokia market share was 29% when Elop started. Look at this trend:

Q4 2010 - Nokia smartphone market share 29%

Q1 2011 - Nokia smartphone market share 24%
Q2 2011 - Nokia smartphone market share 15%
Q3 2011 - Nokia smartphone market share 14%
Q4 2011 - Nokia smartphone market share 12%

Q1 2012 - Nokia smartphone market share 7%

You do not need a Ph D in advanced calculus to notice that this indeed IS a Certain Road to Death. If you are an optimist, you can project Nokia to have 4% at the end of this year. If you are a pessimist, you may think Nokia has 2% at the end of the year. This is how Palm died. This is how Siemens died. This is how Motorola, Died. This is a Certain Road to Death. The collapse of Nokia is now so overwhelming, nothing can resurrect it, if Nokia proceeds on this Certain Road to Death. The sales structure, the shipment systems, the supplier chain - Texas Instruments (a Nokia major components supplier) has seen catastrophic collapse of their business, down 60%. This is completely unrecoverable no matter what kind of silver lining you may think or hope that Lumia and Microsoft Windows Phone might provide, or that Windows 8 haha..

WHEN YOUR SALES CHANNEL REFUSES TO SELL YOUR PRODUCT

There is a reseller boycott against Nokia. I have chronicled it, it started at the Elop Effect, it was clearly fore-seeable. Some don't like the word 'boycott' - so fine, if you want to use the term 'reluctant to sell' that to me is the same thing. You say Tomato, I say Ketchup. I call it a reseller boycott, the reluctance of the global handset reseller channel to sell Nokia branded smartphones. I have explained why it exists, that does not matter now. It has been both independently proven by surveys in stores from China to France, from Finland to the USA.

Microsoft's own Windows Phone management has admitted that the carrier relations were bad for Microsoft before last year, and Microsoft itself made matters worse last year. This is not open to debate. It is a fact. Nokia itself has admitted - including several times Elop himself - that there is reseller reluctance to sell Lumia (and various other admissions of the channel refusing or reluctant to sell or stock Nokia). This is not an issue open to debate. It is a fact. I may have been providing the background facts to it last year, as it was happening, but now it has been verified by Nokia itself, Elop admits it and singles out the UK market as particularly unfriendly to sell Lumia. That is the market you'll recall where even Xbox 360 gaming consoles were tossed into the package to push Lumia. Yet the UK hates Lumia so much, the review by the Guardian went to the extraordinary step of saying they can't live with the phone, and returned it, encouraging its readers to do the same. I do not make this up, this is what the market says. There is no silver lining on Lumia. And Nokia, and Elop himself, admit the channel is not supporting Lumia sales. In the Q1 results, Elop talked of 'mixed' news about Lumia, some of the early reviews and rewards have been nice, but the resale channel comprehensively rejects the Lumia series, worldwide.

When the reseller channel refuses to sell your product, you die. This is the Certain Road to Death. And the definition of insanity? To repeat the same action again and again, and expect a different result. Nokia Lumia handsets are seeing Nokia-record returns from unsatisfied customers (while N9 scores highest known ratings of any Nokia handset ever).

I can understand that there was a lovely fairy tale, told by master story-teller Stephen Elop the Canadian dream-weaver, with the golden tongue. He promised that if Nokia went Microsoft, this Windows Phone would magically restore Nokia to strength. That was a nice dream. But while Elop and his golden tongue spin lovely stories, the tongue is in fact forked. He is a palefaced serial liar. He is 100% untrustworthy. He says anything he thinks you want to hear, and his words have no correlation with reality. He is the modern business equivalent of Dick Cheney and Donald Rumsfeld, if you remember, before the Iraq War. Now that wonderful fairy tale has turned into a nightmare. It is time to wake up. The Windows Phone road with Lumia is.. A Certain Road to Death. When the reseller channel refuses to sell your product, you die.

Nokia. You Die.

This road is a Certain Road to Death. It does not matter what all factors led Nokia to this point. It does not matter how much of the damage was already done by Kallasvuo before Elop, and how much happened under Elop. It does not matter how much of this current crisis was personally decided and executed by Elop as CEO. What we know, is that Nokia is currently proceeding on a Certain Road to Death. The market share in Nokia's future, the smartphones, is 7% now, and by the end of this year it will be between 2% and 4%. At that level the costs will be so overwhelming, Nokia crumbles just on those losses. This is Nokia's Palm Moment. This is Nokia doing the Siemens or being Murdered like Motorola. But it need not be. This could be Nokia's Razr Moment. Nokia could be saved. The main point of this article is - Nokia is currently - by EVERY bit of evideince - on a Certain Road to Death. This is a road from which there is no recovery. Nokia will die if it continues on this path. Nokia must take Any Other Road to try to survive.

Yes. Any other road. Nokia would be better off by abandoning Windows and going purely Symbian (I am not suggesting that). Nokia is better off biting the bullet, abandoning the Windows path and going full Android (I am not suggesting that). Nokia is better off being a slave of the open source Tizen alliance with rival Samsung and Intel, than slave to the hostile Microsoft dictatorship in the Evil Empire (I am not suggesting going full Tizen). Nokia is better off in any path other than the current one. Because the current path is a Certain Road to Death.

I have outlined how to save Nokia. It is a long blog article, but for those who are interested, it provides one path to success. I am totally confident, that by the early but incredibly strong love that the N9 smartphone with MeeGo is getting in all markets where it has been released, and in every comparison by reviewers who have used both, the N9 totally defeats any Lumia device - I am confident Nokia is sitting on its Razr recovery, with the N9 (and N950). Any sane CEO would look at Nokia's bottom line today, look at the high prices that the N9 gets (and looks at how high prices the E7 got as a proxy of what the N950 could get) and would immediately launch the N9 and N950 to every market now. The sane CEO would loudly and clearly recant that stupid statement that there won't be more MeeGo devices, because Nokia has several other handsets already fully ready for production that could run MeeGo now (such as the N900 and the N9-00).

As there is a reseller boycott against Nokia overall, and against the Lumia series in particular, any sane CEO would act clearly to end that, as his most important action. Why, because if the resale channel refuses to sell your product? You die. This is elementary, you don't need an MBA to see that. And the resellers the world over are refusing to sell Nokia Lumia specifically. Even Elop admits there is a  problem. So why is he pouring resources to futire wasteful attempts like a tablet PC which is a costly venture that helps Microsoft but would hurt Nokia when it does not need this kind of silly distractions. The tablet PC market is totally alien to Nokia, its brand is not strong there, the reseller channel is different and unfamiliar, the pricing is different, the product have little in common and if all that was not logical enough, look at Motorola and RIM. A PC maker like Apple and Samsung can of course take advantage of strong synergies, to sell tablet PCs. But when pure handset makers like Motorola and RIM (ie Blackberry) have tried to sell tablets, they were disasters and drained much-needed resources and pushed their companies into greater losses !!!!

 

The Road lead by Elop is a Certain Road to Death. If Elop knew what he was doing, when the reseller revolt started last year, he would have acted to end it. Instead, he made things worse. He fired many sales staff (or they left 'for personal reasons') like in China and the USA. Now look at the latest news. Again, Nokia top Lumia sales guy, a 20 year veteran, who personally achieved 77% market share for Nokia in China in smartphones - the biggest smartphone market where the iPhone used to be an afterthought and Blackberry is not even recognized. This guy who knew everybody in the Chinese market, failed in restoring Nokia and breaking the reseller boycott. He just now left 'for personal reasons'. And the utter comprehensive failure of Lumia and Windows Phone from the Microsoft side is the same. The past head of Windows Phone was demoted. The current global head of Windows Phone marketing just left 'for personal reasons'. Windows Phone will never be the third ecosystem, because the carriers hate it, and they don't trust Microsoft, the Evil Empire. Elop attached Nokia's cart to the wrong horse. It is leading Nokia on the Certain Road to Death.

One mistake by a new CEO could be forgiven, even should be forgiven. Two mistakes, means you are being very understanding. But a dozen major mistakes in a year and counting? Massive destructive - and fore-seeable - mistakes like the Osborne Effect, the Ratner Effect, the second Osborne Effect with MeeGo, the refusal to sell N9 widely, the refusal to sell the N950 anywhere, the wanton angering of the reseller channel, the skapegoating, the incompetence of not seeing what led to sudden profit warnings, the feuding with carriers/operators, the biased preferential treatment of Microsoft over Nokia's own best interest, the silly tablet misadventure, and on and on and on. Elop has set the world record in management incompetence and he is now compounding that error. He must be fired. Nokia will not recover with the Microsoft Muppet in charge.

The biggest single problem Nokia now has, why its sales have stalled globally, not just in Lumia nor even in all smartphones, but even in dumbphones - is the reseller boycott. If the retail channel refuses to sell your product, you die. Elop has tried, for 14 months, to unravel that boycott. He has only made matters worse. He cannot fix this problem - because it is personal, the carriers don't trust Elop (and they don't trust Microsoft either). Elop is now the red flag to a raging bull. Nokia cannot recover its carrier relationships with Elop in da House. He has to be Gone as in Audi5000. Word! T-Dawg.

The resellers are mostly controlled by the operators/carriers. What Nokia now needs is a new CEO, Elop to be fired (he is not trusted by the channel, he cannot remain) but the replacement should come from ... the carrier community of course. One of the long-term veteran CEOs from the carriers, ideally from here in Asia where all in the telecoms industry accept, the global telecoms leadership resides. That would end the carrier boycott of Nokia sales essentially overnight. If the reseller channel refuses to sell your product, you die. If the CEO can't break the boycott in 14 months, he never will. If  a new CEO comes from the carrier community, he has the best chance to break that boycott. And if the reseller channel just lifted the anti-Nokia and anti-Lumia boycott, that would stop the rot. That would stop the decline. I can't promise you it will restore Nokia to growth, but the decline would end. Nokia will be in a death-spiral as long as Elop is associated with Nokia. This is the Certain Road to Death. Any other road is better than this, even if the other road is only an uncertain road to death haha.

And what moron CEO sits on Nokia's best phone ever powered by Nokia's best OS ever, the N9 and MeeGo, and refuses to flood the world markets now with it, before the next iPhone and next Samsung Galaxy are launched soon? And yes, obviously, to run the N950 also to every markets now. Elop needs to be sued for his MeeGo and N9 (and N950) decisions alone. The definition of insanity is to do the same thing over and over, and expect a different result. Elop is allowed to pilfer and plunder Nokia's customer base, to ruin Nokia's carrier relationships and destroy Nokia's market value. It would be insane, to let him continue, and expect a different result. The Nokia Board would be insane to let Elop continue in charge, as Nokia rushes down on the Certain Road to Death.

If you want my thoughts on how to restore Nokia to growth, profits and health once again, please read this blog: Nokia can be saved.

UPDATE April 26 - There are two interesting stories out today that are very relevant to this blog. First, there is ex Nokia SVP Lee Williams who is also an ex Symbian executive, who gives very detailed insider info about the situation leading to Nokia's troubles today, and evaluates Elop and his strategy. On Elop leadership he writes Elop has stepped out and is now running after the bus. And Lee mentions that Elop is scaring away highly competent senior talent, while bringing in junior people from Microsoft, especially to sales. Please read the full article at CNet UK.

And there is news about the N9. If you still don't believe me that this is the best thing going, the British D&AD awards, the British Advertising and Design industry annual 'Oscars' just gave their top award to.. the N9. The N9 beat such illustrious rivals as the iPad 2 and .. the Lumia 800. And here is the heartbreaking part - the N9 won even though it is not sold in Britain! They love it that much, they selected it the winner of best design in Britain, even though the British can't buy it. Why is Elop not flooding the planet with this phone?

UPDATE May 3, 2012 - and the Nokia annual shareholders' meeting was held today. In it Nokia CEO explicitly acknowledges that there is a reseller reluctance to sell Lumia series (he also acknowledges a separate carrier boycott against all Microsoft phones due to Skype). Read all about it at News from Nokia Shareholders Meeting.

ABOUT ME

I am an ex-Nokia executive. I left in 2001 on my own accord as my first book was finished. I have no grude against Nokia. I am a Finn. I love Nokia. One of the phones I still use today is a Nokia E7 (the other is the Samsung Galaxy Beam, and when I feel like walking around with 3 phones, my third is a Mi-Fone). I was not fired by Nokia - quite the opposite, Nokia accepted my first book as an official Nokia book they sold on the Nokia website and Nokia has used me countless times to represent them at Nokia events internal and external over the past decade.

I am no weirdo on the fringes of tech. I am the most published author in the mobile industry. My 12 books are referenced already in over 120 books by my peers, which should tell you all you need to know how wacky is this Tomi Ahonen and his weird thoughts. I have been quoted in over 350 press stories in over 2 dozen languages including just about all the biggest press like Wall Street Journal, Financial Times, Business Week, the Economist etc. Forbes just ranked me the most influential expert of the mobile industry. Thats who I am. I am not writing this because I caught Elop sleeping with my wife (haha, a funny theory someone suggested once), I have never met the man. I was fully supportive of him for his first 5 months at Nokia, but after the Elop Effect, I determined that he is acting not in the best interests of a company I love, Nokia, and I have been chronicling his mistakes since. This is not a lonely crusade against Elop by me - I have been very vocal on this site before when I see any management incompetence or stupidity in this industry, such as Sprint Nextel when they started to fire their customers for complaining too much (I called for the Chief Marketing Officer and CEO to be fired, they eventually were when Sprint had lost half its share value in the PR nightmare aftermath of that obvious management blunder). And I have not been alone in projecting a total collapse of Nokia's market share by Elop's mismanagement, take a look at Horace Dediu's Asymco blog and its projections for Nokia under Elop and with Windows Phone. Its not a pretty picture that he painted back then, but Horace was obviously very accurate back in February of last year when he called this as madness by Nokia.

I want whats best for Nokia and after Elop got onto his rampage to sabotage the once proud company, I took objection to that, and I have been chronicling his mismanagement here on this blog. I am not partial to Nokia, I have also frequently given deep critical reviews of where I think Apple is doing wrong (they could be doing even better than they are haha, and I am calling them out on it) and how RIM is doing with Blackberry etc. But because Elop has made repeated mistakes, not just the occasional one per year, he does massive blunders regularly, he is also the subject of my blogs regularly. Its not that I repeat my stories here, every time Elop is in my blog, he did something new and stupid (or achieved something even more damaging, like today, the downgrade by Fitch of Nokia to junk status). I call it as I see it. I hope my readers can see from this blog, that it is my wholehearted desire to find a recovery for Nokia, to identify where the problems are (and are not) and find remedies to fix Nokia. You may disagree with what I suggest, but I hope it is clear, that this blog was written out of a love of Nokia not a hatered of it. But when the CEO establishes a World Record in Management Failure, that should be automatic cause for firing his sorry ass. The Microsoft Muppet? He has to go. Now.

In Bloodbath News: Nokia Q1 Results: Market Share Crashes to 7% yes, one fourth of what it was before Elop Effect

So its the time of the Digital Jamboree year of the Smartphones Bloodbath. Now we see how the new partnerships will fare, like Nokia and Microsoft. Both Nokia and Microsoft released their Q1 results and here we go.

For Q1 2012, Nokia smartphone unit sales fell 39% from the previous period, Q4 of 2011, to reach a level of 11.9 million smartphones sold. That is bad. In terms of market share, Nokia's once-proud smartphone unit now commands.. 7% market share. Just over one year ago, with Elop in charge, Nokia was growing smartphone sales strongly, and had 29% market share and were twice as big as their nearest rival, and did that all generating a record profit in the smartphone unit. Oh, did I forget to mention, yes, now in Q1 of 2012, Nokia's smarpthone unit generated a huge loss once again, at 18% operating loss in the smartphone unit! Yes, the losses in the smartphone unit ballooned by 62% and are now 311 million Euros per quarter ($405 million US dollars). This happens while the 'amazing' Lumia series running Windows Phone has been launched, to dismal market acceptance. All this while Microsoft pumps in $250 million US dollars per quarter to help Nokia sell (or force) the new Lumia series to past Nokia smartphone owners.

The rejection rate of the Lumia by existing Nokia smartphone owners is 5 out of 6 attempts. Not of sales of any brand smartphones, it is sales attempts to existing Nokia owners! Just over one year ago, before the Elop Effect, when Nokia was attempting have existing Nokia owners replace their Nokia smartphones or existing Nokia dumbphones with Nokia smarpthone that ran on Symbian, the conversion rate was better than 1 to 1, ie Nokia picked up new customers when it did that conversion. Those customers came primarily from Nokia's strong dumbphone market share, but also from other smarthpone rivals.

The Nokia smartphone market share is now approximately 7% (again, we wont' know final percentage number until all data is in but it won't be better than 8% and can't be worse than 6%). Remember all those cheerful forecasters exactly a year ago who promised Nokia and Microsoft would somehow become a 'third ecosystem' and have over 20% market share? Total hogwash. So yes, this 7% now is down from 13% just one quarter ago! (Nokia just lost nearly half of the customers it had just three months previously!), And the market share is down from 29% just before the Elop Effect one year ago. Yes, the collapse is not slowing down, Nokia's collapse is now increasing as Lumia comes online. Nokia's collapse is becoming worse as Lumia is being forced down customer throats. So it is true, in one year, Nokia has lost 3 out of every 4 customers it had in smartphones. This is a world record in destruction of a loyal customer base, in any industry. The market leader has never ever ever, in any industry so comprehensively self-destructed, to lose 3 out of 4 customers in a one year period. 

NOKIA TRIES TO SPIN STORY WITH ACCOUNTING GIMMICKS

So Nokia reports that the ASP the Average Sales Price climbed for Q1. And on quick view of the Q1 results, that seems true. And mathematically it is so, that if we take all revenues earned by the smartphone unit, and divide by smartphones shipped, the ASP did indeed climb to 143 Euros. But that reflects an accounting gimmick, that Nokia started to use in Q4 of last year - there is an infusion of 250 million dollars of Microsoft money, coming to support Nokia Lumia sales. That is money not paid by actual consumers, customers, operators, carriers, retail stores. It is bonus money, paid by Microsoft. It distorts the picture of what end-consumers are willing to pay for Nokia branded smartphones and helps paint a picture more rosy than reality. The infusion of cleverly negotiated Microsoft money is a valid input into the smartphone unit, to report its performance (or loss, as it now actually is) but it is not valid for the calculation of the ASP, which is now not comparable to the past ASP of Nokia smartphones.

Its easy to correct. Here are the actual ASP's when Microsoft Windows Phone subsidy is removed, so this is the actual consumer willingness to pay for Nokia branded smartphones over the Elop period as CEO

Nokia corrected ASP (when Microsoft subsidy is removed)

Q4 2010 - 155 Euros (202 US Dollars)
Q1 2011 - 146 Euros (189 US Dollars)
Q2 2011 - 141 Euros (183 US Dollars)
Q3 2011 - 131 Euros (170 US Dollars)
Q4 2011 - 131 Euros (170 US Dollars) *
Q1 2012 - 127 Euros (166 US Dollars) *

Above ASP calculated with Microsoft $250 million US dollar marketing support payment has been removed, the above reflects actual market price that Nokia branded smartphones actually acheived per quarter

* The two periods Q4 2011 and Q1 2012 included originally the Microsoft payment, so these are the corrected numbers when that payment is removed

And so we see how the early Lumia series is doing. You might think that selling 600,000 units of Lumia in Q4 of 2011 and now 2 million in Q1 of 2012, would be a strong start. Except that it is not. Nokia's last new platform launch globally was the launch of the Symbian S^3 based smartphones into Q4 of 2011, led by then-flagship smartphone the N8. That first incomplete quarter achieved 4 million sales of S^3 based smartphones by Nokia. It was done at the tail end of the global economic crisis, with modest marketing support. It was done on what many thought was an 'obsolete' platform, Symbian. It had no outside marketing support. Yet Nokia managed 4 million new sales of S^3 based smartphones in that quarter. Note, that the overall market has grown so much since then, that the correct target number to just 'match' what Nokia could do with the N8 and Symbian S^3 today, would be 6.4 million new sales, not 4 million.

Now with Lumia in its second quarter of sales, Nokia only achieved only 2 million total sales. This is comprehensive market failure by Nokia. Not against measuring truly desirable smartphones like the iPhone or Samsung Galaxy etc, but even against Nokia's own modest success of its previous new platform launch, the Symbian S^3 and the N8, neither of which set the world on fire just over a year ago when launched - yet this Lumia series, in its SECOND quarter, is selling less than one third what Nokia was used to doing, before the Elop Effect. This Lumia launch is not viable, it is only being sustained by artificial respiration, with the biggest Nokia promotion and marketing push ever, and further added with hundreds of millions of dollars of Microsoft money, including 100 million that the two paid to AT&T so its staff could take the Lumia 900 as their employee phones (yet few seemed to want to do that, I wonder why...)

One more point, the USA sales in Q1. T-mobile was the only carrier/operator to offer Lumia sales in Q1. The total USA handset sales in Q4 were 500,000 units. These were obviously all dumbphones as Nokia had terminated Symbian sales in the US market earlier last year. That unit sales number grew up to an underwhelming 600,000 handsets of any kind in Q1. So T-Mobile USA's total contribution was to increase Nokia USA sales by 100,000 units. No wonder the publshed reports from T-Mobile sales - and Nokia's CEO himself, admit the T-Mobile USA sales of Lumia were modest. If we attribute another 100,000 of the 'dumbphone' part of the sales, we are pretty close to the ceiling of what could have been total Lumia sales in the USA in Q1. 200,000 would also be .. 10% of total Lumia sales worldwide. That hardlly sets the world on fire.

SO WHO KNEW?

Was this total market disaster 'foreseeable' - could some clever management strategist see this total disaster Quarter, in advance? Well, lets see what the world's most accurate forecaster of the mobile industry wrote on this blog on July 26 of 2011, when the first data had come out of how severely Nokia sales were collapsing due to the mismanagement by Stephen Elop. I wrote my blog of the best case projection for Nokia and Microsoft partnership for years 2012 and 2013. I explained very clearly what were my models I used and the reasoning and the base facts. That blog posting was very widely referenced and has over 30 comments. And this was my projection for Q1 of 2012:

TOMI FORECAST IN JULY 26, 2011 FOR Q1 NOKIA RESULTS ('Ultra Positive Optimistic Scenario')

Q1 2012 . .   7% . . 7M Symb/4M WP7 . . $164/$180 . $1.9B . . .   2.3% . . . $  43M profit

ACTUAL NOKIA Q1 PERFORMANCE

Q1 2012 . .  7% . .  9.9 Symb*/2M WP7 . . $165** . . . $1.95B** . . . -32%** .  $ -638M loss 

* includes MeeGo
** without Microsoft bonus payment of $250M which is not paid by end-users and is not actual handset business income

So I forecasted 11.0M total smartphones sold when reality was 11.9M. I forecasted 4M Lumia out of the total when reality was only 2M (bear in mind, I also correctly forecasted that Lumia sales would start in Q4 so this would be the second quarter of Lumia sales). I forecasted $1.9B dollar revenues when reality was $1.95. In forecasting terms, that is considered a home run, perfection. And I did say, last July, that this is the very best case ultra-optimistic scenario which I did not believe in, in terms of the profitability, where I said the best Nokia could hope for, is to climb to a tiny profit by Christmas and now have a 2.3% profitability for Q1. That was obviously way too positive. When the Microsoft bonus is removed, the real business loss by Nokia smartphones had a profitability of minus (-) 32% (ie making 32% of a loss) and total losses (after Microsoft bonus is removed) is 638 million dollars compared to the best case scenario of 43 million dollars of a profit.

You will not find anyone in the mobile handset industry, with a published forecast dated last summer or before, who dared forecast 7% for Q1 of 2012. There were many who promised Nokia and Microsoft to have over 20% for this year including some utterly ridiculous forecasts as high as 28% for this year. The next best forecast for Q1 after mine, was Horace Dediu whose 2012 Q1 forecast was about 10% and many who visited his blog accused him of being too pessimistic about Nokia haha. I not only nailed the market share and hit the total shipment numbers within one million error, I even had the total revenues of the smartphone unit within one million dollars only of error. 

That being said, you may want to go read the full forecast to see how Tomi Ahonen felt Nokia and Microsoft might do (under the best optimistic scenario) for the full year 2012 and 2013. Its not pretty. Except that since then, because we have received more data, I can correct and revise the forecasts into the future. It will be worse for end of 2012 and into 2013, than those forecasts. Suffice it to say, Nokia's market share this year will end nearer 4% not at the 6% that I said last July. I will return with a full updated forecast later. 

GOING FORWARD, GETS WORSE

All the indicators for Q2 suggest it will get far worse still. Each of the first three Lumia handsets, Lumia 800, Lumia 710 and Lumia 900 have had production problems with hardware or software and require visits back to the store. The situation with the Lumia 900 is so bad, the carriers in the USA and Canada offer complete rebates of the paid amount so to the consumer, the smartphone 'cash payment' price part seems now free. Still obviously the customer has to sign the two-year contract so in reality they are not free. But the sticker price comparison to say an iPhone 4S at about 199 dollars or 179 dollars (plus contract) compared to the Lumia 900 at 0 dollars (after rebate) (plus contract) may seem compelling to some buyers.

Still, Nokia faces the reseller revolt as reported now in many countries. Recent reports have added that after the Lumia 900 launched, AT&T's flagship stores in New York City were refusing to sell the device. And the various reseller reluctance is again repeated by Stephen Elop himself who again admits the problem exists in the UK for example. And independent surveys have come up with such 'sales boycott' behavior also in stores now reported in France at Orange stores (the biggest carrier/operator of France).

The market data is consistently bad, even the momentarily rosy picture reported by big Nokia and Microsoft press publicity machines, that the Lumia 900 was the bestseller on Amazon, was not real - first of all most US phones are not sold via Amazon, they are sold in stores, for which we heard the sales staff reluctant to sell any Microsoft Windows Phone units including Lumia devices, but furthermore, now even that Amazon moment of glory has faded, and Lumia 900 is falling on Amazon sales charts. If the Lumia 900 cannot hold the number 1 spot for even one month, it is clearly not the bestselling smartphone even in the North American market, and its pattern will follow exactly that of the earlier launch markets of Europe and Asia - the Lumia looks good in a store, but is a severe continuing disappointment in the hands of consumers, who will return the Lumia at record levels. This in turn teaches the sales staff never to let a customer leave the store with a Lumia and they are now reported to push iPhones and Samsung Galaxy models ahead of the Lumia - when customers ask for the Lumia by name - in stores from Finland to France and from the UK to the USA. The Lumia is failing and the future of this line of Lumia by Nokia is dead.

On the Microsoft side, that Microsoft refuses to give us a Windows Phone total sales number, even after Nokia said 2 million Lumia sales in Q2, tells us that the rest of the Windows Phone family have sold miniscule numbers and the total worldwide Windows Phone sales did not even reach 3 million.

So we heard from the company which 12 months ago was towering over rivals as the biggest smartphone maker in the world. Now they are less than one third the size of the biggest smartphone maker, Samsung ( we will know more when Sammy reports) and I already called it last week, that this quarter, Q1 of 2012, Samsung has passed Nokia as the world's biggest handset maker overall, even as Samsung's numbers aren't out yet, but based on the early indicators from major markets and by the severe fall of Nokia this quarter (its total handsets fell from 113.5 million units in Q4 down 27% to 83.7 million now in Q1). Samsung has already given a preview to Q1 results telling of record-breaking sales in its handset unit.

What does wounded Nokia do now? We see the worst news from the exits of two senior leaders involved in the Lumia and Windows Phone battle for the come-back. Nokia's 20 year veteran sales boss, Colin Giles will depart Nokia. This was the guy you'll recall last Spring who was sent by Elop to go fix the ;'disaster' at China sales, where Nokia sales were falling. Elop refused to accept personal responsibility for causing the Elop Effect, but rather blamed the China sales head and replaced him with Colin Giles. Now that China sales have fallen catastrphically ever since (and Tomi here keeps reporting it is a sales boycott by the carriers, but nobody is listening..) now Giles exists the company. You don't leave your position as head of sales if things are looking good and thing are just about to turn better in the next months.

What of the Microsoft Windows Phone side? We also learned this week that the same happened at Microsoft. Its Marketing Chief for Windows Phone, Gavin Kim, departs Microsoft only five months after the spectacular headhunting triumph by Microsoft to snatch Mr Kim from Samsung. You don't leave the company in only a few months, if your product is poised to be on the brink of major global success. No, you leave a sinking ship if you see there is no hope here.

DSo thats our Nokia Q1 there. No mention of N9 sales numbers, which suggests to me, that the N9 keeps outselling the whole Lumia series, as it did already in Q1. Nokia smartphone sales are collapsing globally and my projection for year-end is in the low single digits now, say 4% or so. I will do a better full-year projection for Nokia once I have had to digest these numbers a bit, and I see the other results from the rivals. But Nokia is dying before our eyes. They had 29% market share with Elop in charge, when smartphone sales were growing strongly and Nokia's smartphones were profitable. Then Elop did his Elop Effect and followed that up with numerous further management blunders. Today Nokia's market share is 7% and falling, with the smarthpone unit reporting record losses. This is not a way to build a third ecosystem haha. Oh, and to the Nokia Shareholders' Meeting - please fire the Microsoft Muppet CEO now, while there still exists a Nokia to speak of, before he destroys what is left of it. 

FOLLOW-UP on April 24, I wrote a follow-up on why now, this path has become a Certain Road to Death for Nokia. 

The 'Cliff Theory' ie How Handset Makers Die, why in Mobile Phones do Companies Collapse so Rapidly (Siemens, Motorola, Palm, Nokia, Blackberry and Windows Mobile)

I think its time to coin a new term for the smatphones and in fact all mobile phone 'handsets' industry about the biggest danger in this industry? The Cliff. The sudden comprehensive collapse of the business. Why does this happen in mobile and at rates - I mean the speed in terms of timing of the collapse - never seen in any other industry.

CASES

Lets take a few case studies. What am I talking about. First, lets go to all phones, and ten years back. For the end of 2001, Siemens had 7% market share in mobile phone handsets. They had held a reasonably steady top 5 position for many years. Its a bit like LG has been recently. And what happend? They suddenly fell off a cliff. By 2003 their market share was half, and two years later, half again, and they quit the business (the Siemens handset business was sold to BenQ of China).

Then Motorola. Moto had held a steady 2nd place market share in handsets for 8 years since Nokia took their number 1 position, and Motorola's market share had been very steady, modest fluctuation only, between 15% and 20% over that 8 year period. Then in 2007 they fell off a cliff. So for the year 2006 Motorola's market share of all phones sold was 20% (similar to Samsung today). Then in just 18 months, it had fallen in half, and in another 18 months, by half again. By 2009 Motorola's global handset market share was down to 4%. They went bankrupt, were split up as a company and the handset business was sold to Google.

What about smartphones? Palm had held a strong second place market share behind Nokia, rather steady, at modest fluctuation only, at about 8% to 11% over many years, and had 9% market share globally of smartphones for 2006. (This would be like say HTC has been recently in smartphones). Then Palm fell off a cliff. In one year their market share fell in half to 4% and just a year later, they had lost another half by 2008 and then limped along bleeding customers and making huge losses, until they were sold to Hewlett-Packard.

And lets take Windows Mobile. Microsoft's smartphone OS has been around for a decade and it had steady growth until 2007 when it reached 12% market share of smartphones and held that till 2008. Microsoft's OS had briefly taken over the second place ranking behind Nokia's Symbian, after Palm's second place and before Blackberry replaced it as second biggest OS. Then from 2008, Windows Mobile fell off a cliff. In 18 months their market share fell by half to 6% and in another 18 months, fell by another half. Obviously Microsoft itself killed Windows Mobile which in 2011 managed only a 1% market share, so Microsoft now tries to replace it with Windows Phone which had amassed a magnificently unimpressive 1% market share for itself globally for the first full year it was sold, when we remove the other Microsoft Windows Mobile smartphones, in 2011. The combined Microsoft smartphone operating systems market shares, together, for last year, was under 2%

PATTERN

I like to find patterns and I think we have one here. The historical performance of a given mobile phone handset or operating system seems to have exceptionally poor predictive power to this phenomenon I now have christened 'The Cliff'. Powerful, global Top 5 size powers in handsets, often for very long in tech, more than a decade often, have held steady shares (Siemens, Motorola, Palm) - or even they might see steady growth for year after year, as in the case of Microsoft Windows Mobile - and can easily be even the second biggest player of this industry at the tme (Motorola, Palm, Windows Mobile) - but if they hit 'The Cliff' they can die in unprecedented speed. Let me show you this graph to give a graphical view of what it looks like. This is a kind of amalgam of the cases we've had, to illustrate the theory, but it is not the mathematical average haha..



(The above image may be freely distributed)


Understand this doesn't happen in other industries, certainly not this fast. In cars, home electronics, even personal computers, the growth is steady and long-term, and the decay and decline for some past glorious brands, is also relatively long-term. The bestselling car makers worldwide 50 years ago included Ford, GM, Volkswagen, Toyota, etc. Yes, manufacturers die, like American Motors, but globally, even less-desirable brands manage to hang around for a very long time. How many of the 10 bestselling cars of the 1970s has vanished. I don't mean that a car brand has quit some single car market like say French carmakers Peugeot and Renault left the US market (many US readers might be surprised to find out that Renault and Peugeot (with Citroen) are both still giant car manufacturers globally. I am not talking about mergers here (Daimler and Chrysler, Chrysler and Fiat), those are 'normal' in business. I mean market collapse like the four cases in handsets that I listed.

Even the bestselling PC makers a decade ago had very familiar names - HP, Dell, IBM, Compaq, Toshiba, Apple. None of them collapsed. IBM was sold to Lenovo but IBM did not collapse and sold as a corpse, Lenovo bought IBM's PC business while it was still a powerhouse, and it continues under the Lenovo brand as one of the biggest PC makers of today. Compaq is no longer a brand, but HP bought Compaq also while it was one of the top 5 PC makers.

And this is not somehow symptomatic of the telecoms industry either. Look at the other hardware side of telecoms. The five biggest telecoms networking infrastructure makers at the start of the past decade were Ericsson, Nokia, Lucent, Siemens and Alcatel, in that order. Yes, there has been some mergers in the industry, so today Alcatel owns Lucent and Nokia and Siemens have joined venture on their infrastructure. But if you take the market shares of the combined entities, then the three players were ranked Ericsson biggest even alone in 2000, NokiaSiemens second biggest and Alcatel-Lucent third. How is that today? Ericsson is biggest of these three, NSN is second and Alcatel-Lucent still third biggest. Except that NSN is in reality third, and Alcatel-Lucent is 4th in the world, because Chinese Huawei has climbed to 2nd place. But this is 'typical' competition in the world. The global rankings do not fluctuate wildly even on decade-length time horizons.

Same is true of television sets, Some new brands emerge but the old brands fight on and if some depart the scene, they do so over lengthy periods of time. A decade ago the world sold tons of Sony TV sets and Sony is still in there today. Samsung was not as big, but they were around a decade ago, and so forth. But in mobile, if your handset maker hits 'The Cliff' the fall is rapid and essentially seems nobody survives the Cliff. The damage is 'terminal' and the company will be bankrupt in what, like 3 years.

Note, size is no protection here. Motorola had one fifth of the world market to itself in 2006 (making huge profits too). Thats about what Samsung does today in total handsets, and is actually more than what Apple currently has for the iPhone in smartphones. And hugely popular 'must have' devices are no guarantee you won't fall off 'The Cliff' - witness the Motorola Razr. That didn't keep Moto from going over the MotoCliff. Again, warning about the uber-desirable iPhone here too. I am not about to suggest Apple is about to fall - far from it, I strongly believe the next iPhone is going to be a huge hit as well - but please beware, nobody, not me, nobody predicted at the Razr peak, that MotoMoto would become the DodoDodo of the handset industry before that decade was done.

WHY IS THERE THE CLIFF

Obviously one case does not prove any kind of pattern. We needed several such collapses to even be able to observe a pattern. But now with proven cases of Siemens, Motorola, Palm and Windows Mobile; combined with the current collapse of Nokia's smartphone business and possibly Blackberry as well, we have evidence of a peculiar pattern in a consumer electronics industry sector. Why is this possible to happen in mobile phones and why haven't we seen anything like it in other industries.

I think there are three factors that help create The Cliff. First, there is the replacement cycle. The average replacement cycle for mobile phones in year 2000 was 21 months. By year 2006 it was down to 18 months. Today it is 16 months (all handsets). For smartphones it is even faster, at 11.5 months. A car is replaced something like every 3 or 4 years on average. A TV set once every 7 years. A personal computer every 3 and a half years. But mobile phones are replaced every year and a half, smartphones replaced every year (on average).

So if you have a bad model car, and your sales suffers because of it, you will not lose all your loyal customers in a year or two, because many of your customers have last year's model and are happy with it, and will not even come to your car dealership until two years from now to consider the replacement model, by which time you have had plenty of time to fix the problems with your current car model.

In mobile phones we do not have that luxury. The pace is so fast. And note that the rate of the collapse due to The Cliff is actually accelerating. This also suggests the replacement cycle and The Cliff are related.

A second point is the dealerships. Some technology is kind of 'protected' from rapid market fluctiations, because it is sold by the manufacturer's own stores (like Sony flagship stores for example) or through branded dealerships (like in new car sales) or by registered partners (like many personal computers, sold through 'VARs' Value Add Resellers, who are authorized with given PC brands). In mobile phones, there used to be no branded shops (Apple changed that of course) and Nokia briefly tried its own Nokia branded flagship stores - most of them have been discontinued. So if you have branded dealers, that helps dampen the fluctuation, even if you have a bad model year of your products, the damaging effect is not as severe. Mobile phones are sold whether in operator/carrier stores, or independent handset retailers, with essentially all handset brands and many of their models on display side-by-side in the store. Note, that of current handset makers, only Apple is a little bit immunized but not completely so, as it also operates its own Apple stores.

The third point is the carrier relationship. The operator/carrier has exceptional influence in the mobile phone handset business. If the carrier/operator decides to push a given phone, it can help it succeed, yes, but that is not dramatic gains. But if the the carrier/operator community decides to punish a given brand, it rapidly dies. We heard just now from Finland (of all places) that a survey of major handset stores in the biggest cities of Finland by the commerical TV broadcaster MTV3 - found that in most handset stores (both operator stores and independent stores) - even if the consumer asked for the Nokia Lumia by name - most sales representatives would not show the Nokia Lumia to the customer, and showed Samsung Android handsets instead. This even as the stores had Lumia in stock and the biggest in-store displays were featuring Lumia.

In television sales, the television broadcasters (BBC, CBS, RTL etc) do not have any influence on what brand of television you buy. The internet brands like Google, Yahoo, Ebay, YouTube, Facebook have no real influence on what brand PC or tablet you buy to access the internet. But in mobile, the carrier/operator has a profound effect on which handset brand is welcome to that market, and which is not.

And as the carrier community is tiny - the 10 largest carrier groups control the subscriptions of 2.7 Billion people - and thus strongly influence 46% of the global handsets - that could theoretically be down to yes, 10 CEO's (or a little bit more in reality, their handset bosses and their management teams). So like just now today, those 10 CEOs could decide (or might have decided) that Blackberry survives or Blackberry dies. But yes, imagine if an operating system manufacturer (just hypothetically, lets say Microsoft manages to piss off the carrier community) or say a handset manufacturer (again, hypothetically a giant like Nokia suddenly annoys the carriers) were to become the object of - perhaps boycott is too strong a word here at this level - but lets say 'undesirability' - their fate would be doomed. Witness the birth and death of the Kin youth phones by Microsoft. They went from launch to death in 6 weeks. WEEKS. But obviously the Kin phones cannot be used as example of falling off a Cliff, as they never climbed up to the hill in the first place haha.. I am just saying it here as evidence of the incredible power of the carriers in deciding who wins and who loses in the handset business.

WHAT IS NOT THE CAUSE

Some will jump in here and say Tomi, the obvious disruptor was Apple's iPhone. And I agree, the iPhone has been the most important handset model ever, and we now measure time in the era before the iPhone and the era after the iPhone (as I correctly predicted before the iPhone was first sold in 2007). But this pattern existed before the iPhone (Siemens, Motorola), it coincided with the iPhone (Palm, Windows Mobile), and it happened after the iPhone stopped grabbing tons of market share (Nokia, Blackberry).

Yes, for those who didn't pay attention back in 2007 and 2008 and 2009. The biggest growth in the iPhone market share, from zero to 17% - happened from the summer of 2007 to the summer of 2009. Since then Apple's iPhone market share has been essentially flat picking up only a few market share points to 19% for 2011. In the big iPhone growth years, Nokia mostly held flat and Blackberry actually grew market share in smartphones. So it is absolutely factually untrue to claim that Apple stole customers from Blackberry. And to a lesser degree same is true of the iPhone and early Nokia smartphones in 2007 and 2008. (Few remember that after the original iPhone 2G was launched in 2007, Nokia's contemporary smartphone, the N95 handily outsold all iPhones globally.)

After the iPhone big growth period ended and the iPhone was flat, only then Blackberry suddenly collapsed and so did Nokia. So the losses to RIM and Nokia did not go to gains to Apple's iPhone. Their losses were to the gain of the Android family, so while you can argue that the iPhone killed Palm and Windows Mobile, the evidence does not support the theory that the iPhone killed Nokia or Blackberry, on the contrary, those were relatively immune to the iPhone, it was Android which killed Nokia smartphones and Blackberries. I recognize that the widely-held myth keeps repeating the BS that the iPhone killed Nokia or Blackberry. We deal with the facts here, not myths.

So, to anyone who wants to comment on this thread - this pattern can be observed BEFORE the iPhone existed, so it cannot be (solely) caused by the iPhone. Yes, the iPhone may have boosted the damage haha, but then I would argue, its simply 'any' new and highly desirable phone can help boost the effect. The Razr for example caused Nokia's 2006 market share to fall. So just be warned, anyone who posts comments here and says 'the iPhone caused the Cliff' - those comments will be deleted immediately, because this effect has existed before the iPhone. Yes, I myself have said the iPhone is the most important phone of all time and it changed everything, but it did not cause The Cliff haha..

LONG LEAD TIMES

And one very important point I forgot to mention in early version of this article. The third person in the comments, Dipankar Mitra mentioned the connection with two time frames - one is the time we start to hate a given new phone, and the other is the fixing time. I forgot this dimension, thank you Dipankar! Yes, the typical development cycle for a completely new mobile phone is about 18 months from a clean table to in the stores. In the case of a newcomer company it can be longer - with Apple it was reportedly 30 months, because Steve Jobs looked at the intended 'iPod Phone' of late 2006 - and gossip says it looked like a Nokia candybar phone with regular buttons and a medium size screen - and Jobs said no, that is not good enough, and forced a total redesign, which then gave us the radical look of the iPhone with the massive screen and one button. And today's Nokia Lumia 'shortened' development time is totally an illusion, as the outwardly look and feel was taken from an existing Nokia product, the N9, and the guts of the phone came from Compal, not Nokia's own process. Even then it took 9 months to take existing parts and reorient them into 'Lumia' - but the first Nokia-designed and Nokia-manufactured original new Lumia phones that are not a blatant rebadging, will start with the Lumia 900 which launched 15 months after Elop announced his Microsoft strategy..

With that, yes, very very important point. If you have disappointing smartphone, to redesign a totally new one would take your company about 18 months, but by that time 3 out of every 4 customers you had, will have bought a new smartphone and if they really rejected your current phone, this is essentially a problem you cannot recover from. Thank you Dipankar!

NEEDS MORE STUDY

I am not here to publish a massive peer-reviewed scientific survey haha. I am here to argue, for the first time in the public domain, that there is this phenomenon 'The Cliff' and it is peculiar to the handsets industry. It has already claimed several victims and it may well collect several more. The main point is that the rate of decline, if any handset maker goes over The Cliff, is catastrophic - essentially today, it means you lose half your customer base in less than 18 months, and another half again - or even faster. With Nokia when they went over The Cliff in 2011, they lost half of their market share in 9 months!.

And then if any handset maker goes over 'The Cliff' - the total company is in utter chaos and panic. The normally sensible management moves will not work and can be severely counterproductive, such as mass layoffs. If your sales fall by half in a year or 18 months, no matter how profitable you had been, you will be plunged into loss-making (witness Siemens, Motorola, Palm, Nokia and RIM). And if you combine that with massive layoffs, you then can't market, can't sell, and can't develop newer models fast enough to help save you (witness Siemens, Motorola, Palm, Nokia and RIM).

So I just wanted to post this blog out there, to spread the story, and to ask for comments and to have fellow thought-leaders in mobile consider 'The Cliff theory' and see if they see the pattern too. Are there other handset related brands that saw the same. I only looked at the global numbers, are there regional patterns too. And I haven't seen this speed of decline in other industries, can you think of some? Is this phenomenon unique to mobile? And can we perhaps find a way for any company to be saved if it falls off 'The Cliff' - is there perhaps a strategy that worked for some player that saved it.

Please those of my regular readers who have mobile related blogs, feel free to spread this story and give it your spin and opinion. If you do, please do refer to this as The Cliff theory by me, and please include a link to this blog if you do. You don't have to agree with me haha.. Let me know what you think on your blog, and I'll post updates on this and include surveys of other thought-leaders on what they said about The Cliff.

I'd really like to hear if this makes sense, but it may be very valuable for us in the industry to consider now for example with Nokia and RIM so much in trouble, and as we consider the 'invincibility' of an Apple or Samsung for example (or Android). Do you see 'The Cliff' and do you agree it is an effect that stalks the players in this handset industry only?

POSTSCRIPT - about 7 hours after I posted this, and after 22 comments in the comments thread, I have been convinced to refine the name. I think the follow-up blog will be called 'Walking Blind By The Cliff' theory which describes even more accurately how brittle any lead in this industry can be. So imagine being blind, and walking on a hill with a deadly cliff. And not being able to detect when stepping into The Cliff. But anyone has stepped into it, the fall is irreversable. I will return with more blogs about this, and include thoughts from the discussion thread. Oh, and Bruce Sterling at Wired and its Beyond the Beyond has covered this story already (thanks Bruce!).

 

UPDATE APRIL 11

Note Nokia's Q1 results show the single biggest one-quarter crash of smartphone market share yet reported.  Read my view of the Nokia Profit Warning and why things are even worse.


Please allow me one plug - For those who feel they cannot have enough facts and numbers about the handset industry, I wrote a statistical handbook about the handset industry in 2010. The ebook is called the TomiAhonen Phone Book 2010 and runs 171 pages and has 98 charts and tables including just about anything you could ask for, including sales numbers, installed bases, market shares, features, form factors, etc. The ebook costs only 9.99 Euros so if you need the numbers, that is the place to go. And now a special offer - I will be doing the totally updated edition for release in the summer of 2012. If you buy the 2010 edition between now and when the 2012 edition is released, I will give you both for the price of one. So if you order the TomiAhonen Phone Book 2010 now, you will get the 2010 edition now, and for no extra cost, the 2012 edition this summer when it is released. Is that a good value? To see more, please see TomiAhonen Phone Book 2010.

Previewing Year 2012 in Smartphone Bloodbath - Year 3 is the Digital Jamboree

I started to monitor the 'Bloodbath' in smartphones in year 2010, when it seemed like this space was really heating up. I had given many blog updates about mobile phones before, but from January of 2010, I've done deep analysis every quarter of the smartphone market and given my commentary on the various players and their strategic moves. (Long blog warning, this article runs about 10,000 words and very deep detailed numbers and facts)

MOST CONTESTED GLOBAL INDUSTRY

In 2010 I counted that among the Global Fortune 500 largest corporations on the planet, four years before, in 2006, only 6 brands were manufacturers of smartphones. By the start of year 2010 it had ballooned to more than 20. That was not just massive growth in the competition of smartphones in a very short time, but of any globally contested industry, it was the most competition we have ever seen among Fortune 500 sized companies. There have never been 20 car manufacturers or airplane makers or home electronics brands in the Global Fortune 500. Banks and oil companies are industries with more than 20 competitors, but they are not competing globally. Citibank and HSBC do offer banking services globally, but most of the banks listed in the Fortune 500 do not have offices in most countries. Same is true of petroleum. BP and Exxon do have gasoline service stations worldwide but many local giants like Pemex and Petronas do not. In smartphones, once Apple jumped in, the iPhone is sold in just about every country. The smartphone industry had become the hottest and most fiercely contested industry on the planet. And with massive rewards if you did it right - Apple is now the world's most valuable company by market capitalization, and most of its revenues and profits do not come from the Macintosh PC business or its iPod and iTunes music unit. More than half of Apple's revenues and profits come from - yes - its smartphone unit. Apple calls itself a mobile company.

I applied my business consulting training and analysis to the heated market in 2010, and suggested that the competition would become so intense, that some of the big brands would falter and exit the smartphones battles. Not everyone could make money in it. And so I called year 2010 the 'Year of the Bloodbath'. How right I ended up being. Former smartphone giant Palm died that year. Microsoft's highly anticipated Kin family of youth phones appeared onto the market, and in six weeks was killed off. Two big-name Smartphone industry CEOs were fired as their companies stumbled, Nokia and LG. Google's first attempt at a smartphone, the Nexus One, while highly regarded in the press, was not warmly welcomed by the carriers and Google soon pulled it from the market, but did return with later versions of the Nexus series.

After the carnage of the Year of the Bloodbath, I looked into 2011 and decided the carnage was not over, and called last year 'Year 2, Electric Boogaloo' of the smartphones Bloodbath. I felt there were too many rivals and many of the startegies were idiotic (almost all rivals attempting to copy-cat the iPhone). We saw the end of Motorola and HP. We saw the exit of Ericsson, a former giant mobile phone maker and early smartphone pioneer - finally throw in the towel after a ten-year partnership with Sony. Arguably this departure releases Sony to do what Sony does best. Time will tell.

That would qualify for a truly Bloodbath'ish year in smartphones, but we have not even mentioned Nokia. Nokia's new CEO Stephen Elop decided to take the growing smartphone sales of Nokia (which after he took over, also produced increasing profits) and demolish those. He took the growing sales of the world's most sold smartphone operating system, Symbian, with half a dozen partner manufacturers (mostly out of Japan)  and the bestselling smartphone OS on five of the six inhabited continents, and by a massive margin, the world's most used smartphone OS by installed base - and announce its end and the termination of its migration path to MeeGo. Elop committed to 150 million more Symbian based smartphones (he has since reneged on that promise saying now that Nokia cannot deliver that amount). Never in the history of any 'platforms' based industry, has a market leader quit while it was ahead. Microsoft didn't abandon Windows when ahead. Sony didn't abandon PlayStation while ahead. The VHS alliance didn't abandon the VHS video recording standard when it was ahead of Sony's Betamax. The Blueray DVD platform didn't abandon its market when it was ahead. But Nokia took the Symbian platform - while it was towering over its rivals - and abandoned it last year. And Nokia decided to announce its replacement platform, MeeGo as stillborn. As we know, Nokia annouced it will migrate to Windows Phone.

Last year thus saw the announced deaths of two major platforms - Symbian what had led the industry from its beginning. And MeeGo the Nokia and Intel partnership that was to have replaced Symbian (which had several handset makers and PC makers already committed to it). We saw a couple of netbooks released on MeeGo by the tech partners including Fujitsu, and two smartphones by Nokia, the N9 which was sold, and the N950 which was only produced in tiny quantities for demonstrator purposes.

And the carnage still wasn't over. As HP had bought Palm, it had acquired WebOS and had initially intended to use WebOS as its platform across various portable technologies. HP's revised Palm and the WebOS platform were also killed last year.

But it wasn't all contraction in the industry. Many smaller or 'dumbphone' oriented phone makers were entering the smartphone space from the low-cost side, such as African Mi-Fone and India's Micromax. On the platform side, Intel replaced outgoing Nokia with Samsung to announce Tizen in 2011 as a smartphone OS we should see devices released this year. Some local/regional players like South Korea's Pantech, and Japan's Panasonic and Sharp, announced intentions to spread internationally and have showed early smartphones on that path.

YEAR 2012 IN SCALE

So lets look first, at the overall size and scale of this Smartphone Bloodbath Year 3: Digital Jamboree. What do we see? First lets talk scale. Last year the smartphone industry grew in units sold from 298 million units sold, to 486 million units sold. That was a growth rate of 63%. Understand how massive this number is. The growth rate, I mean. This industry which already sells more devices than the TV industry or the DVD players or videogaming consoles or digital cameras, still grew 68% in just one year. If you grow 68% in a decade, that is a nicely growing global industry. Smartphones grew 68% in one year!

And yes, last year for the first time, more smartphones were sold than all types of personal computers (Desktops, laptops, netbooks, and tablet PCs like the iPad) combined. And of the migration from dumbphones to smartphones, last year 30% of all new phones sold were smartphones (that was up to 33% by Q4 of 2011).

What kind of numbers will we reach this year? I am modeling (again, conservatively at the start of the year, this may be and likely will be revised during the year) that the overall growth rate will slow down. The growth rate was 73% in 2010, and 63% in 2011. I am thus pegging my first target saying smartphone growth this year will be 53% and we'll reach 745 million smartphones sold this year. That would be roughly 43% of all mobile phone handsets sold this year. (please note, last year I upgraded my forecast several times in the year, it is likely I will do so for this number too)

Now. How enormous is 745 million? Its twice the number of new TV sets sold globally. All those nice flat screen TVs we see in the home electronics stores. Its more than 5 times bigger than the total number of stand-alone digital cameras and camcorders sold worldwide. It is about twice the number of all portable computers (laptops, netbooks, tablet PCs). This year we will pass 1 Billion smartphones in use, and sometimes next year, there will be more smartphones in use than any type of personal computers in the world.

Where will be the bulk of smartphone sales? While we all will no doubt admire the next iPhone out likely in June of this year, the big growth in smartphones is not at the top, where we have the Blackberry Bolds and HTC Titans and Samsung Galaxies and Sony Xperias. The big growth is at the bottom of the pyramid. Deloitte estimated that this year we will see 300 million new smartphones sold with a cost of 100 dollars or less (unsubsidised price - remember the unsubsidised price of the iPhone 4S is 660 dollars, not the 179 dollars you might see at a store, when you are forced to take a 2 year contract). Who sells 100 dollar smartphones? That market is heavily contested by mass market volume produces especially from China like Huawei, ZTE, Lenovo and G'Five. Samsung is contesting that market with its bada-powered smartphones. Google is rushing to make the Android OS competitive in the low cost space. Nokia's Windows Phone smartphones are not suited for this space, and Nokia is discontinuing the Symbian OS which worked well with low-specification phones. As Nokia's new Asha series of 'featurephones' are not true smartphones, Nokia may find its Asha soon uncompetitive against these low-cost smartphone rivals. But what is certain, is that the top end iPhones, Blackberries and premium smartphones like Samsung Galaxies are not able to contest this low end of the market. And that is where 40% of the market exists this year.

DIVERSIFICATION

I had said that the harmonization of the smartphone market at the time of hypergrowth was a bad sign, where everybody tried to do their iPhone-clones. Now in 2011 we saw more diversification and even more signs of that in early 2012. Nokia's 808 PureView is perhaps the best example of this now, as a phone that is definitely not 'slick' and 'slim' but does offer that glorious 41 megapixel camera and all its camera-oriented goodies. But look at other smartphones, from large screen phones (HTC Titan, Nokia Lumia 900, Samsung Galaxy Note) to the smartphones with pico-projectors (Samsung Galaxy Beam and others) to smartphones with 3G glassless displays (from LG and others) to phones optimized for videogaming (Sony Xperia Play, and likely soon a 'true' Playstation Portable smartphone). And we've of course had the QWERTY oriented Blackberries and their countless clones.

This is good for the industry. This is an unprecedented opportunity for diversification and giving consumers what they need. Not everyone wants the slimmest phone with a minimalist specification set, like the iPhone. I have been saying that Apple leaves money on the table, if they just released a QWERTY slider version, they would increase iPhone sales by at least 30% maybe 50% and they could price the QWERTY variant above the price of the regular iPhone and make a ton more of profits. But of course Apple doesn't listen to anyone haha..

But that is the overall big picture of the industry. Now lets look at the major brands and what to expect for 2012, Year 3: Digital Jamboree. Oh, why call it Digital Jamboree? I think this is now starting the first year of consolidation and deeper partnering. Many of the weak rivals are out of the game (Palm, Motorola, HP, Ericsson) and some platforms have been culled (or their end announced) in the past few years (Windows Mobile, Palm/WebOS, Symbian, MeeGo, LiMo, Maemo, Moblin). We saw major pairings of major players last year: Google buying Motorola, Nokia joining Microsoft, Samsung and Intel partnering. Now we have a period we will see more of that dance and likely we see the camps solidifying, not unlike the big Boy Scout Jamborees we see every four years (I was a Boy Scout way back when in my youth, and attended the World Jamboree in Norway in 1975). So lets look at the brands in order of their size, starting first with handset manufacturers:

APPLE

Apple took the crown last year as the world biggest smartphone maker. Just a year before, Apple had been half the size of Nokia the massive market leader. Now by Q4 Nokia's smartphone unit had fallen to almost half the size of Apple's iPhone by unit sales. Apple sold 24% of all smartphones worldwide in the Christmas quarter, and 19% for the full year. The iPhone 4S was delayed but continued Apple's incredible streak of hit smartphones where each year its new model outsold the previous model by a large margin. Can that continue? I think this year 2012 definitely yes. The iPhone 4S was in reality only a modest upgrade compared to the iPhone 4, and many analysts expected more tech brilliance out of the 4S. I said on this blog that the iPhone 4S was a last-minute redesign and thus somewhat a compromise due to Apple's over-reach with its intention to do the iPhone without a SIM card. We now see Apple in a battle with other handsets wanting to go from the microSIM to a nanoSIM. But apart from the SIM card, the iPhone 4 line is starting to fall behind on the screen size battle. The original iPhone 2G and even 3G were globally screen size leaders, with 3.5 inches, where most contemporary smartphones had 2.5 inch screens and the biggest rivals were at 3 inches in 2007 (excepting for some superpremium phones like the Nokia E90 Communicator with its 4 inch screen). Today we have many smartphones well past the 4 inch screen size, and the top dog is the Samsung Galaxy Note at 5.0 inches in screen size. Compared to the iPhone 4S, the Note screen is about twice as big, a massive competitive advantage when held at arm's length.

If Apple releases a new bigger screen iPhone, I expect it to be called the iPhone 5 (rather than iPhone 4GS or something like that). And a 3.5 inch screen on a flagship phone is now being obsolescent in 2012. Many other tech specs are hoped for or expected by fans, from WiMax '4G' to NFC to of course a higher spec camera.

No matter what Apple does, the next iPhone will be cool and desirable and people will once again wait in line to be the first to get it. Some things to look for with Apple. Is the next iPhone released in June or September. The sooner the better for Apple's world domination plans. And will there be a split in the product line. I have been advocating on this blog that Apple needs to introduce a low-cost 'entry level' model, what I call the iPhone Nano. I have said that releasing the Nano variant (and splitting the product line) would increase Apple's total unit sales by at least 50% and if done intelligently, a Nano variant would not eat into existing iPhone customer sales, but would open massive markets in the lower-cost countries where most phones are not subsidised and a 660 dollar price tag puts the iPhone 4S as much beyond the reach of the common consumer as a Rolls Royce or a corporate jet or a luxury yacht. But even in those markets, the newly affluent middle class could afford a 300 dollar (unsubsidised) Nano iPhone.

The other sign to look for is a tech called TD-SCDMA. That is the exclusive 3G standard for China Mobile. If Apple starts testing a TD-SCDMA variant of the iPhone, the only client would be China Mobile (alone as big as all US carriers, AT&T, Sprint, Verizon, etc - added together - and that number still doubled). Currently China Mobile has millions of iPhone users while the iPhones do not operate on China Mobile's 3G network. If Apple did release a TD-SCDMA version, this would signal a huge jump in iPhone sales in China. Obviously Apple would not bother to do that, if they cannot get a contract with China Mobile to carry the iPhone.

SAMSUNG

 

The world's second largest mobile phone handset maker, Samsung, became last year the second largest smartphone maker too, for the first time ever. For one quarter (Q3) they were briefly the world's largest smartphone maker but for the full year, Apple took the crown. But as Samsung is growing far faster than Apple - Apple almost doubled but Samsung grew more than 3x last year - and as Samsung offers a far wider portfolio of smartphones from the top of the line (Galaxy Beam, Galaxy Note) to the ultra-low-cost basic smartphones running on bada, Samsung is certain to pass Apple for the global crown this year. I think Quarter-by-Quarter we may see a see-saw effect with these two brands battling for the quarterly lead, but for the year, Sammy is pretty set to become the top dog. And for the full year, they are likely to reach their decade-long ambition - to pass Nokia as the world's largest handset maker too. That might not happen for the full year sales, but is very likely to happen in Quarterly handset sales around Q4 or even Q3.

If I was to predict a direction, I think Samsung felt stung by Nokia's 808 PureView taking the crown for the Phone of the Event at the world's biggest mobile industry event, the Mobile World Congress in Barcelona a few weeks ago. Samsung has been an early pioneer in cameraphones and has done many high resolution cameras in the past. We might see Sammy do a top-line cameraphone but obviously running Android, and branded Galaxy. As Nokia seems reluctant to sell the 808 PureView everywhere (bizarrely, for example refusing to sell it in the USA, where Nokia wants a come-back and where the 808 PureView has been warmly received in the tech press) - as Samsung is the bestselling dumbphone of the USA, and the bestselling Android powered smartphone of that market, Samsung could just steal some of Nokia's thunder with this option. It would not be the first time Samsung took what Nokia madly threw away - witness stepping in for Nokia after MeeGo with Intel to develop Tizen.

NOKIA

 

For Nokia this is the year of proof for the Microsoft partnership, the Windows Phone OS and Nokia's Lumia line. I have reported that the early prodcuts in the Lumia line are surprisingly flawed and the next updates seem to be more bad news. I also reported that the Lumia sales are now encountering so many returns that the retail sales channel is revolting and refusing to sell Lumia even when asked for by name. But Nokia's new CEO Stephen Elop, the ex Microsoft guy, forges on and pushes Lumia into every channel he can. We hear that in the USA the Nokia-Microsoft partnership paid AT&T 25 million dollars so that AT&T would allow its own staff to use Lumia phones as company phones (but would need to hand in their iPhones or whatever Android/Blackberry phones they currently use, not an easy switch as the Lumia 900 is quite deficient in many ways). Same with China, Nokia and Microsoft seem to have been willing to invest heavily in breaking into the China market.

I am wary of the Lumia push, as the phone series itself is so deficient, and not suited for (non-American) consumers and markets. But we will see. I calculated that early evidence from UK statistics suggests that when Nokia tries to migrate from Symbian to Lumia, they cannot achieve 1 to 1 replacement, but bleed about 30% of their customer base in the transition. Maybe with better models later this year, Nokia can do better. But the early signs for Lumia are not strong, and as long as Nokia's CEO refuses to sell the N9 and N950 on MeeGo globally (the N9 is sold only in tiny or inconsequential remote markets; and its sister product, the N950 is not sold anywhere) there is no relief to the smartphones unit. Expect Nokia not only to bleed market share, but to see actual unit declines in smartphones this Spring. It may reverse if Nokia bring better Lumia devices to the market (or reverse its idiotic decisions on the MeeGo devices, N9, N950 and others in the pipeline).


Nokia is still producing new Symbian phones - witness the superphone 808 PureView which will end this year 2012 as the undisputed top dog cameraphone on the planet. Bear in mind, the camera feature is more important to buyers than the operating system or the apps. Why Nokia is not capitalizing on its global leadership in cameras with the Lumia series is beyond me (but it is greatly due to the crippled nature of Windows Phone and how unsuited it is for premium camera operations on a phone. Nokia itself has said that the Windows Phone environment cannot support the porting of the 808 PureView technology until 2013 at the earliest. Says something about the 'burning platforms' Symbian OS and how 'obsolete' it actually was not).

Nokia's low-cost smartphone strategy cannot be built with Windows Phone, even the lowest cost Lumia 610 will have an unsubsidised price of about 250 dollars. So Nokia will be abandoning much of the 300 million sub-100 dollar market to the rivals who are able to produce low-cost smartphones at Samsung, ZTE, Huawei etc and the ultra-low cost local rivals like Micromax and Spice in India, Mi-Fone in Africa, G'Five in China etc. Nokia was supposed to fight for this segment with the Symbian line until its low-cost Linux based Meltemi is finished. The madness of course is that as MeeGo was Linux based, and compatible with Nokia's Qt developer tools (as is Meltemi, Symbian, Maemo, and Nokia's featurephones OS, S40; plus Qt also is compatible with Android and Blackberry), the only OS that Nokia supports that is not compatible with Qt is.. Windows Phone! So the past of Nokia is Qt compatible, and the future of Nokia is Qt compatible, but Nokia's 'main' smartphone platform for 2012 is not Qt compatible. Something is wrong with this picture. But yes, we await Meltemi to launch its first low-cost smartphones. That might happen still this year. Elop has been good at pushing far more aggressive delivery times at Nokia.

So how Nokia in Year 3, Digital Jamboree? I think Nokia will certainly bleed market share and depending on how hard Elop pushes away from Symbian and MeeGo based smartphones to Lumia series, Nokia may see actual unit sales declines even, continuing this year. Nokia started the year 2011 with a 29% market share on January 1 with only Symbian based smartphones. It ended the year on December 31, after 2 Lumia handsets and one MeeGo handset had launched, and still with dozens of Symbian devices, with 12% market share. As I have written, this is a world record in destruction of a market-leading brand in a one-year perdiod, in any industry ever. For 2012 I think its pretty clear we see Nokia plunging into single-digit market share territory. A good year would have Nokia ending the year with 8% in Q4, a bad year would see Nokia with Lumia, and what maybe remains of Symbian and MeeGo devices, as low as 6% market share. 10% is to my mind impossible, considering the bad replacement ratio we now see with Lumia not replacing Symbian even 1 on 1, far less gaining market share in that transition.

 

If Elop is fired and/or the Microsoft strategy is abandoned, and/or MeeGo wildely promoted with both N9 and N950 and/or Symbian 'reinstated' via the 808 PureView and also low-cost Symbian sub-100 dollar smartphones - any of these could resurrect Nokia to profits and a return to growth. I have said to not be surprised, if Elop is packaged with the Lumia division and sold to Microsoft, where Nokia and Microsoft might part ways this year. If you look at past Microsoft partnerships, most of them have had their falling-out periods, often very quickly after the truth of Microsoft's intentions has become clear to the 'victim' in the partnership (I am thinking of say Sendo, LG, Motorola etc)

RIM

Blackberry was seemingly in deep trouble early last year, as it tried to push the tablet PC and simultaneously cut its staff especially in marketing and sales. That has however stabilized and by Q4 RIM was back to growing again. For the full year RIM only grew 9% but in Q4 the Blackberry maker grew 33%. The good news at RIM is the return to growth. The bad news is that RIM is almost immune from being able to grow at the rate of the industry. The reason is that RIM was 'too successful' in the two biggest early-adopter market segments for smartphones - business/enterprise users, and the youth segment. They are now pretty well saturated for smartphones and the main business for RIM is to try to replace those handsets (and neither of them will replace their Blackberries at the global average replacement cycle). So Blackberry now is seeing 'anemic' growth when compared to rivals like Apple and Samsung.

The problem is worse with the iconic Blackberry form factor. The inbuilt full QWERTY keypad is a key to the addictiveness of the Blackberry form factor to all who do heavy messaging from emails to SMS to Blackberry messenger to Facebook to Twitter to other instant messengers like Whatsapp. Five years ago when the iPhone emerged, a Blackberry Bold style handset with its 2.5 inch screen was a reasonable substitute to the 'huge' iPhone display, where the buyer would need to weigh now big a screen they wanted, and whether they wanted a tactile 'real' keyboard or only a touch-screen keyboard. But today if you place the same Blackberry Bold style flagship phone from RIM against the Samsung Galaxy Note with its gargantuan 5 inch screen, the Blackberry screen looks like a postage stamp and today this form factor is on its way out among smartphones. It is replaced in smartphones by touch-screen slider-QWERTY hybrids, which address both the needs of a large screen and touch screen, as well as the full QWERTY - and as the keyboard is a slider, it fits length-wise, not width-wise, so the keys are much larger and easier to type on than the squeezed QWERTY on the Blackberry. On the low-cost end, Blackberries are challenged by far cheaper featurephones with similar QWERTY keyboards on Blackberry clones that in some markets are called 'Chinaberries' coming from the hundreds of low-cost handset manufacturers situated here in the Shenzhen region just outside of Hong Kong in China.

RIM will be in the news a lot for 'disappointing' numbers quarter in and quarter out. It will come out with its new operating system version which may help things, but this industry is not about handset design as much as it is about handset sales. The sales and marketing of Blackberry has suffered time and again with carrier concerns about Blackberry messenger eating into SMS text messaging revenues especially among heavy users. And in some markets (China, Japan, Korea) the Blackberry brand is not a significant player. The news that Blackberry will be supported by the Qt developer tools by Nokia had the potential to boost Blackberry and even possibly bring a long-term merging path for these two giant makers, but now that Nokia is not pushing the Qt environment (being incompatible with Windows Phone), that has turned into a mirage also for RIM.

HTC

 

HTC was once the bestselling Windows Mobile smartphone maker - it was the launch customer for WinMo and stayed as its bestselling phone brand until 2010. HTC was also once the bestselling Android provider until replaced by Samsung in 2011. Today HTC seems a bit adrift. It seemed to have found a new direction with the Titan series and especially the early specs on the Titan 2, which raised the stakes in the megapixel races with its 16 mp camera, but that lead was short-lived, with now Nokia's 808 PureView breaking through the stratosphere in megapixels jumping to 41 mp. And the Titan 2 has failed in side-by-side comparisons of the camera against slightly lesser megapixel count sensors like the Nokia N8 with its 12 mp camera, due to other factors like sensor size, the quality of the optics etc. I should note that for mobile handset buyers, still today, latest data from 2011 said that twice as many consumers used their camera feature on their phone, than downloaded apps on their phones - these numbers are consistent globally including in the USA - and thus, if a major handset maker has a great camera, it can address a far larger audience than a maker who has the best app store. So the HTC move seemed very smart. Maybe it was an early attempt and HTC will do better with the Titan 3 or whatever comes next. But HTC was strongly growing in 2010, it stumbled somewhat in 2011. It did grow for the full year faster than the industry - 81% but by Q4 HTC saw a severe decline in sales of 28%. The near term future for HTC is uncertain, can it recover or is there something systematically wrong with the company. 2012 will tell.

That was the big 5 smartphone makers who together control 70% of the world's smartphone market and where each had a market share in 2011 of between 19% (Apple) and 9% (HTC). The rest of the rivals are not really contenders, they are the pretenders, the largest of which had only about 5% market share sizes (Sony and LG) and down from there. But lets take a few to consider of the pretenders class

SONY

Sony is finally rid of the Ericsson part of the partnership. This is no doubt good in some ways and bad in others. What Sony did get, over the past ten years, is the best possible good will and reputation that Ericsson had managed to build on its side of the telecoms brand, in particular any synergies from Ericsson the world's largest telecoms networking infrastructure provider. Sony had given some of its consumer electronics brands to the SonyEricsson partnership to exploit - Walkman for musicphones and Cybershot for cameraphones but a big source of pain had been that the Playstation brand, Sony's strongest brand of the 2000s decade had not been given to the handset partnership. The nearest thing was the SonyEricsson Xperia Play but that was not a pure Playstation compatible device. It was a crippled little sister to the Playstation Portable. Now that Ericsson is gone, expect Sony to give its smartphones a big push, including using the Playstation brand. Also don't forget Sony is a huge player in the content side of digital media from movies to music. Meanwhile Sony has a vast array of consumer electronics where it can leverage the Sony synergies, starting with TVs that are becoming more intelligent and connected and internet-enabled.

Sony is firmly in the Android camp but does some lip-service also in the Microsoft family. It used to support Windows Mobile and has some commitments to launch Windows Phone smartphones but those are likely to be very few and far inbetween, just enough to prevent Microsoft from starting to sue Sony in the courts (like Microsoft already did to Motorola after it quit the Microsoft family for good). Sony has stated that this year 2012 it will finish its migration from dumbphones to smartphones, becoming the first of the legacy dumbphone makers to complete that transition. I should also point out, that the past SonyEricsson has suffered from generating a loss several times in the past quarters, perhaps with Sony's leadership now and clear focus, it can return to healthy profits and become a viable strong contender in the industry once again. I would say Sony is the strongest of the pretenders if it gets its act together, that could climb into the contenders class in a year or two.

LG

LG was the world's third largest handset maker at the start of last year but suffered throughout the year and downgraded its targets and goals. LG was hoping to ride a similar Android-powered rise as its cross-town rival Samsung, but LG has been a pale shadow of what Sammy has been able to do in mobile. Earlier, if you remember, LG bet big on a Microsoft-powered 'strategic partnership' about three years ago which went totally sour. After the Microsoft-powered smartphone dud turned profit-making LG handsets unit into loss-making, LG abandoned that path and shifted to primarily providing Android smartphones (with a smattering of other platforms supported) and climbed to borderline profitability after two years of hard struggle, and abandoning large swaths of its market share globally (yet another warning to Nokia, some have said that as the Microsoft Lumia adventure goes nowhere fast, Nokia's future is increasingly destined to join Android but now as a wounded giant rather than the proud leader it would have been a year ago).

LG was trying to use the 3D glassless displays and 3D stereoscopic cameras as its gimmick to differentiate and capture success. That has not panned out at least so far. We need to give LG another year to play with this strategy, as the 3D television technology is still in the early adopter level globally. LG might be poised to capture a good strong trend, or it may be that on phones 3D will never amount to much. A time of anxious analysis at LG this year.

HUAWEI

 

The largest of the new Chinese handset makers in the smartphones space. Huawei's cross-town rival ZTE is bigger in dumbphones, Huawei is bigger in smartphones. Both companies seem to copy-cat everything the rival does, so they provide just about any mobile telecoms tech from networking infrastructure to 3G data dongles and modems. Huawei is growing strongly especially in the low-cost smartphone segment on basic Android powered handsets and aims for the Emerging World markets like India, Africa, Indonesia and obviously its home market of China. Huawei is pretty certain to capture a nice slice of the 300 million size sub 100 dollar low price end of the smartphone market this year and here is where we will see Huawei mostly competing.

GOOGLE-MOTOROLA

So Google bought Motorola last year. Will Google hold onto Moto this year, time will tell. I felt that Google's main aim with the Moto purchase was to secure a strong patent portfolio to defend itself in the increasingly hostile patents wars. The family of Android vendors was not pleased that Google now became a handset manufacturer itself, especially Samsung has been clearly signalling its diminishing love of the Android environment, both pushing its own bada and in 2011 announcing it will replace Nokia with the Intel developments in smartphone OS that became now known as Tizen. I think Google itself will minimize the smartphone emphasis of Motorola, focusing strongly on returning the Motorola loss-making handset unit into profit-making, finishing the transition from dumbphones to smartphones, and being happy with a smaller market share but healthy unit. And Google might spin off the handsets side of Motorola in a year or two, after it is healthy, 100% smartphones and profitable. Google could also push the emphasis of the tablets side of the Motorola unit, so as to not compete very directly against most Android smartphone makers.

Don't expect Motorola to grow in a meaningful way this year, but rather, to stabilize and become profitable. I think Google will continue with its strategy of producing Nexus smartphones that are built by the Android makers, so that is another way that Google can try to keep its partners happy. But the brand that seven years ago sold more than one out of every 5 mobile phone handsets in the world - powered by the hugely popular Razr, is now gone and last year Motorola was a total bit-player of smartphones, with a market share of under 4% and falling. It was down to 3% by Q4.

MINNOWS

Then we have the truly little fish, whose market share is 2% or less in smartphones. I will only discuss this briefly as a group. This includes former big smartphone brands like Panasonic, Sharp, Fujitsu and Kyocera; includes big dumbphone makers who also make some smartphones like ZTE, Mi-Fone, Micromax; includes PC makers like Lenovo, Acer and Dell; and the obscure other maker like Pantech the 3rd mobile phone handset maker of South Korea (behind far better known Samsung and LG), or such smaller brands as INQ of the Hutchison group better known in mobile telecoms for the 3G brand Three in many European and Asian markets. Someone from this group can climb into the contenders during the year. Others may find it too expensive to fight for this market and quit. I would place more promise on the small makers who focus on the Emerging World markets than those who focus on the more affluent markets but you never know. Being the 3rd or 4th bestselling phone brand of a significant market alone is good enough to keep you in business, so you don't need to be a global hit to be able to survive and plot your cunning plans for world domination.

OPERATING SYSTEMS

 

So then the battle for the operating systems in the Smartphone Bloodbath, Year 3 Digital Jamboree. What do we see here? Over the last two or three years have set in motion the end of several of the big platforms and now we see more clarity of where the end-game is going to be fought. It will be a race with six major rivals or groupings. Lets look at them by size

 

ANDROID

Android has reached the point where it is selling roughly half of all new smartphones worldwide. The rocket-ship like rise in its market share growth has slowed and now is only growing by smaller gains per quarter, as is likely when you approach the half-point of any industry with several rivals. Google has on paper a phenomenal army of its Android supporters - of the ten biggest smartphone makers, seven produce Android smartphones today and each of the last 3 in the Top 10 are supporting a different OS, meaning Android is now the giant big bad wolf, that faces three little pigs to face off against, so to speak. But that is the optimist's view. The glass-is-half-empty view says that Android's strongest partner, Samsung, is not fully committed and could easily move half of its total smartphone production to its other platforms in just one year; and several other Android rivals have stated a willingness to support other platforms including HTC to Windows Phone and Huawei to the now-deceased MeeGo (and thus could go to Tizen). Android is not built on a solid foundation, but it was built very fast. Google is now adding many supporting elements, not the least of which is the various initiatives around Google Money.

Android's big growth obstacle in 2012 is that the rest of the field is mostly weeded out, the weaklings are gone and who remain tend to be stronger players with long-term interests. If we say Apple will do about 20% of the market in 2012, and say Blackberry does 10%, and the Nokia-Microsoft mess of Symbian, Windows Phone, Windows Mobile and MeeGo - to have a combined about 10% this year, then we have blocked out 40% and if Android walks into 2012 with 50%, there is maybe 10% to fight for. And biggest in that ring is Samsung with bada/Tizen which took 2% last year - its first full year and twice what Microsoft's Windows Phone did in the same period, also its first full year, but Windows Phone had HTC, Samsung, Nokia and others selling its phones. bada did it alone with Samsung.

So the upside potential for Android is somewhere under 60% for 2012 and it could end that we see the ceiling at 50% if Samsung shifts strongly away from Android. The big Nokia give-away from Symbian has already happened so there is not much to take from there and the Palm give-away has already finished and the Windows Mobile market give-away has about 1% left to go. I think we are seeing this year a settling of the 'natural' state of Android into the 50% to 60% range where it is likely to be relatively stable for some years go come.

iOS

The second bestselling smartphone OS last year was Apple's iOS. Remember, I am only counting smartphones, so if you want the full iOS ecosystem, it is bigger when we add iPads and iPod Touch devices. But I only count smartphones for this market, as smartphone sales are drastically bigger than tablet PCs or media players etc. And the other platforms like Android have tablets too. I will analyze the full ecosystem battle later in this blog

 

Apple's iPhone has shown a stunning ability to reach past supposed ceilings of where its price would be a limit. Last year selling 93 million iPhones, Apple took 19% of the smartphone market but when we count all mobile phone handsets (1.6 Billion sold last year) that was only 6% of the global handset market, and that percentage is well in line with the historical market share of what the Macintosh PC has been doing over its 28 year history. Apple is an aspirational luxury brand, make no mistake about it. While in the premium phone 'smartphone' category Apple can near one in five smartphones sold, in all mobile phones, where the iPhone costs more than 10 times the average price of a mobile phone handset worldwide - it is simply too expensive. I have said for several years, that the iPhone cannot grow its market share in meaningful ways anymore. I have been proven wrong, but I say it again. If Apple only release one new superphone priced iPhone this year, they have a natural limit of what they can do with such an expensive device. If they grow, it will be in very slight increments, a percent or two. Far more likely - remember the Deloitte projection of four out of ten smartphones sold this year will cost under 100 dollars (unsubsidised price) - the 660 dollar iPhone (unsubsidised price) will hit a market share ceiling due to being overpriced. As to an ecosystem, for developers of say smartphone apps and games, the iPhone installed base reaches one in six smartphones used worldwide. In installed base it is now third behind Symbian and Android, having overtaken the Blackberry installed base.

SYMBIAN

 

Nokia's Symbian started the year as the world's bestselling smartphone OS and had half a dozen significant smartphone manufacturers as its partners like Fujitsu, Sharp, Panasonic etc. After Stephen Elop created his communication disaster with the Elop Effect, Symbian sales crashed. Today it is the third bestselling smartphone OS and at Q4 of 2011 managed only 11% market share. It should be noted, that even 11 months after the infamous 'Burning Platforms' memo and more than a year of Windows Phone sales, Symbian alone on Nokia still outsold all Windows Phone smartphones made by HTC, Samsung, LG and yes, Nokia itself - by what? By 10 to 1. So don't think Symbian is going to go down quietly. Just looking at the spectacular 808 PureView and its monster camera technology, Symbian shows abilities that Windows Phone won't be able to replicate for at least another year. But yes, Elop did announce the death of Symbian and we see it now going.

This is very likely the swan song year for Symbian, we will probably see the very last Symbian based smartphone launched this year and then it will be over. Nokia never reached the 150 million more Symbian devices as promised by Elop. And this year we should see a strong ramp-down of the Symbian devices, with the intention of a 1 to 1 replacement by Nokia's Lumia line of Windows Phone based smartphones. Like I wrote in the above, the early evidence suggests that won't happen. But in any case, we should see Symbian's current 11% market share dwindling down to about 2% or so by the Christmas quarter, when no new Symbian models are released and only older Symbian models are still being moved off the shelves, at severe discounts. It is sad, as still today, by installed base Symbian is the world's most used smartphone and even in Q4, was the bestselling smartphone OS on each of the three most populous, of the six inhabited continents. I feel like Symbian is being killed while it still had a lot to give, come on, just look at the 808 PureView for example or other recent Nokia flagships like the E7.

The only difference to this scenario is if Elop is fired and/or the Windows Phone 'only' strategy is abandoned. I have said long before Elop came to town that Symbian is not viable for the future of Nokia, it has to go, but that as Nokia migrates away from Symbian, Symbian is still very well suited to low cost smartphones, those under 100 dollar devices with low specs. Windows Phone is not viable in that segment (at least not yet). So if Nokia had a clear change of leadership and/or smartphone strategy, the Symbian OS might live on at the lower end (and arguably its partner OS, MeeGo at the high end).

BLACKBERRY

 

The Blackberry OS was the fourth bestselling smartphone OS last year and its market share is gradually eroding while the smartphone sales are modestly growing. As Blackberry is not licenced to other manufacturers and RIM itself has had horribly bad luck in trying to expand the platform to other devices (epic failure with its tablet PCs), the Blackberry OS is the weakest of the ones with big footprints. For the installed base, the Blackberry smartphone does still reach over 100 million devices potentially, but many of those are enterprise/business smartphones which have limits and restrictions how they can be used, so this potential is severely limited in reality, as a far smaller addressable market on the consumer side of Blackberry at perhaps half that number.

That was the big bad wolf and the three little pigs, Android, vs iPhone, Symbian and Blackberry. Then what else is in the forest? Some ants. Lets start with the biggest, the killer ant:

 

bada

Samsung's bada is the fifth biggest smartphone OS by new sales and this year will become the fifth biggest by installed base, passing the size of the dwindling installed base of outgoing Windows Mobile. bada devices captured a 2% market share in Q4 of last year and have grown steadily and outsold for example the Windows Phone OS across all its makers by more than 2 to 1, even after Nokia jumped into the Windows Phone market. bada is so far only a Samsung-supported OS, but it is said to be developed into the Tizen path, which has other handset makers also committed to it. We should see the first Tizen smartphones launched by Samsung during 2012 and we should learn more about the converging development paths of these two operating systems then. In any way, when Microsoft talks about 'Windows Phone is the Third Ecosystem' please note that it is not even the 5th ecosystem by any measures, bada is. Microsoft's operating systems come in at 6th and 7th today.

WINDOWS PHONE

Microsoft's Windows Phone is a year and a half old now, and after its launch quarter when it splashed onto the scene with Microsoft handing out millions of free devices, and the OS briefly held a 2% market share at launch, it fell ever since. By Q3 of 2011 the Windows Phone market share was nearing one half of one percent (yes, 0.5%) and only when Nokia's Lumia smartphones were launched with Nokia's biggest marketing push ever, did the Windows Phone sales recover, barely, to 1% market share in Q4 of 2011. Note that when you look at various industry analyst reports, they report now a 'Microsoft' market share in smartphones, which adds both Windows Phone and the incompatible older Windows Mobile OS. I do not fall for that trickery, the operating systems are incompatibile and should be counted separately. But Microsoft doesn't like that, as it highlights how badly Windows Phone is failing in the market.

And before we look at this year's potential, let me make one more point. Samsung, HTC, LG and others have been providing Microsoft based smartphones for years. They should know how to do it well. Samsung and LG are the bestselling dumbphone brands in the USA, Microsoft's best market, so they should be able to really do well in the US market with Microsoft powered smartphones. Both are doing well in smartphones in the USA, using Android. And HTC is one of the USA's bestselling smartphone brands, again on both Android and the various Microsoft platforms. If you want a 'dream team' of handset makers to support your Windows Phone platform in Microsoft's strongest market, the USA, then the group of Samsung, LG and HTC is it (not Nokia, which has failed in the US market recently). How was this trio doing in the USA? Saw failing Windows Phone sales all year. How did they do worldwide? Without counting Nokia Lumia smartphones, Windows Phone smartphones saw falling smartphone unit in four consecutive quarters! This while the industry grew 63% last year! Please do not delude yourself into thinking that the Windows Phone 'ecosystem' with Samsung, HTC and LG joining Nokia is strong. The Windows Phone OS would have died last year, were it not for the last minute savior seen in Nokia. And in its first quarter of sales, the poorly performing Lumia series for Nokia became the bestselling Windows Phone brand in the world. Nokia did not need Microsoft to survive; it was the other way: Microsoft desperately needed Nokia to survive.

So what of this year? Yes. First, its pretty clear, come what may, Windows Phone will see growth. Not just unit growth, but market share gains. Its not much to shout about if you start from under 1% but at least its something. I said earlier that the shift was supposed to be about 1 to 1 as Nokia ramps down Symbian and replaces it with Lumia. If so, Nokia could have shifted about 12% market share at the start of the year, 90% Symbian and 10% Windows Phone to about the same market share but opposite proportion by Q4, ie 90% Windows Phone and 10% remaining Symbian (I am obviously not including MeeGo in this simplified model). Now we know from the facts, that this will not happen. Nokia will still bleed sales as it tries to force undesirable Lumia smartphones to its loyal customers.  Lets say that by Q4 the total combined market is half, so 6% and 5% of that is Windows Phone and 1% is remaining Symbian. If so, Windows Phone on Nokia brand could get something like 4% of the global smartphone market this year - about 30 million smartphone handsets - and if we add another 2% by the other handset makers - which would still be more than doubling their current sales - and say Windows Phone has a total 2012 annual market share across all Windows Phone family smartphone manufacturers of 6%, that is about 45 million devices for the year. Pretty pathetic actually. But that is the kind of levels we should aim for for Windows Phone (remember, for Nokia there will be more smartphone sales from the ramping down of Symbian and what few millions of N9 and other MeeGo devices are perhaps sold as well).

MEEGO

For the full year MeeGo did not even register in the one percent range, but MeeGo only launched in the last quarter of 2011 with only one handset model actually sold, the N9 (even as its sister model, the N950 with QWERTY slider was also manufactured by Nokia in small numbers). Nokia refused to give the exact count of MeeGo powered N9 sales but in every country it did launch, it had very warm reviews, some actually calling it better than the iPhone! We calculated from Nokia's Q4 results that after we remove the Symbian sales and the Windows Phone sales, MeeGo sold about 1.75 million units worldwide in the few countries it launched in Q4. In the same period, the two Lumia smartphones sold at lower prices in more affluent countries that were Nokia's strongest markets - and flopped, selling only 600,000 units. So one MeeGo device, the N9, outsold both Lumia smartphones by 3 to 1, even as Nokia's CEO refuses to give the N9 and MeeGo any marketing support. This is a still-born OS that is likely to die quietly in 2012. The sad truth is, that if Nokia bothered to launch the N9 in those markets where the Lumia is now failing, and only sold at the same level - so Nokia would do about 3.5 million N9 unit sales in total - as its a very high priced smartphone, made in Nokia's own factories to Nokia standard components (the Lumia is not made in Nokia factories and does not use Nokia standard componets) and while the Lumia incurs a royalty payment to Microsoft, MeeGo based smartphones incur no royalty payments - Nokia would generate so much profit just from N9 sales globally, that Nokia corporation would return to profitability. But Elop feels his ego is more important than the profits of his company. So like I said, I expect MeeGo to be killed and buried this year. What a rotten end to a true winner that actually beat Microsoft when launched on the identical Nokia smartphone brand and on touch screen phones of near identical appearance. Also what a powerful last vindication of the MeeGo development team.

(Please note, Nokia seems to have 2 new MeeGo devices under development as reported on 28 March at the Netbook News site. This gives considerable lease-of-life to MeeGo and if these devices come to the market during 2012, would be strong boost for Nokia. Also, this news to me even more strongly underlines the necessity for Nokia now to market the N9 and N950 globally in every market, while they are hot and desirable, since Nokia is clearly continuing also with MeeGo. Why on earth, when a CEO has a hit product on his hands, he would refuse to sell it, especially if this product could turn the loss-making smartphone unit into profit-generating once again)

WINDOWS MOBILE

 

Microsoft's Windows Mobile still refuses to die. It is used in some business/enterprise markets, sold in very small numbers by Samsung, HTC and others, in numbers of far less than 1 million in total last year. Microsoft is now terminating the app store for WinMo etc, but stubbnornly this thorn in Microsoft's side continues to sell in small numbers.

TIZEN

 

And then we have the Intel-Samsung partnershp with Tizen. While most of Tizen's steps have happened below the radar, there is vast potential for this OS to become the real 'third ecosystem.' Consider who are on the Tizen Board: Samsung and Intel, obviously, but also Japanese smartphone makers Panasonic, NEC and Casio. And then there is that 'tiny' player Huawei from China. Yes, that Huawei which has already passed LG and Motorola in smartphone sales per quarter, and is now chasing Sony and HTC. This is not an idle partnership. But wait, then there are the carriers! What? Yes, NTT DoCoMo, Orange, Telefonica and Vodafone are also on the Tizen Board. Just how big is that? These four carrier/operator groups control one sixth of the global mobile market from the telecoms subscriber side, and with 960 million subscribers, are a massive force in the industry. They include 3 of the 6 biggest operator/carrier groups globally. If they end up saying they will specify Tizen as their preferred OS - like NTT DoCoMo had done with Symbian in the past - its a near guarantee of Tizen commercial success. Understand, these four together are more than nine times as big as AT&T of the USA for example.

The keys are when do we see first handsets, will there be serious commitment from the other handset makers, not just Samsung, and how will Sammy itself migrate and grow the bada evolution to Tizen. But this may well end up being the masterstroke by Samsung, snatching MeeGo/Intel partnership from Nokia and turning it into the legitimate 3rd ecosystem while Windows Phone lingers in 6th or 7th place..

ECOSYSTEMS

I will also add a few thoughts about the broad picture when we add other devices, not just smartphones, and the other significant elements of an ecosystem. We go again in size, from the biggest

 

WINDOWS 7 / WINDOWS 8 - 300 million new sales, 1.1 Billion installed base

 

If we look at the big picture ecosystem, currently the biggest is Windows, from the PC side. They sell something like 250 million PCs, and when we add the Windows Mobile and Windows Phone smartphones, we can add a couple of million to that, but they get lost in the rounding-off error. Windows/Microsoft has an installed base on PCs roughly in the 1 Billion range globally. To that you can also add Xbox 360 which sells in the couple of dozens of millions per year, and has something like 75 million perhaps in the installed base (I am not bothering now to research that number, its for big picture scale only, that it is smaller than PC number but bigger than smartphone number for Microsoft). The developers like the Windows world (to a degree) and Windows 8 seems sure to be another global near-monopoly on the PC side. There should be lots of tablets coming also in the Win 8 stage. Note, that this ecosystem is severely skewed to the PC (and Xbox) side, its smartphone side is trivial and is likely to get lost in the shuffle. Microsoft's ecosystem is the most tightly controlled and least open. Microsoft is also most greedy in various licenses and most prone to sue anyone they feel doesn't play exactly by their rules. No wonder Microsoft is called the Evil Empire and for example its ten-year legacy in mobile is littered with ruined partnerships and lawsuits.

QT - (450 or) 800 million new sales, (1.0 or) 1.4 Billion installed base

Qt could already be the biggest ecosystem, it will be that shortly. I am simply not up to date on the development and support of Qt, as I am no longer a programmer and really can't care about that level of the technical detail. The point is, that as the Qt developer tools enviroment is being developed and evolved, it either supports today, or will support soon, most of Nokia's devices, from current smartphones on Symbian, MeeGo, Maemo, to Nokia featurephones on S40, to future low-cost smartphone on Meltemi. Qt does not support Windows Phone. Qt can also be used to develop apps for Android and Blackberry and soon even more (mostly Linux based) smartphone operating systems. Qt compatible sales just on the Nokia brand run about 450 million devices per year, and if we add in Android and Blackberry, that unit sales jumps to about 800 million new devices sold per year !!! The current installed base just on Nokia brand on Qt runs about 1 billion devices and runs well past 1.4 Billion when we add Android and Blackberry to the total. The Qt environment (as the tool is finalized) will be clearly the biggest ecosystem on the basis of installed base, and in new sales, it totally dwarfs the only other big rival, Microsoft's Windows. This is very legitimately the 'first ecosystem' not only in smartphones but in all digital technology platforms. And thats before we see any tablets on any of the supported platforms haha..

Note that the Nokia ecosystem obviously includes the now unbranded Ovi store (ie Nokia store) which is the bestselling app store on five of the six inhabited continents and supports 130 languages and has carrier billing (the most powerful revenue-generating method of paying for mobile apps, so that you don't need a credit card) in over 50 countries. Nokia has traditionally been the most open ecosystem not just using open source principles but also very broadly inviting real competitors as co-developers, from the broad original Symbian partnership to what was the MeeGo partnership with half a dozen handset manufacturers (several of whom have since shifted to Tizen)

iOS - 250 million new sales, 350 million installed base

The Apple iOS ecosystem includes primarily the three iOS platforms, iPhone, iPad and the iPod Touch. But we can consider the Apple community to also include the Macintosh part of the Apple world, so we get to total annual sales in the rough scale of about 250 million (and this year that may grow massively to say 400 million) and an installed base of 350 million which will probably double this year. Apple is expanding into more areas like TV and it also has the iPod/iTunes business in the digital world to add to this arsenal. Apple's control of its ecosystem is legendary or infamous depending on your viewpoint but clearly the iOS ecosystem is very much at the end of 'closed', not open.

ANDROID - 250 million new sales, 275 million installed base

 

The Android ecosystem is very new but growing very strongly. Most of it is centered on smartphones but increasingly there are tablets and other devices too. By current sales, Android smartphones account for just about half of all smartphones sold, so as the migration continues of the handset industry from dumbphones to smartphones, Android is very well poised to capitalize. Android is quite open but not the most open of the open systems. As I've written, if Samsung decides to migrate its Galaxy series away from Android, being the bestselling Android manufacturer currently, that would be a big blow to the Android family but not a fatal one. Google has enormous online assets it can use such as search, Gmail, advertising, mapping etc.

BLACKBERRY - 60 million new sales, 120 million installed base

The smallest of the big ecosystems worth considering here is Blackberry, which does sell about 60 million smartphones and tablets, and has about a 120 million installed base. Blackberry is limited to RIM and is struggling to grow even within its market and suffering as it tries to push tablets. Blackberry's strongest asset from the services side is Blackberry Messenger (BBM).

So that is how I see the Smartphone Bloodbath Year 3, Digital Jamboree. What do you think? How will this market evolve this year? Is it yet another year of deaths, or perhaps a year we see more partnering and collaboration and mergers.

Please allow me one plug - For those who feel they cannot have enough facts and numbers about the handset industry, I wrote a statistical handbook about the handset industry in 2010. The ebook is called the TomiAhonen Phone Book 2010 and runs 171 pages and has 98 charts and tables including just about anything you could ask for, including sales numbers, installed bases, market shares, features, form factors, etc. The ebook costs only 9.99 Euros so if you need the numbers, that is the place to go. And now a special offer - I will be doing the totally updated edition for release in the summer of 2012. If you buy the 2010 edition between now and when the 2012 edition is released, I will give you both for the price of one. So if you order the TomiAhonen Phone Book 2010 now, you will get the 2010 edition now, and for no extra cost, the 2012 edition this summer when it is released. Is that a good value? To see more, please see the TomiAhonen Phone book 2010. 

 

The CEO Insane - How To Rescue Nokia (story updated)

I know I know, nobody is going to listen to me anyway. But Nokia's Shareholder Meeting is coming up, and some have been asking me how would I fix Nokia today. I wrote a long detailed blog last year telling what was broken and how to fix Nokia overall, not just the smartphones part. Its sad to see it took Elop a year to get around to trying some of the ideas that I insisted Nokia needed to do back then (he is now, for example the 808 PureView is exactly what I suggested). So I will try to keep this short and to the point and focus only now on the catastrophic situation with Nokia's smartphones unit and the Lumia line. And am trying to inject some humor into this rant. Lets see how the sane CEO would behave when faced with, lets say, a hypothetical situation...

( UPDATES TO THIS STORY on 28 March, 11 April & 12 April, see end of story )

LUMIA LAUNCH FAILURE

 

Your company launches a new platform called Windows Phone, on a new brand of smartphones called Lumia. This is sold in parallel with two other smartphone OS platforms you also support currently, Symbian and MeeGo. The new Lumia phones are introduced in a dozen leading countries in Europe and Asia. Now five months later, you discover that the first Lumia phones are not competitive in the market on their specifications and designs. They receive mediocre support in the press. They receive alarmingly often published opinions suggesting customers are better off buying smartphones by rival manufacturers or ones using your other platforms. Smartphones have traditionally been a key to the profits of the company but currently your smartphone unit is generating a loss.

The sane CEO moves strongly to embrace the hot smartphones on the two other platforms, in particular the highly rated N9 using MeeGo and 808 PureView using Symbian and takes every opportunity to be seen with these desirable phones, and to try to convince all in the media that if you don't like the first Lumia, don't worry, take these alternatives from Nokia instead. The sane CEO would fight Android and the iPhone (and Blackberry) with MeeGo and Symbian, if Lumia is not working (now). Smartphones on the two platforms would be broadly promoted in all major markets including launching the N9 to all Lumia launch countries and the 808 PureView especially in the USA. This could be done while working to improve the next Lumia smartphones to remove the obstacles to their market success.

The insane CEO refuses to be seen anywhere near an N9 or 808 PureView and only insists on talking about the undesirable Lumia. The insane CEO would refuse to even sell the N9 in the European and Asian Lumia markets and refuse to sell the 808 PureView in the USA.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

N9 KILLER SUPERPHONE ON MEEGO

 

Your N9 running MeeGo has received glowing reviews in all markets where it has been released. It alone outsold both Lumia smartphones by a ratio of 3 to 1 in Q4, the first quarter when both were sold, even as Lumia smartphones were cheaper; the N9 was sold in less affluent countries, and the Lumia were sold in Nokia's best markets. The comparison reviews consistently rate the N9 a far better smartphone. It is rated consistently a better value even while being more expensive than the Lumia, in consumer reviews from Australia to South Africa to your company's native Finland. Whereas Lumia phones are manufactured at Compal factories in Taiwan, your own Nokia factories are idling and the N9 could be manufactured at far lower costs in your own factories - the most efficient handset factories on the planet. Whereas the Lumia phones use components not usually used by Nokia, the N9 uses standard Nokia components so the manufacturing of the N9 gain from bulk discounts in its components. Whereas the Microsoft Windows Phone OS causes a royalty payment per handset that Nokia has to pay to Microsoft, the MeeGo OS on the N9 is (co-)owned by Nokia and no royalty payment is needed. The profitability of selling the N9 is far higher than the Lumia, even before marketing expenses are considered. Meanwhile because the N9 is a true flagship phone and significantly more expensive, it would not even threaten to cannibalize Lumia customers. But because of the outwardly similar appearance, the N9 could actually help sell the Lumia. The current attraction of the N9 is so intense, the biggest European handset market, Germany, had the extraordinary review by Germany's biggest newsweekly magazine, Der Stern, suggesting to its readers, they should drive to another country - like Switzerland or Austria - to purchase an N9 because it is truly that good, but inexplicably, the N9 is currently not sold in Germany (rather than to buy an Nokia Lumia which is sold in Germany).

The sane CEO immediately orders mass production of the N9 and releases it to every country and makes massive promotions in Germany, personally appearing in Der Stern inteviews holding the N9. Judging by the Q4 numbers of the few relatively poor and often small countries where the N9 was sold, if it was offered globally, Nokia would sell at least 4 or 5 million N9 units per quarter. This single action alone would return Nokia's loss-making smartphone unit to profitability.

 

The insane CEO steadfastly refuses to sell the N9 in most of Nokia's best markets, and puts his own ego ahead of the profitability of Nokia.

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

RETAIL CHANNEL REFUSES TO SELL LUMIA

 

You have already admitted in public that many retailers in many countries do not support the Lumia fully. You have mentioned the retailers in the UK as particularly problematic. Now comes news from Nokia's home market where Nokia traditionally had over 80% market share - even higher in smartphones - that the Finnish handset retailers are refusing to sell Lumia. This is the nail in the coffin, really. When your own dogs bite. When sales people in Finland refuse to show Lumia phones when asked for by name! Even as Nokia has massive marketing support and huge in-store displays. Similarly a separate survey by Talouselama of European handset retail stats, says Lumia sales are collapsing.

The sane CEO takes the two other platforms, Symbian and MeeGo, and rapidly pushes several highly regarded phones on those platforms, in particular the N9, the 808 Pureview and the N950 - and rushes those handsets to the retail channel. The sane CEO warmly embraces the Symbian and MeeGo based smartphones and issues a public statement about Nokia's acknowledgement that Lumia needs more work, to restore the retail channel's trust in Nokia. If he feels so inclined, the sane CEO may end the Lumia series or consider relaunching it with new handsets next year. In any case the sane CEO points out the strong synergy Nokia's Symbian has with MeeGo and Nokia's featurephones running S40, to Nokia's developer community, through Nokia's Qt developer tools and Nokia's Ovi store.

 

The insane CEO refuses to sell the hot new phones on the MeeGo and Symbian platforms, and keeps pushing more and more undesired Lumia handsets to the market. 

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

N950 KILLER SUPERPHONE ALSO ON MEEGO

 

Your company designed and started production of a second MeeGo based super-smartphone, the N950, as the sister phone for the highly loved N9, last year. This is the QWERTY-slider version, well suited for high text messaging users, Twitter and Facebook users, email and business users, similarly to how Blackberry, Nokia E-Series and Communicator smartphones are used. The N950 uses the highly praised MeeGo OS and is built in Nokia factories, running on Nokia components and could be priced above that of the N9 to be very profitable for Nokia. As none of the four first Lumia smartphone have a QWERTY keyboard, nor does the N9, nor does the 808 PureView, the N950 is the topmost and only modern QWERTY flagship smartphone for Nokia, since the E7 from more than a year ago - a smartphone that in many markets is still the bestselling Nokia smartphone today. The N950 would be in rare status, where for example Apple still refuses to sell a QWERTY version, so only the N950 would be isolated from iPhone rivalry for the approximately 30% of consumers who prefer QWERTY keyboards on their smartphones. The N950 is comprehensively loved by all who have used the device as an exceptionally solid premium smartphone from Nokia. And as there is no comparable QWERTY device on Lumia series, the sale of the N950 now would in no way 'hurt' Lumia sales. There is no downside to launching the N950 everywhere, only a huge, profitable upside.

 

The sane CEO rushes to launch the N950 to every market now, to capitalize on the good will of the N9 and MeeGo. The launch of the N950 to Nokia's major markets alone would be enough to turn Nokia's loss-making smartphone unit into profit-making.

 

The insane CEO takes the N950 that its factories already manufacture in trickle levels, and refuses to sell the N950 in any country, only handing out a few of the N950 smartphones to some developers.

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

CONSUMERS REJECT LUMIA

 

Your Windows Phone vision as communicated a year ago was to replace Nokia's Symbian based smartphones on a 1 to 1 basis, with Windows Phone. This assumed Microsoft could deliver a competitive and desirable OS out of Windows Phone version 7.5 and that Nokia's first Lumia smartphones would be well received. Now evidence comes from the early markets that even when supported by the biggest marketing campaign ever seen in mobile history, by the largest handset maker in the world; and then further augmented by a massive support campaign by Microsoft - including giving free Xbox 360 videogaming consoles to customers who buy Lumia 800 smartphones - the customer are not willing to take Lumia smarthpones. The crushing statistics from Britain report that Nokia is now losing a third of its last, most loyal, remaining customers, when pushing the transition from Symbian to Lumia. And British press, such as the Guardian, actually recommend consumers to return their Lumia smartphones. The second hand market and auction sites like Ebay are overflowing with Lumias being discarded.

The sane CEO acknowledges the first attempt at Lumia has failed in the best Nokia markets and reacts rapidly to offer strong substitutes to those markets - in particular the Nokia N9 which has consistently in all side-by-side reviews outperformed the best Lumia 800, and also rush other top Nokia smartphones such as the 808 PureView and N950. The sane CEO would be seen broadly embracing these smartphones and issuing clear statements that Nokia is not abandoning the Symbian and MeeGo platforms - while showcasing how advanced these platforms are.

 

The insane CEO refuses to sell Nokia's best phones but pushes ever worse and ever less desirable, and ever cheaper Lumia clones to these markets where the first Lumias have already failed.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

TABLET FOLLY

 

Apple is making a ton of profits out of the iPad. The tech press love stories of tablets. The reality is, that if you are a PC maker like Apple, Samsung or Lenovo, a tablet can be a great strategic move. There is a lot of synergy between the PC/laptop business and tablet business, from shared components to the same distribution channel to synergies in marketing, pricing, and branding. If you are a handset maker like Motorola or RIM, to try to compete in the tablet space is lunacy. There are few shared compoents, the distribution channel is totally different, the marketing is different, the pricing is totally different and so is the branding. Apple and Samsung have been very profitable doing tablets. RIM and Motorola found massive losses out of their forays into tablets.

 

The sane CEO would never contemplate any tablet project as long as Nokia corporation was producing massive losses. The sane CEO would concentrate on Nokia's core business in handsets, and put the biggest effort in restoring the profitability of the smartphone unit. With smartphones even against Apple, Nokia would have many natural strengths from its long history in mobile phones, such as the fantastic camera on the 808 PureView or the swipe touch technology on the N9, to the QWERTY on the N950 etc, to a home-field advantage of still today the biggest installed base of both smartphones globally, and dumbphones who will soon migrate to smartphones.

 

The insane CEO would squander scarce resources on a futile tablet project, resources desperately needed to fix the leaking ship of the smartphones unit. With tablets against Apple, Nokia would bring no assets and no competitive advantages while facing Apple at its home turf and massive market share domination in both tablets themselves, and compared to Nokia, Apple's considerable installed base of Macintos PCs and laptops.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation. But Microsoft would ever so dearly love to see someone make tablets for Windows, and Microsoft couldn't care less if that manufacturer made any profit out of it, nor indeed whether it lived or died. Microsoft just wants a tablet to face off against Apple. But I'm not saying Elop is in Microsoft's pocket)

CHINA

 

The world's largest mobile telecoms market is China. The world's largest mobile phone handset market is China. The world's largest smartphone market is China. The world's largest carrier/operator is China Mobile, alone bigger than all US carriers combined - and twice that number still. Yes, take all US carriers, AT&T, Verizon, Sprint etc, add them together, and then double that number, and its still not as big as China Mobile the carrier is alone. Your Nokia brand is China's biggest handset brand and most desirable handset brand. Your Nokia smartphones have been the bestselling smartphones of China and the Nokia Ovi store is China's biggest app store and the Symbian OS has by a huge margin China's biggest smartphone installed base. Nokia had achieved the exceptional partnership arrangement with China Mobile, that they were a co-developer of the MeeGo OS. Windows Phone has not yet even been introduced a single smartphone model in China by any handset brand, not even HTC or Samsung, while the Nokia N9 has been selling there since Q4 of last year.

 

The sane CEO issues public reassurances to China Mobile that Nokia will remain with MeeGo and use it as one of Nokia's platforms and to support China Mobile, and to help China Mobile's initiative and software partners to expand the Chinese-language services even beyond MeeGo to other Qt compatible platforms including Nokia's Symbian, S40 and Maemo, and also Android and Blackberry. The sane CEO will immediately commit to producing TD-SCDMA 3G versions of all MeeGo capable handsets today - the N9, the N950 and the older N900. TD-SCDMA is a China-specific 3G standard that for example Apple does not support with the iPhone. Nokia has traditionally provided Symbian based smartphones on TD-SCDMA. Before those Chinese variants are finalized, the sane CEO would rush the N950 to the Chinese market now to capitalize on China Mobile's interests in MeeGo.

I am sorry, I really have to stop here for a moment. Do you realize what this means? Nokia had in its pocket, the monopolistic exclusive rights to 12% of the planet's mobile phone total market! All it needed, was for Elop to go, hat in hand, to China Mobile and promise there will be glorious MeeGo and Symbian smartphones, running Ovi in Chinese, on that TD-SCDMA 3G standard which Nokia already supports fully, and China Mobile would forever block the iPhone and Blackberry and Android and Samsung and HTC and all others from its networks. This is as near to a monopoly as you can hope for. This was the greatest coup in mobile. This was a license to print money. Canalys reported that Nokia's smartphone market share was 77% in China in 2010 - and it was even higher on China Mobile's network obviously. This was Nokia's cherry on the top, just before Stephen Elop's suicidal Elop Effect. And with Nokia's massive factories in China, they could churn out those millions of smartphones at great profit. Any sane CEO sees, this is the most imporant customer relationship that has ever existed in the mobile industry, and you do not screw with it. The sane CEO will turn heaven and earth, to get China Mobile smiling and happy back, to a MeeGo and Symbian based partnership with Nokia. Ok, lets return to my rant...

The insane CEO spits in the eye of China Mobile's commitment to MeeGo, and forces China Mobile to contemplate Windows Phone based, clearly undesirable and globally market-failing Lumia smartphones instead, especially where MeeGo is fully compatible with the Nokia Ovi store and the Qt developer tools, while Windows Phone is not. Where the Ovi store has tons of Chinese apps and Windows Phone obviously has nothing to offer. And the Chinese market has very little utility and compatibility with Microsoft platforms where PC penetration is low, Zune is not popular and Xbox 360 is actually legally forbidden in the market.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

 

SUPERPHONES

 

Nokia's global brand, price premium and overall appeal has been driven over the years by genuine iconic superphones from the 9000 Communicator to the N93 to the E90 Communicator to the N95 to the N900 to the N8 to the E7 to the 808 PureView. Nokia's flagship phones are expected to showcase technology nobody else has, much like the automotive world looks at the Mercedes S-Class for the ultimate cutting edge tech that will come to normal cars only years later.

The Symbian OS is fully capable of delivering superphones (as is MeeGo for the most part) but Windows Phone is not. Windows Phone is severely crippled when contemplating superphones. Nokia has just admitted, that for example just the camera technology of the 808 PureView, which yes, runs Symbian happily today, won't be able to be put onto Windows Phone based Lumia phones until in 2013 at the earliest. Standard Nokia superphone features like NFC and multiple displays and TV out and HDDI output and enhanced Dolby sound and Augmented Reality etc are simply not supported on Windows Phone. There is no ability to use the Lumia as a WiFi hotspot. Some of the first Lumias have even more problems like not offering forward facing cameras so you can't do videocalls. Not to mention more mundane features we expect like folders and the ability to edit a text message and to display the clock in idle mode and genuine multitasking etc.

A sane CEO will observe from what Microsoft has now delivered on its promised Windows Phone to Nokia's Lumia, and conclude, Windows Phone is not ready for prime time, and certainly not suited for top end premium phones, superphones that can compete head on with the iPhone 4S and Samsung Galaxy Beam etc. The sane CEO will start to issue clear statements that of course Nokia will continue with MeeGo into the future as its OS for the top line superphones - because MeeGo was designed from the ground to be an OS for superphones - and that also Symbian will live on, as it is actually quite well suited as well for many top phone uses from cameraphones to business-oriented QWERTY phones.

 

The insane CEO abandons the top of the market that Nokia used to rule, to the iPhone and Samsung Galaxy, and only competes in the middle of the smartphone market where every rival is competing and prices are squeezed and profit margins are thin. The insane CEO would continue to suggest that there is no future for Symbian nor for MeeGo.

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

 

ECOSYSTEMS

Yes, the consensus is - and has been for quite a while - that the big race in smartphones is for the ecosystem. The key to the ecosystem is whose OS has the biggest installed base, not the number of apps on an app store for example or some billion-level download number. Your memo told the world what are the main elements of a mobile phone ecosystem as you wrote that after counting the hardware and software, an ecosystem will also include: "developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things."

Nokia has recruited the world's largest army of developers to its ecosystem (over 400,000 copies of Nokia's developer kits have been issued, this totally dwarfs all other smartphone developer communities). By the app store, Nokia's Ovi was ranked second best by number of downloads when you took over and is still third best, far ahead of for example Windows Phone. In ecommerce Nokia not only had the world's most widely used mobile content store in Ovi - the bestselling content store in every language except English, Japanese and Korean - ie covering 93% of the planet's population. And Nokia had a huge lead in its mobile money solution, Nokia Money, ahead of rivals like Google. Nokia's in-house mobile advertising agency was one of the first, and one of the world's biggest. And so forth and so forth.

The sane CEO believes what he wrote, that the future is won on the ecosystems and he would safeguard Nokia's ecosystem lead and build upon it. Like how mobile money is a key to customer loyalty and Nokia handset branding in Emerging World countries.

The insane CEO would spit on Nokia developers by announcing that the promised migration path from Symbian via Qt to MeeGo is ended. The insane CEO would sell Nokia's advertising unit and simply discontinue Nokia's mobile money project when it had already won 12% of the mobile money market share in India, the world's second largest mobile telecoms market. The insane CEO would open the door for a rival company's ads to be shown on Nokia screens without Nokia control to potentially threaten Nokia's brand loyalty.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation. I cannot but be bewildered, what in the world could possess Mr Ecosystem Elop to actually destroy Nokia ecosystem components? I mean, about the only conceivable reason would be if Elop somehow wanted to help Microsoft's ecosystem defeat Nokia's ecosystem? No, that cannot be, Elop is a Nokia CEO)

 

AFRICA

 

The largest part of your current customer base and new phone sales are in the 'Emerging World' markets, in particular Africa, India, the Middle East, Indonesia, Brazil, Russia, etc. You talk of the 'next billion' users there. Windows Phone is utterly unsuited for this market. Microsoft itself says Windows Phone OS is not currently suited for low-cost smartphones. Nokia itself said last year that Windows Phone was not suited for the Emerging World markets. Windows Phone is the most closed and restricted environment which in Emerging World markets is far more damaging, where due to problems with cellular coverage, electrical supply, poverty, illiteracy etc - the need to be able to transfer files via Bluetooth, and with microSD cards and using interactive USSD etc is vital. PC penetration is minimal, Microsoft's PC Windows markets share even among PC owners is low and most of Microsoft's platforms are not used such as Zune and Xbox. The ability to use cloud-based file sharing and storage is both prohibitively expensive and incredibly unreliable in these markets.

Nokia's Symbian is perfectly suited for this market, as Symbian is fully functional with modest specification handsets and is fully open in various connectivity from Bluetooth to NFC to microSD to TV-out to HDMI etc. Nokia's Ovi Store is the run-away dominant market leader in this market. Symbian today can power smartphones that cost less than 100 dollars (unsubsidised price). Windows Phone lowest price Lumia costs 250 dollars (unsubsidised price). In the Emerging World markets this price differential is decisive. Morgan Stanley Deloitte told us that 300 million smartphones at a price of under 100 dollars (unsubsidised) will be sold this year. Nokia cannot compete there with Lumia, only with Symbian.

 

The sane CEO continues to expand Symbian to lower cost smartphones in rough parallel as Samsung and Android, and uses Nokia's scale as a competitive advantage to capture the Emerging World markets to Nokia's Symbian based ecosystem, including Ovi Store and Qt.

 

The insane CEO tries to push 'lower cost' Lumia handsets like the Lumia 610 - which still costs 250 US dollars (unsubsidised price) and issues statements that Nokia is accelerating the end of Symbian while Lumia is not ready to take over this low end and Nokia has no alternative.

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

CLOUD COMPUTING

 

The emerging view is that the future of the whole internet, telecoms and computing industry is headed to the clouds. Nokia believed in cloud computing and mentioned Elop's background in Microsoft's Cloud Computing project as a desirable skill when Elop was hired. One would think he would understand and value the leadership position that Nokia had gained in Cloud based solutions.

 

The sane CEO would fully support and expand and capitalize on Nokia's leadership in cloud based solutions.

The insane CEO shuts down Nokia's Ovi Share and Ovi Contacts and forces Nokia users to migrate to cloud-based solutions run by rivals.. like Microsoft's Skyshare, Windows Live and Outlook. 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation. The conspiracy theorist might suggest that Mr Cloud Computing would deliberately sabotage Nokia's cloud solutions just so Microsoft would have less competition. You might think that; I could not possibly suggest such a thing.)

808 PUREVIEW

 

Your stunning 808 PureView cameraphone with gobsmackingly awesome camera technology won the phone of the show award at the world's biggest mobile telecoms trade show in Barcelona last month, ahead of stiff competition such as Samsung's Galaxy Beam with its tantalizing built-in pico projector. The 808 PureView runs on Symbian, an OS you have previously suggested was obsolete and equivalent to a burning platform. Yet on this magnificent superphone, Symbian does tricks Windows Phone cannot even hope to do this year, from normal Symbian abilities such as true multitasking to abilities more relevant to the camera excellence such as HDMI output. The 808 PureView is receiving the best early reviews of any Symbian based phone ever, even in usually hostile US tech press. The 808 PureView starts shipping in weeks, for example to the UK market.

 

The sane CEO celebrates the excellence of the PureView, rides the hot press, is seen everywhere with that phone, and uses it to celebrate the competitive advantages of Symbian, its open system, its Qt developer tools, Nokia's Ovi store etc and of course, the sane CEO launches the 808 PureView to the US market immediately.

 

The insane CEO refuses to be seen near the 808 PureView and even facing strong US media love of the astonishing cameraphone, refuses to launch it in the USA

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation. This could not have possibly anything to do with the embarrassing fact, that even after Elop's Burning Platforms memo, the 'failing' Symbian continued to outsell Microsoft's Windows Phone - in Microsoft's home market of the USA last spring. No, there can't be any such grudge between Redmond and Espoo, could there? And besides, the CEO of Nokia would look after Nokia's best interest, right, not Microsofts in any case)

 

LOYAL CUSTOMERS

 

The Lumia smartphones are now obviously a dud. They were not designed by Nokia's A-Team out of Finland, in fact the Lumia designers come from California, from what at best could be called the junior squad, the farm team, the total novices. And now we have seen the evidence is overwhelming. They messed it up rather comprehensively for Nokia's new line of smartphones. The Lumia is just barely suitable to make a good impression in the store, but by the time you bring it home, it will disappoint you day in and day out. Not unlike the complaints about Detroit cars of the past, made to look good in the showroom but a disaster to live with over time (I trust this has long since been fixed with the new Detroit). But its a common accusation of US designs, focusing on the shallow first impression rather than the durable value.

So lets look at Nokia's loyal user base. They have used Nokia branded phones for years, many for over a decade. They have always expected certain levels of utility and convenience and logic and rational behavior on their Nokia phones, whether smartphones or featurephones. How is Lumia today? The user may be impressed in the store. But takes the Lumia home, and tries to move old pictures from the old phone to this new phone or vice versa. There is Bluetooth yes on the Lumia but it won't do file transfer. What of the microSD slot? There isn't one. Shot some video in the camera? Try sending it via MMS? Yes, the Lumia will do MMS and let you send pictures, but not videos. What of messaging? Nokia practically invented mobile messaging (Matti Makkonen, my mentor at Nokia, actually did invent SMS, but he did it at his previous employer, Telecom Finland ie Sonera). So many users, especially the youth and business users, heavily into messaging will tend to favor Nokia phones. Try to draft an SMS text message and save it? You can't. Lumia won't let you save message drafts! What of the FM transmitter you have had for years with Nokia phones so you can connect to your car without cables. There isn't one. What of the TV out you want to show friends your pictures or videos that you shot on the Lumia? Nokia has supported TV out for six year already. The Lumia doesn't do that either. The alarm clock won't wake up on the phone like it used to on all previous Nokia's - a really nasty problem to discover the first time. And so forth.

 

The sane CEO looks at these serious usability problems, which are all traced to the deficiencies of the Windows Phone OS and the design of the Lumia. The sane CEO decides this Lumia series is now more of a threat to Nokia's reputation - and long term damage to Nokia loyalty - than a way to succeed in the market and will at least limit its production and market launches. The sane CEO will explore less mature markets where the Lumia might succeed even with these deficiencies, like the USA, where far less advanced phones and often phones with crippled features are commonplace. The sane CEO will either end the development of Lumia phones or suspend their marketing in Nokia's main markets like Western Europe and advanced Asia-Pacific, until newer, better Lumia devices of far more modern design can be brought to the market.

 

The insane CEO pushes even more, even cheaper, even worse Lumia devices to the market to ruin what is left of Nokia's loyal customer base.

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

 

CUTE

 

Your company has built an application developer tools environment, called Qt. Qt is effectively an ecosystem. Developers can make apps via Qt that work on Nokia's Symbian, Maemo and MeeGo smartphones, today. These have an combined installed base of 300 million smartphones currently in use worldwide. That is the biggest installed base of any smartphone platform. Qt is far more powerful than that. Qt will enable development of apps to Nokia's proprietary 'featurephone' OS, called S40. That means that just on Nokia platforms, Qt reaches a potential of 1 Billion with a B-Billion pockets. Yes. On Nokia's own platforms, Qt is four times as big as Android, five times as big as all iOS devices ever shipped including iPhones, iPod Touch's and iPads, ten times bigger than the Blackberry ecosystem - and 100 times bigger than the Windows Phone 'third ecosystem'.

Qt is a true key for Nokia's global dominance. And I haven't even gotten to the good part yet. Qt also allows development to Android and Blackberry smartphones. Qt is tested to be faster by a whole order of magnitude in development time and development cost. It is by far the best way to develop apps to smartphones. Qt is also compatible (or will be) with other less common platforms such as Limo, bada and Tizen. Of all smartphones in use today, using Qt you have the ability to reach .. 83% !!!!!

 

And wait. Nokia's new upcoming low-cost smartphone OS, Meltemi - is also of course, compatible with Qt. The total potential reach of Qt is not just bigger than any other smartphone ecosystem - Qt potential reach today is bigger than the total installed base of Microsoft Windows based personal computers and all Windows family smartphones, combined. This is a juggernaut. And the only OS that Nokia currently supports, that is not compatible with Qt is.. Windows Phone. That Windows Phone which is not viable for 90% of Nokia's current market. (Not viable for the high end smartphones, not viable for low-cost smartphones, and utterly incompatible with the featurephone market segment). So Nokia will have to, into the foreseeable future, support systems other than Windows Phone - that are compatible with Qt. You get the picture?

The sane CEO will cherish this enormous power and  celebrate Qt at every stage he opens his mouth, repeating the amazing stats about Qt, and fully funds its rapid development so all the platforms will be soon also in production (Qt is not yet finished). The sane CEO will always favor any Nokia solution which is compatible with Nokia's Qt ecosystem, the legitimate 'first ecosystem' of the planet, and always try to avoid mentioning any rivals that threaten Qt.

 

Only a certifyiably lunatic CEO would waste incredibly valuable and rare media time and attention, by promoting a rival to Qt - the Windows Phone 'third ecosystem' - a product of a competitor company that is unsuited for 90% of Nokia's future. That is not just moronic and mad, it is a direct violation of his fiduciary duty to Nokia's best interests and an obvious conflict of interest. Whether Nokia buys and pays for Windows Phone OS or not, and whether Elop himself thinks Windows Phone might or might not succeed - it is Microsoft's duty to promote that OS, and as long as Nokia produces a rival ecosystem - Qt in this case - it is madness for the CEO to invest his valuable media exposure to promote a competitor to Nokia's ecosystem. He must be fired for this blatant breach of his fiduciary duty. The Nokia shareholders should demand a million dollars for every time he uttered the term 'third ecosystem' in front of a TV camera!

(But I'm sure it wasn't done on purpose, I mean, he'd be a criminal if he promoted Microsoft's interest ahead of Nokia's best interest, and still collected a Nokia paycheck.)

 

TO BURN OR NOT TO BURN

 

I think we see the picture. Now, I will end with a little comparison, to burn, or not to burn. Consider these facts.

 

In Q4 of 2010, just over one year ago, the first full quarter that Stephen Elop was in charge of Nokia, this is how Nokia performed under his watch: Nokia's smartphone unit - the unit of Nokia's handset future - grew unit sales by 7% from just the quarter before. Yes. You read it right. Nokia was not 'declining' smartphone sales when Elop took over. Nokia in his first quarter in charge, grew unit sales by 7%. Was that at the cost of price cuts? No! Nokia average prices of smartphones grew by 14% ! (When does that happen in economic theory, that you increase your price massively, and yet grow sales strongly?) Nokia's smartphone unit revenues grew by 22% from just 3 months earlier! And profits? Check this out. Nokia's smartphone unit profits jumped a Nokia-record of 65% from the quarter before!

Nokia smartphone sales were literally twice as large by unit sales than its nearest rival, Apple's iPhone. (Imagine how much Coca Cola or Toyota or Boeing would love to be twice as big as its nearest rival). Nokia's Symbian was the world's bestselling smartphone OS. Nokia's market share in Q4 of 2010 was 29% of all smartphones sold globally. Nokia's Ovi store was the world's second bestselling app store by downloads. Nokia's smartphone migration rate was 25%, ahead of the world migration rate to smartphones.

Nokia's Symbian OS had as its carrier partner NTT DoCoMo of Japan, the most advanced, most inventive and most innovative company of this whole industry, which not just launched this industry, it has literally invented about half of the total industry's inventions. This carrier was committed to using Nokia's Symbian in its radically futuristic phones for years to come. Nokia also had for the MeeGo OS as its carrier partner China Mobile, the world's biggest mobile operator/carrier. Thus Nokia had exclusive preferred access and market to both the most advanced mobile country and the biggest mobile country, where both NTT DoCoMo and China Mobile had explicitly said they do not want the iPhone! But They wanted Nokia's platforms!

Nokia's credit rating was an A. Nokia's brand was ranked the 8th most valuable brand on the planet by Interbrand. Nokia's shareholders so much loved Elop's first five months in charge, by early February, Nokia's share price had climbed 11% since he took over. That was Q4 of 2010.

 

Now lets move just 12 months ahead in time, the latest quarter for which we have Nokia data. Now in Q4 of 2011, this is how Nokia performed: Nokia's smartphone unit sales have collapsed 31% from where they were a year ago (while the industry grew 71%). Nokia average sales price has fallen by 10% - but this is by an accounting gimmick, where Elop assigns a Microsoft marketing support payment of 250 million dollars to the price. The real price (what consumers are willing to pay for Nokia branded smartphones) has actually fallen by 16%. Nokia's smartphone unit revenues have fallen by 38%. Instead of reporting a profit of 510 million Euros (663 million US dollars), Nokia's smartphone unit now generates a loss of 190 million Euros (247 million US dollars) per quarter. So Nokia has destroyed 757 million Euros (910 million US dollars, nearly a Billion dollars) of profits per quarter.  

Nokia smartphone unit sales now are half the size of the new market leader in smartphones, Apple's iPhone. Yes, Nokia went from being twice as big, to half the size of Apple in just 12 months! Nokia's market share has collapsed to 12%. Nokia's Symbian has fallen to third bestselling smartphone OS. Nokia's Ovi store has fallen to third bestselling app store by downloads. Nokia's smartphone migration rate is now 16%, severely behind the world migration rate to smartphones.

Since Nokia selected Windows Phone, NTT DoCoMo has abandoned Symbian and today runs Android as its primary operating system. Since Nokia selected Windows Phone, China Mobile has become miffed too and today strongly supports Android (and its Chinese variants). Nokia has abandoned exceptional and unique competitive advantages that had blocked Nokia's most dangerous rival.

Nokia's credit rating was downgraded three separate times and is near junk. Nokia's brand fell out of the top 10 for the first time since rankings were published. Nokia's shareholders so much hated Elop's next twelve months in charge, since its February peak, Nokia's share price had crashed 60%. This is Q4 of 2011.

 

The sane CEO would look at the situation one year ago, conclude Nokia was doing reasonably well, was healthy, profitable - and growing strongly in every single metric imaginable. That is where a sane CEO would say Nokia's platforms are "not on fire". And the sane CEO would say looking at today's situation, that if ever, today Nokia's platforms "are on fire".

 

The insane CEO looked at the situation a year ago when everything was growing including profits, Nokia smartphone sales and Nokia share prices, and issued a Nokia-wide memo claiming bizarrely that Nokia's platforms were on fire. And truly the Roadrunner cartoon Wiley Coyote moment, using Acme rockets, running over the cliff and then looking down into the canyon and starting to fall.. the insane CEO would look at the world today, and say he feels the platforms are no longer on fire (and that he need not fear Samsung as a rival, he can sleep soundly today).

 

(The criminal CEO would act in the best interests of Microsoft but obviously I am not suggesting that is Elop's motivation)

THE SANE BOARD

 

The sane Nokia Board looks at its recently hired CEO, Stephen Elop, objectively and observes that since he took over, he did not focus on his primary task, to fix Nokia's execution. He issued damaging memos and statements that destroyed Nokia's market share, retail support, and trust by consumers and developers alike. He has continued to consistently act against Nokia's best interest and refuses to make obvious right choices such as releasing the two MeeGo handsets globally, yet continues to pursue wild goose chases like tablets. The board would use metrics such as plunging strongly profit-generating smartphones unit to losses, the crashing share price and the disasterous credit ratings and falling brand value. The sane Board would calculate the long-term damage of the wanton destruction of Nokia's previously mightly market share and observe that this year Nokia's market share is headed to single digits. The sane Board would evaluate the long term damage from destroyed partnerships with the leading companies of the industry, the devastation of the ecosystem and the abandonment of all sensible paths to a future from cloud computing to mobile money. The sane board concludes that no matter how clever Elop sounds like in his interviews, the con-artist is an utter fake and a madman who will destroy Nokia with his delusions. The sane Board fires Elop now.

 

The insane Board looks at the evidence of Lumia failing by every metric, and lets the delusional psycopath go on to ruin Nokia, to sell all its assets from patents to programing skills to the advertising unit to the Vertu unit while the Nokia share price continues to fall.

 

The criminal Board colludes with Elop or is criminally negligent in ignoring his blatant disregard of the CEO's fiduciary duty and conflict of interest. A criminal Board would face stock market regulator investigations on both sides of the Atlantic. Individual members of a criminal Board would face lawsuits and massive fines and be barred from any Board work in the future. But I am not suggesting the Board is criminal.

THE WAY OUT

The sane Chairman of the Board looks at all of this, understands the CEO has lost all trust and respect and sees the demoralized company on the brink of ruin. He takes the CEO aside, says, this won't work, and tells Elop to go back to Ballmer with an idea. Next the sane CEO manages a divestiture of only the Lumia unit, sell it yes, to Microsoft, and make them take Elop with them. Throw in a 3 year license to use the Nokia brand in the North American market with the Lumia but not for other markets. Pay back the several hundred million dollars so far that Microsoft has paid Nokia. Get rid of all of it. The split is relatively painless, as most of the hardware is from Compal of Taiwan with non-standard Nokia components, so few factories, designers, employees are involved. The Windows Phone software is obviously also mostly Microsoft so again, few Nokia staff would be involved.

The insane Chairman of the Board watches as the proud Nokia ship slowly sinks as the clown CEO, no, thats not fair to clowns. As the Microsoft Muppet CEO blasts ever more holes to the sinking ship, below the waterline and just boosts the speed by which Nokia sinks. And the proud legacy of the Chairman, thought by most in his home country as its greatest industrialist and even in European circles held in highest esteem, rapidly sinks along with it.

NOKIA CAN BE SAVED

Nokia can be saved. I am not saying Microsoft Windows Phones have to be discontinued (while it would be the best move right now, in my estimation). I am saying the magical MeeGo devices, N9 and N950 have to be sold globally now, now when they are hot, and can command a good price, and bring Nokia back to profits. The CEO has to commit to MeeGo also into the future and restore the damaged relations with China Mobile. Symbian is best suited for Africa and Emerging World markets until Meltemi is available. Qt is Nokia's smartphone strategy and the only OS that is incompatbile with Qt is Windows Phone. Lumia has been tried, it is failing now. Nokia had a superior ecosystem a year ago, now Elop is destroying it piece by piece. He has to be stopped while there is anything left. For Nokia to survive as an independent company, it must take drastic actions now. The first step is strong embracing of MeeGo and the N9 and N950, globally in every market from the UK to the USA. And Elop is utterly incompetent, he has to be fired!


UPDATE 28 March, 2012 - Nokia finally takes partial step in right direction! Nokia reported at Netbook News quoting info from Mary McDowell and Nokia's 'Next Billion Group' - that Nokia is now developing not one but two lower-cost MeeGo devices, (hooray! Finally! Some sanity at Nokia HQ! We celebrate!) aiming for the Emerging World markets. Note this completely reverses the idiotic statements CEO Stephen Elop said less than a year ago about MeeGo. Good move Nokia, more of this. Except why is CEO Elop not running at the front of this story? Why is he refusing to be seen near any MeeGo story about Nokia! And now, EVEN MORE WITH THIS DRAMATIC NEWS DEVELOPMENT, if there are new MeeGo devices coming - and there is unprecedented press support of the N9, why not release the N9 and N950 on MeeGo now, sold in every market now, to help support the interest in, and future sales of those upcoming newer and cheaper MeeGo devices.

 

UPDATE APRIL 11

For anyone still reading this blog, Nokia just issued its profit warning today and I have commented on it and crunched some numbers. In 2011 Stephen Elop set the world record for biggest destruction of a Fortune 500 sized company any one year. Now in Q1 of 2012, he went even better, producing the worst quarter results ever seen anywhere. Read my view of the Nokia Profit Warning and why things are even worse.

UPDATE APRIL 12

I have written a 'proper' and not very 'Elop sucks' type of posting, honestly, accurately, precisely, comphrenesively, with facts and stats, about what is not wrong, and what is wrong, and what must be done, if Nokia is to be saved. If you want to read it, it is here The Hearbreaking Fact is that Nokia Can Be Saved and within one Quarter at that. 

Disappointed Buyer = Returned Lumia = Salespeople Avoid = Growing Nokia Retail Problem

When Stephen Elop announced Nokia's Microsoft Strategy on February 11, 2011, I said immediately that this was great for Microsoft and a disaster for Nokia. I wrote a series of blog articles examining the early prospects. I concluded that the Microsoft smartphone strategy for Nokia was a huge gamble - it would hurt Nokia intensely in the short run - and that it was very likely to fail in the long run - but I did write that it was possible Nokia could succeed with this option. I did not say it cannot succeed, only that I felt it unlikely to succeed.

UPDATE (March 21) has more stunning info, see at end of story


During 2011 I monitored the developments at Nokia's new Lumia project and the parallel developments of Windows Phone over at Microsoft to try to evaluate the prospects for Nokia's Microsoft-based smartphones. I said it many times that Nokia had only one chance to make it all work, the launch of Lumia had to be executed perfectly. Because Nokia was bleeding market share, this was a one-shot chance to turn the gamble into a success. This is in US professional football analogies, the 'Hail Mary Pass' - you are at the end of the game, and only a touch-down can win you the game, and on the last play, your quarterback sends all receivers to the goal line, and you throw the long pass, and say your 'Hail Mary' prayers...

IRON GRIP OF RETAIL CHANNEL

How is Elop's Hail Mary doing? I have written many articles on this blog to explain the retail side of the mobile handset business. The mobile phone business is totally different from other high tech and consumer industries, like TVs, PCs, videogaming consoles, DVD players, digital cameras, MP3 players etc - where in those industries if you make a good product and sell it at a competitive price, you tend to have market performance commensurate with the 'merits' of your device and its price. That is not true in mobile phones. In this industry, the success of any handset brand is primarily controlled by the carriers/operators of the world. Look at the iPhone. Early on it sold only on one network in many markets such as AT&T in the USA, O2 in Britain, Softbank in Japan etc. When the iPhone expanded to more carriers, it achieved far bigger sales. And look at the Microsoft Kin youth phones. Even as these were highly praised and were expected big sellers, the sudden collapse of carrier support resulted in the phones being discontinued - in only six weeks. This even though Microsoft is the global IT giant who has thousands of resellers to its brand. When the carriers refused the Kin, no matter how 'great' Microsoft was, the handset was doomed.

In mobile phones, the success of any single phone is most determined by the support of the carriers/operators and their stores. In mobile phones, different from any other major home electronics or consumer high tech, there is a gatekeeper that decides who wins and who loses. It is the reseller channel, mostly controlled by the carriers/operators.

 

SO A CUSTOMER WALKS INTO A STORE

Lets take a random customer to a mobile phone store. Lets go to Nokia's traditional strongest market, Europe. The average replacement cycle for all mobile phones is about 18 months. So right now, in March of 2012, the typical customer walking into a phone store wanting a new phone, bought his or her current phone in about August, September or October of 2010. IDC told us in the summer of 2010 that Nokia was the bestselling mobile phone brand with 33% (Samsung was second). IDC also told us, that Nokia's European market share specifically for smartphones was even better than that, at 40% (Apple was second). Europe is no longer a growing unique users in its mobile phone market (ahead of the USA which still adds unique users), Europe has been past 100% penetration rate per capita for many years now, so these are not first-time buyers except when parents come in to buy a first phone for a child perhaps. (Europe still keeps growing total subscribers, but those sales are now second or third accounts and phones to people who already have one).

Lets start with those iPhone users. You know there is no going back. Apple has by far the best loyalty of any smartphone brand, so almost any iPhone owner will not even give the Lumia a second look in the store. They want the latest iPhone. What of Nokia? Remember, one third of Europeans who bought a new phone in 2010, have a Nokia brand. We have a survey of 1,780 mobile phone owners in 2010 from Britain by Right Mobile Phone, reported in The Telegraph, which found that the average loyalty for any phone brand in Britain was 32% but for Nokia it was over 50% (Nokia's loyalty was the highest in the survey). These customers have never heard of any 'Burning Platforms' or what Nokia CEO Stephen Elop has said about the Nokia handsets. They bought a Nokia in 2010, have probably bought Nokia phones for most of the past decade, and now walk into a phone store asking to buy a new Nokia. What happens?

What happens? The customer is at the mercy of the sales guy. I have seen internal surveys from several countries, that the sales guy's personal sales effort can change the mind of the customer - when they already had a preference - in more than 50% of the time. If you walk in asking for a random mobile phone brand, a Motorola or LG or HTC, in half of those cases, if the sales guy wants to sell you something different, they can do it. Obviously the sales guys have incentives to drive them to push certain phones over others - such as phones on promotion with the carrier/operator, phones that support certain services that the carrier/operator offers, etc. This all makes sense.

INSIDE THE MIND OF THE SALES GUY

The random European consumer didn't know anything about who or what is a Stephenelop, or what or when were there any Burning Platforms. One in three European buyers today walks in with a Nokia branded phone, and they tended to be satisfied with their purchase in the past, and they now want to replace that phone. So they ask to see what new is in Nokia phones. If the sales guy wants to make an 'easy' sale, pushing a new Nokia (Lumia) phone at this customer is the fastest way to make a sale. The 'default' setting in the mind of the salesguy is to sell what the customer asked for, as long as the store has it in stock, etc.

What would have to happen that the sales rep takes the extra effort to push another brand phone? Something has to have happened. This goes against all the training and experience of the sales guy. The customer asks for brand X, if you have it in stock, of course you offer the customer branx X, maybe then suggesting some alternatives too for consideration. What would have to happen to change this equation? Maybe the store manager has seen they have a big load of some brand of phone from last week's special promotion that wasn't all sold, and the store manager has added a sales bonus to push selling those phones out. Or one of the handset makers may have some special sales campaign (sales contests are often popular, take some of the best sales reps to an international travel trip as a reward, for example). But what if there is a 'toxic' phone? What if there is a mobile phone with exceptional return rates? That is a phone model that any sane salesguy will immediately try to avoid selling. Why?

RETURNS ARE HATED

A customer wanting to return a phone is triple the work for no more money. If the salesguy sells a new phone to a customer, and the customer has regrets, and returns that phone within the legal period for returns, the salesguy has to accept the phone back without questions, with a box that is opened, inventory that all accessories are there too like the battery recharger etc, process the return paperwork for the store, which will automatically deduct his earned sales commission, now removed from his paycheck. Then the sales guy has to sell another phone to this same customer, to get a second commission, which will end up being essentially the same as the original commission (as the customer will have typically a budget, so they will replace the returned phone with something of roughly same price range). In the worst case, the salesguy has to throw in some extras just to keep the customer happy, which comes out of his commission. Three times the work, for no more money. That is a textbook example of a "fool's errand". The moment this pattern emerges for some phone model, the sales staff will desert that phone and its sales in that market is doomed. Sales people talk to each other, and this type of pattern is very easy to spot early, when you work in a phone store. You go to the back room and see other return boxes and frustrated salesguys with the same problem - with the same phone model.

Trust me, I have been in sales for most of my life. Later in my career in telecoms, I was in sales management specifically with mobile telecoms sales and trained and motivated in-store sales staff for many years, and was quite successful at it too - under my leadership we set a world record for taking markets share from the incumbent in Finland in the 1990s when I worked for Elisa Group (Helsinki Telephone, Radiolinja etc) and Finnet. My third book is much about all this, how you win in the wars, and that is often getting to the soul of the sales guys and gals in the stores and the calling centers. Incidentially that third book, 3G Marketing, was the fastest-selling telecoms book of all time, already translated and in multiple printings, so its not like my theories are something weird and wild.

 

Back to Lumia. I said last year that Nokia had one chance to make this work. I warned that some early signs were troubling. But now we have the Lumia handsets in the wild and now it really is in the hands of the retail channel. They are now deciding is Nokia Lumia going to succeed in the market or not. And that comes back to those pesky returns.

BUILT TO DISAPPOINT

The Lumia series is no iPhone-killer, not by a long-shot. It looks nice, in particular the Lumia 800 and Lumia 900 - as their look was copied from the highly desirable genuine flagship phone the Nokia N9 running MeeGo, from last year. But even in the store, any current iPhone owner will almost immediately turn away from the Lumia and stick to the iPhone. Same with Blackberry owners. Bizarrely as we have already seen four Lumia models, and Nokia has traditionally been very strong in QWERTY based phones - the Lumia series even after four models has not offered even one QWERTY variant. So anyone who loves their QWERTY keyboards (I am obviously talking of consumers who send 100 mobile messages per day or more. I am not talking of enterprise/corporate buyers who don't go to consumer stores to buy any phone, they are limited to what phones their employer will offer) like Blackberry owners will not even consider the Lumia as a Blackberry replacement.

But existing Nokia owners then? The current Lumia 800 is a disaster as a pretend-flagship smartphone. It is a severe downgrade of past Nokia flagship phones like the N95, the E90 Communicator, the N86, the N900 the N8, the E7 and the N9. Take the N8, which started selling almost 18 months ago. Compared to 2010 flagship N8, the Lumia 800 sees a downgrade in its primary camera from 12 megapixels to 8. It doesn't record full HD video like the N8 did. There is no second forward-facing camera. The flash is not Xenon 'real flash' like on the N8, now the flash is only the lame LED flash. There is no facility to read microSD cards. There is no TV out. There is no HDMI out. There is no FM transmitter. And on and on and on and on. For any existing Nokia owner, the Lumia 800 is a severe disappointment.

That all is obvious already in the store. But note, many of the problems with the Lumia 800 are not obvious in the store! The messaging function on the Windows Phone OS is horrid. Nokia has traditionally had the best messaging abilities of any brand this side of a Blackberry. Always. And thus many heavy-messaging mobile users prefer the Nokia brand. It is why most Nokia flagship phones have either had a full QWERTY keyboard like the E90 Communicator and the N900, or if the flagship was a pure touch-screen form factor smartphone like the N8 (on Symbian) or N9 (on MeeGo), there has been a sister phone of nearly identical specs with a slider-QWERTY like the E7 (on Symbian) and N950 (on MeeGo).

But Microsoft's Windows Phone OS was designed in California where they didn't get the memo about SMS being the most used function of a mobile phone everywhere on the planet (more used than voice calls even). SMS is by far the most important functionality of a modern phone - even with pure smartphone users in the USA - their number 1 most used feature is not apps or the mobile web, it is SMS text messaging said a 2011 survey over 10,000 smartphone users by Zokem. Not only that, but 9 out of 10 US consumers with smartphones surveyed by Cloudtalk in 2011 found that their most preferred improvement to their current smartphones was - better messaging! But how is SMS text messaging on a Lumia? You can't even save draft text messages! When do you notice this? Not in the store. You don't even notice it the first day or two using the phone. But suddenly you do, and you are mad when you notice this (if you are a heavy user of SMS text messaging, and Nokia owners are more likely to be that).

To really REALLY annoy messaging users, then there is the Microsoft design flaw in Windows Phone. The Windows Phone OS has a bug that if any Windows Phone owner receives a specific string of characters sent as an SMS text message, it will cripple the phone. Remember, this is not like email viruses, that you have to 'open' and click on the link to make them do their damage. No. SMS is received on your phone when it is sent from the network and you have no control about it. It does not wait for you to go read the SMS. You can have no warning. What happens? Your phone is locked. The only solutoin is to wipe the phone. All saved pictures, all saved messages, all saved phonebook entries etc are erased in that process. This is a problem Microsoft has admitted it has and is trying to fix. But how many times do you think you would accept this to happen on your own primary phone? I bet most would not accept this to happen once, losing all the precious saved content on your phone. You'd be returning your Lumia 800 immediately.

Back to those loyal Nokia customers. Most will not have bought an N8, they will probably have phones from prior to that, say a 5800 Xpress Music or an N86 or N97 or some other N or E Series. So they look at their music library they have on their previous Nokia phone. How can you move your music library from the previous Nokia phone to the Lumia 800? With the microSD card of course! Like for years past, with Nokia phones. But there is no slot for the microSD ! What about Bluetooth. The sales guy in the store assured that this phone has Bluetooth. And yes it does. And then after an hour or two of struggling with the brand new Lumia, its Bluetooth simply refusing to transfer files, the owner reads through the fine print in the user's manual, and discovers - to utter dismay - that the Bluetooth function only allows a wireless headphone to be used, but will not do Bluetooth File Transfer!

What moron at Nokia approved this crippling of a standard Nokia feature that goes back more than a decade! Of course it was not a decision made at Nokia, it is a Microsoft decision, common to all Windows Phone handsets. Again its those incompetent American designers who don't understand global consumers. Bluetooth is the most used data transfer method in many countries especially in nations with censorship and social mores that make some types of file transfers 'sensitive' - so for example the youth in the Middle East prefer to use bluetooth to transfer some files, just so they are not monitored on the network, in countries where they still have arranged marriages etc. So. Back to Lumia. Past Nokia smartphones were compatible with not just all previous Nokia phones that supported Bluetooth (more than one Billion such Nokia branded handsets - smart and dumbphones - in use worldwide) but of course Bluetooth file transfer is supported by almost all other brands of mobile phones from premium Blackberries and Samsung Galaxies to low-cost handsets from ZTE and Huawei and G'Five and Mi-Fone and Micromax. Thats 4.8 Billion handsets. Well more than half of them - and almost all high-end phones among them - support Bluetooth. Lets just say 2.4 Billion phones. So every friend who has any kind of Samsung or LG or Blackberry or SonyEricsson or Motorola or older Nokia can do Bluetooth transfers but your brand new 'exciting' Lumia .. cannot. You are, of course, disappointed in your purchase. In the worst case, your friends will jeer you for making a dumb purchase.

 

Now Nokia has made itself incompatible with the industry, with this Lumia series. This is something the buyer will not see in the store. Even if the buyer is smart enough to think about it, the box will say that this phone supports Bluetooth. The little summary description in the store will have the tick box, that says this Lumia model does do Bluetooth. If the buyer actually asks the sales rep, the salesguy is likely to say that yes, this phone does have Bluetooth and may even be 'helpful' to show how it allows the connection of the cool new wireless headsets. As the buyer has an older Nokia that has supported Bluetooth file transfer for many past models through the years, it does not occur to ask 'but does this new phone still support file transfers with Bluetooth'? That question is totally beyond the normal consumer's frame of reference. Until he or she tries to send the cool picture from this Lumia phone to the friend's SonyEricsson phone. Why doesn't it work...

I could go on and on and on. The Lumia 800 is a nice student experiment by the West Coast novice handset designers from the USA, who have a history of disasterously failing phones for the world market (Microsoft Kin, Palm, Motorola Rokr etc), but its a brave attempt. Part of its best aspects are copied from a far superior Nokia flagship phone, the N9. Part of the wow-factor in the first impression of the Lumia is the tiles of Windows Phone. But once a new proud owner of a Lumia 800 tries to live with the smartphone, it produces one disappointment after another. And worst of all, for any loyal Nokia owner, it seems like the phone was designed to disappoint any Nokia return customers and to scare them away.

Note, the Lumia 710 is worse, the Lumia 900 is almost no better.

 

TOMI IS BEING PETTY

 

Am I? The Lumia 800 was just reviewed in Australia by The Australian, on 6 March. Australia is one of the world's most advanced smartphone markets - ranked 4th highest in smartphone penetration rate per capita (for contrast, the USA is ranked 16th). Australia has had the MeeGo based N9 and now they make the painful comparison several times pointing out that the Lumia 800 is a severe step back from the highly rated N9. The Australian takes this flagship Nokia Lumia 800 and gives it a rating of 7 out of 10. In the review the newspaper repeatedly compares the Lumia 800 in failing terms to its contemporaries from rivals including naming by name and model, like the HTC Titan, the Samsung Galaxy S2 and the iPhone. And like I said, The Lumia 800 fails compared to last year's Nokia N9. This is not what you want when you are launching the Lumia 800 in one of the world's most advanced smartphone markets.

Maybe its better in the emerging world markets? Didn't Nokia say that the Lumia model range was being developed right now to be attractive in the Emerging World where Nokia's 'next billion' customers live? Lets read from the Economic Times of India. They reviewed the Lumia 710 just now, on March 12. They conclude "you are better off with the Samsung Omnia W that offers a better Amoled display, better build quality, a superior 5mp camera and better battery life." Ouch indeed.

 

The reviews are pretty much the same everywhere. Engadget ran a big Lumia 800 review, and concluded that first of all for most users, an Android smartphone or an iPhone will be a better fit. Then among Windows Phone handsets, Engadget recommends comparing the HTC Titan with its better camera and bigger screen. And throughout the review, Engadget keeps pointing out that the Lumia 800 is the crippled weaker spec little brother to the N9.

 

Or how about Nokia's home market? In Finland the tech magazine Tietokone reviewed the Lumia 800 and concluded its an ok smarpthone but the reviewer suggests either buying the MeeGo based N9 as a better Nokia phone now, or if you want a Windows Phone now, buy one from HTC or Samsung instead (double-ouch) or wait until Nokia can make better Lumia phones in the future. Finnish daily newspaper Ilta-Sanomat said in its Lumia 800 review, that the N9 is the better smartphone from Nokia. And in Finland, MTV3 the TV broadcaster ran its review and came to the same conclusion, that the N9 is the better smartphone.

 

This is not rocket science. This is a clear pattern. The Nokia Lumia 800 is perceived as a supposed flagship (even as it is not) and thus it will be compared to the top models by rival makers and the Lumia 800 fails miserably in those comparisons. (And I told you so on this blog that this would happen, you should not be surprised.) Meanwhile Nokia's brand image suffers and the customers are exposed to the faults in the Lumia. And the Lumia 800 suffers severely in any comparison even with its older N9 sibling in anything from no idle screen camera function that many Nokia owners love, to a lame memory allotment with no expansion ability, to no ability to use the Lumia 800 as a WiFi hotspot router. Then we have the user experiences.

OVER TIME YOU GROW TO HATE THE LUMIA

The situation gets far worse once you have lived with the Lumia for a little while. The Lumia 800 was not even manufactured in Nokia's own factories. Stephen Elop outsourced its manufacturing to Compal of Taiwan, so in reality it is not a Nokia quality device. The Lumia 800 is a badge-engineered no-brand Windows device, from a big third-party manufacturer who mass-produce handsets and other electronics. And does that matter? You betcha! The Lumia 800 was shipped with a major battery fault - something Nokia has admitted to and is trying to fix. The battery sometimes does not charge, or it displays wrong charging status information or turns itself off without warnings. This is first of all a manufacturing defect due to not using Nokia's own factories.

 

Many of the Lumia 800's shortcomings are like time-bombs, set to anger and upset you days, weeks even months after you bought the device. Like MMS. Nearly half of all mobile phone owners worldwide now use MMS. And the Lumia 800 does support MMS - for picture sharing. Only when you try to share a video - something you could do with past Nokia cameraphones easily - the Lumia 800 refuses to comply. Again. Why? Who was the first phone maker to allow music to be used as ringing tones? Nokia 14 years ago! So any - ANY - Nokia owner has been able to customize ringing tones and expects the Nokia to do so intelligently. The Lumia 800? Will not let you install your own songs as ringing tones! What? Yes, in this day and age. (I guess its Microsoft forcing you to buy new music from its store to use as ringing tones, arghhh). And if you live in parts of Africa or Asia where USSD is used for various interactive services, the Lumia 800 supports basic one-directional USSD, but not interactive USSD. Again, you think as this is the newest Nokia, and it has a feature you have liked, of course it works like before. But these are problems that arise only after you've taken the Lumia 800 home and used it for some time.

 

THEN THE RETURNS

 

And it leads to returns. The first reviews on paper are reasonably positive about the Lumia series, but the longer users live with the Lumia, the more they discover the annoying parts to it, and wish they can return it. The Guardian was the first major newspaper to write that they were so disgusted with the Lumia 800 that they returned their model just after Christmas. The German newsmagazine Der Stern in turn prefers the N9 so much ahead of the Lumia 800, that they recommend German consumers to drive to another country (!!!) - Switzerland or Austria - to go get their N9 (not sold in Germany) rather than buy the Lumia 800 sold there. This will be the pattern. Britain and Germany were among the first 5 launch countries for the Lumia. Now their major press says openly this is a phone you can't live with. In fact, you should return your Lumia. And now we come back to the retail.

STORE SALES WILL PUSH RIVAL PHONES

The worst effect is, if the returns are so frequent, that they exceed the norm for handsets (all handsets see some returns, even the iPhone gets some returns) and the sales people in the stores will start to push customers to rival phones. Stephen Elop already has admitted that in many countries the store sales staff are not happy to push Lumia anymore in early launch countries, like the UK. So. What prompted me to write this article. Its this next bit of truly revealing news.

Finland is Nokia's home market. Most Finns know someone who is currently employed, or has in the past been employed by Nokia. Nokia is Finland's largest corporation and supports large parts of the Finnish economy through not just direct employment, but indirect work via various subcontractors etc. Finns are proud of their Nokia. When Antero Kivi surveyed the Finnish mobile phone market in 2008 for the Helsinki University of Technology, in a very deep handset model specific measured survey from carrier/operator actual handset databases - not consumer surveys, this is one of the most deep installed base handset analyses ever done in this industry in any country and released into the public - he found Nokia handsets had 86% market share in the installed base. The first non-Nokia brand handset among the top 100 most used phone models in Finland came in ranked at 57th. Nokia's lead was even stronger in smartphones. So much so, that for example RIM didn't even bother to try to sell its Blackberries in Finland and Apple waited for a long time before releasing the iPhone for Finland. This pattern of sheer Nokia supremacy in Finland held until February of 2011, when after the Elop Effect, Nokia's rivals had started to eat up Nokia's past market share dominance even in Finland. But that means, that still today, most consumers who walk into a phone store in Finland, will walk in holding an older Nokia model which they intend to replace.

8 OUT OF 10 STORE SALES FEAR ALLOWING CONSUMER BUY LUMIA

MTV3 the Finnish TV broadcaster and news service ran a secret test of the Finnish handset retailers in the Helsinki and Tampere regions (the two largest cities of Finland). They sampled two stores from each of the three mobile carriers/operators, and two stores from the two largest independent phone resellers. The MTV3 journalists pretended to be normal consumers and visited ten stores and every time asked to see Nokia Lumia smartphones. In six out of ten stores, the sales people showed only rival phones (Androids mostly by Samsung) when the 'consumer' asked for Nokia Lumia !!! In another two cases the sales person came with several phones rather than just the Lumia and offered immediately a series of handsets to compare. Only in two cases out of ten, did the sales person show a Lumia on first request. Every store had the Lumia on display and in stock and the news story makes the point, that in most stores Lumia had the biggest sales displays at prominent places.

I have written on this blog that since the Elop Effect, the retail channel has put Nokia into a boycott (that has been independently reported from several European countries prior to my blog, and Nokia's own statements are consistent with at least a retail sales de-emphasis of the Nokia brand). I have also reported on a separate sales boycott of the Microsoft based smartphones that appeared after Microsoft bought Skype (carriers hate Skype). This was independently reported by several newspapers across the USA and at the end of 2011, a Microsoft Windows Phone ex-President admitted that Microsoft had very bad relationships with the carriers - and that Microsoft had been making them worse in 2011. No wonder Windows Phone sales fell by half during 2011 and Microsoft resorted to hiding their sales numbers by now combining Windows Phone sales with the sales numbers of the older and incompatible Windows Mobile.

 

I explained in the above, that the sales staff in the stores will decide which phone wins and which phone loses. I then explained why the Lumia series is poorly designed, and that it will not help land new non-Nokia customers, but it will disappoint existing Nokia owners. I have also shown how the problems with Lumia will build over time adding to the anger and frustration of the consumers. I have shown that the media early reviews of Nokia Lumia have been lukewarm and often suggest that rival phones are better and even the older N9 is a better value than the Lumia 800. But as people take the Lumia 800 home, the anger grows and there will be returns.

 

Now we have the evidence from Finland. If ever there was a reseller 'boycott' of any kind, official or unofficial, against Nokia branded phones - it would be least and last in Finland, Nokia's home market. Yet we have the evidence now. If the Lumia series produced satisfied customers, the sales people in Finnish mobile phone stores would eagerly sell Lumia handsets to existing Nokia owners who walk into the stores, asking for the Lumia. But that 8 out of 10 salespeople will not feel comfortable selling the Lumia - and six out of ten take the incredible step of not offering even one single Lumia model whatsoever when a customer requested Lumia by name. What do we know? The sales guy (gal) knows. The evidence is blatantly obvious. The Lumia series produces too many disappointed customers and the sales reps will not want to try to push the devices. They know Androids especially by Samsung produce far more satisfied customers - even in Finland, the home of Nokia, where almost every current mobile phone owner has owned something like 7 or 8 Nokia branded phones in the past decade, and many of them are on their fifth smartphone already.

LUMIA IS FAILING CONSUMERS

The proof is in the pudding. The retail sales will not push customers away from one brand to another, consistently, across rival stores and networks, unless there is a systematic problem. And there is. The Lumia is a magnet for returns. The sales guys hate that. They therefore pre-empt any such problems by selling phones that don't have such problems - and that is increasingly Samsung Galaxies instead of Nokia Lumias. Good job Stephen Elop. You are not only damaging Nokia, you are helping Samsung gain sales and new customers. And you said that you are not worried about Samsung taking Nokia customers? No wonder. You are pushing them to Samsung.

 

If you thought the Microsoft strategy would be a winner for Nokia's future, think again. If you even thought only that the Lumia strategy has a good chance of succeeding, now we have the evidence, it is not. The design by Elop's incompetent West Coast design team has produced a failing series of Lumia phones, that receive at best lukewarm early reviews and at worst push customers to rival phone makers. Longer user reviews based on owning and living with the Lumia actively suggest consumers should not just avoid the Lumia, but if they had bought one, the consumers should return their Lumias. And now we see the evidence in the stores. Even in Finland of all places, in 8 out of 10 cases in the biggest stores of the biggest phone sellers in the biggest cities of Finland, the sales people fear showing Nokia Lumia to their customers - who ask for Lumia - and will try to sell other brands right off the bat. The Stephen Elop strategy of creating the disappointing Lumia series is now boosting sales of Galaxies at Samsung.

As you read the reviews, it is obvious that the N9 running MeeGo would be a far better phone to offer globally. Its sister phone, the MeeGo powered N950 with its QWERTY slider keyboard would be particularly warmly received because the Lumia series has no QWERTY devices. The Nokia 808 PureView (which runs on Symbian) will not be sold in the USA where Nokia desperately wants to make a come-back. What moron CEO has a hit phone in his portfolio (the N9) and refuses to sell it. What incompetent CEO sees a premium priced handset that has such unique form factor, it cannot compete with his fave Lumia series, but would sell at a higher price point helping boost Nokia income closer to making a profit - but refuses to sell it. And where the 808 PureView won literally the handset of the show award in the biggest mobile industry event in Barcelona two weeks ago, and now the destructive CEO refuses to release it in the market where Nokia is aiming to recover. The N9 and N950 with MeeGo are far more desirable - and do not produce disappointed customers like the Lumia series.

The N9 and N950 should be sold in every market now, not so that Germans have to drive to another country to get theirs. The 808 PureView will start selling in April in some countries like the UK. It should be sold globally including in the USA. This would not be in conflict with the announced Microsoft strategy with Lumia. Samsung sells smartphones very profitably running on Android, Windows Phone, Windows Mobile and its own bada OS - on four separate operating systems. I am not suggesting Nokia to resurrect a dead OS or to launch a new one - Nokia today manufactures the MeeGo based N9 and is introducing a new Symbian based 808 PureView in addition to four Lumia models. Why can it not sell smartphones on all three platforms and see which succeeds the best?

Stephen Elop has bankrupted Nokia's future in smartphones. The Lumia strategy is totally doomed. Stephen Elop is incompetent to run Nokia and needs to be fired - now!


UPDATE (on 21 March) - I have been chronicling the problems that Nokia (and in parallel, unfortunately also Microsoft Windows Phone) have had with the retail channel, since the Elop Effect of last year. I just spotted a story at Finnish Talouselama where they did a survey of the major European markets where Lumia first launched. Right now in March, this is what Talouselama found (countries in order of smartphone market size):

Germany - at T-Mobile (Germany's largest mobile operator/carrier) Lumia 800 is ranked 9th bestselling smartphone. At Phonehouse (independent phone retailer) Lumia 800 is ranked 8th. Whereas on Amazon Germany, the Lumia 800 is not in the top 100 smartphones.

UK - at Vodafone (UK's largest operator/carrier) the Lumia 800 is not in the top 10. Amazon UK site lists Lumia 800 ranked 86th, behind Nokia dumbphone X1-01 ranked 20th bestselling phone.

France - at Orange (France's largest carrier/operator) the Lumia 800 is not listed among bestselling smartphones. With Phonehouse France, Lumia 800 is listed 9th bestselling smartphone. Amazon France does not find Lumia 800 among bestselling smartphones.

Netherlands - KPN (biggest operator/carrier) lists the Lumia 800 as the second bestselling smartphone.

First. If your phone model is consistently around 8th best or 10th best or so, across all sales channels of a country, your market share is about 2%-3%. Netherlands is one third the size of France and one fourth the size of Germany. The KPN news does not in any way balance the problems in Britain, Germany and France. 

Secondly, Nokia Lumia had under 2% market share in Q4 of 2011 (the Christmas Quarter) in these countries. The survey now by Talouselama suggests, Nokia's Lumia 800 has been falling in sales from Q4 into Q1, not improving. 

But there is the Lumia 710? Talouselama makes the point, that the alarming news is that in these countries where Lumia launched first, the Lumia 710 was the cheaper model - it should be selling more than the Lumia 800. In no case, did Talouselama find the Lumia 710 to be on any bestseller list. Not once. So it is selling even more poorly than its more expensive Lumia 800 brother. 


UPDATE 2 (on 22 March) - I have just added the logical follow-up article to this, the 'so how would you fix it' blog. I know Nokia will of course ignore it, but for those who are interested, here is my best insights of how to fix Nokia and restore it to profitability and a growth path.