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Summary:

Nokia today named Stephen Elop as the new president and CEO of the Finnish phone-maker, effective Sept. 21. Elop replaces Olli-Pekka Kallasvuo who held the role since 2006. To understand why Nokia chose Elop, you just have look at both Nokia’s strategy and at Elop’s past.

Stephen Elop

Nokia today named Stephen Elop as the new President and CEO of the Finnish phone-maker, effective Sept. 21. Elop is leaving a senior role at Microsoft to replace Olli-Pekka Kallasvuo, a 30-year member of Nokia who stepped into his leadership role in 2006. The announcement confirms the speculation a few months ago that Nokia was seeking a new leader from outside of Finland for the first time in the company’s history. Kallasvuo leaves Nokia, and its board of directors, with a severance approximately equal to € 4.6 million ($5.84 million).

I’ve previously argued that Nokia is a hardware maker that wants to be a software and services company. Naming Elop to the top spot continues Nokia’s desire to excel in software and services. Why? Elop recently led the Microsoft Business Division, which is responsible for products like Microsoft Office and Sharepoint. He was the COO of Juniper Networks prior to that, and was president and CEO of Macromedia when Adobe purchased his company. In other words: Elop is a software and services man, which is exactly what Nokia needs to have a chance at realizing its vision of providing hardware, software and services.

I’m still not sold that Nokia’s vision is the right one, however. It’s taking far too long for all the pieces to be put into place. Meanwhile, the high-end smartphone market — which often yields the highest profit margins — is racing along as Nokia’s strategy slowly takes shape. By the time a MeeGo device arrives later this year, for example, Nokia’s freshman effort will be competing against products that have been maturing over the past three to four years. In the world of smartphone, which is growing far faster than the feature phone space, that’s an eternity.

My take is that the Nokia board has a similar thought: Under Kallasvuo, it was taking too long for the software and services strategy to unfold. Yes, Nokia has been selling more handsets than anyone else in the world, but the average selling price (ASP) of those units is around $60. The ASP of Apple handsets is roughly 10 times that figure, which is why Apple can afford to sell fewer phones, and of those Apple does sell, it continues to reap rewards through a rich ecosystem and application store.

Nokia’s board understands this challenge. Heck, anyone that has looked at Nokia’s last quarterly financial statements can see it. Although you can’t turn a supertanker quickly, Nokia’s board gave Elop the helm to move the software and service strategies amidst the speedboats of Apple and Google. There’s still time to turn the ship, but no company in the smartphone space has yet proven it can return to success after falling behind. The lone exception is Motorola, which embraced Android: something I’ve suggested Nokia do.

Will Elop captain the next company to make a comeback? That’s hard to say, but if Nokia is set on the software and services path, Elop gives the company a good chance, at the very least.

Related GigaOM Pro Research Report (sub req’d):

It’s Time for Nokia to Embrace Android

  1. I would like to say that, Andriod OS is for those who are dying in the market. By adopting android, not one company will excel and make it to the top. only google will benifit from it.
    Motorola is merely serviving. Motorola will not be the same again.

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    1. I’d say the only company truly benefiting from Android at this point is Verizon. Google isn’t, with Verizon switching search on their Android phones to Bing, and the Chinese switching their Androids to Baidu. How is Google benefitting again?

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      1. are u sure Android phones on verizon have bing? i’d double check that.

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  2. Your “facts” are just not correct. There have been multiple times when Nokia has been suffering from competition attacking with new designs such as Motorola Razr and earlier clamshells, but Nokia has always got their product lineup fixed and been back. They are small player in the USA, but the biggest in all other countries of the world. US is important, and would gain profits for Nokian (and will in time), but the rest of the world is a rather big market too.

    Nokia´s smartphone sales have gone up globally 3 quarters in row, now in 41% of global market share. Apple market share has gone down from 17% in smartphones (Q3/2009) to 14% in Q2/2010. Other big players have also lost market share in that segment. But that is globally, not in the USA.

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    1. Those competitive “attacks” were hardware only. Competing in today’s smartphone market requires the ability to step out in front of the pack equally – with hardware and software.

      I see Kevin’s point about Elop’s experience. I’m not convinced administrative experience is enough to lead Nokia into new directions.

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  3. Now that Nokia finds in the mobile OS dilemma (it seems unable to make its mind up about Symbian 3, Symbian 4, Meego), they should probably consider offering superphones with a choice of atleast operating systems. One of them ought to be Android. And then, let the market decide what is best. Phone hardware is fairly powerful and standardized now. Supporting two OSes cannot be a massive issue.

    The Symbian lobby seems to be too strong for Nokia to see the benefits of Android. But even the upcoming Symbian 3 is not very impressive. And Meego has not exactly proven itself either. Seems like a big gamble to me.

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  4. The ASP you quote is for all phones, not smartphones. This is higher. When the N8 and C7 go on sale it will increase.

    Your profit quotes also include NSN, not just the handset division.

    Basically in a year’s time all the tech journals who didn’t really get it will be scratching their heads as Nokia retain or increase share and increase profits.

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  5. Just a general comment to those who want to debate financial and market-share numbers: all good points, but why are you not discussing the fact that Nokia is making a major leadership change and, more importantly, why they’re making that change? If the numbers and future expectations are so good, why make the change at all? Curious as to your thoughts on that, since that’s the thrust of the post.

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    1. Kevin,

      I totally agree with you. I dont get where these Nokia fanatics come from who claim that Symbiam is competent even when the market and everyone else thinks otherwise…probably some Finnish folk too blinded by nationalism or Nokia employees…

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      1. Sorry? The market – that is, the people who buy phones – buy more Nokia phones than anything else.

        We’re not fanatics or blinded, we simply know how to read sales results.

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    2. I’d be annoyed if Elop changes Nokia’s course too much at this point. OPK did a pretty good job at modernizing a company that wasn’t prepared for the direction that the industry would go post iPhone. That’s not to say he didn’t make mistakes but who’d have predicted how much the industry would change in such a short time?

      Nokia now for the first time in years have a line up of phones about to launch that put them on par with the rest of the industry but crucially thanks to Symbain’s superior architecture which was designed solely for mobile should mean that much more is possible with far lower spec’d hardware giving them the potential for a price advantage, size advantage, battery advantage or all three.

      All that said I do think OPK had to go if only because as a company Nokia was failing to get there message across and ultimately OPK was responsible for this.

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    3. They’re making the change because OPK failed to react quickly enough to the change to touchscreens for high end phones and did not crack the US market as he said he would.

      Elop is a better marketeer and has contacts in the US carriers. He’s a good choice. This, however, will have little bearing on Nokia’s product or OS strategy for the next few years.

      This was inevitable. I thought I’d mentioned this months ago?

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    4. Can Nokia be turned around? Only if the new CEO takes radical measures…

      Kevin – I agree with your assessment. While I admire Nokia, radical action is clearly needed to regain its competitive edge. Here are evidence and views from others who concur.

      Re: Android, developers are the most important reason why Nokia should embrace the platform:
      1. Android is attracting a growing number of innovative developers, much like the App store did initially. As the gap in innovative apps grows, consumers will increasingly shun Nokia’s handsets and opt for other OEM’s devices that offer access to the Android marketplace.
      2. On average Symbian takes 15+ months to learn, while Android requires 6. With more new developers focusing on mobile, this is a significant handicap.
      3. Programming in Android is much more efficient. Compared to Android, developers say that programming apps in Symbian requires 3x more code (and 2x, compared to Apple’s iOS). Source for 2 and 3: VisionMobile, http://slidesha.re/cvcNaC

      Thucydides Sigs of VisionMobile also posted an insightful piece last month titled “How to save Nokia (from itself)” – recommended reading. Among his recommendations, the most important is the need to “transform Nokia’s handset development efforts from a mammoth machine into small, fast moving (9-12 month development cycle) commando units of integrated software, hardware, mechanical and design specialists.” http://bit.ly/cz8zbc

      On this last point, a few months ago Juhani Risku (former Nokai executive) offered a scathing, but constructive critique in Uusi Nokia (New Nokia – the manuscript). He observed that “despite a rich R&D base [that] has pioneered many of the innovations competitors now feature, Nokia has forgotten how to bring innovative products to market. Instead, a risk-averse bureaucracy has grown up that stifles innovation – it makes progress slow or non-existent.” Risku offers a number of important recommendations. Interestingly, he cautioned against bringing in American executives, saying “To avoid catastrophic nominations no American or foreigner should be the CIO/CCO because Nokia product creation from innovations through concepting to design is very Finnish issue. The American movement, American business culture with arrogance and aggression has paralysed Nokia since 2003.” It will be interesting to see who is right on this issue. Links and commentary on Risku’s manuscript appeared in The Register at http://bit.ly/c2KMTX.

      Dr. Phil Hendrix, immr and GigaOm Pro analyst

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      1. Phil, your information is ill judged and out of date.

        Symbian^3 uses Qt framework which in no way takes 15 months to learn. Please don’t make the mistake of relating S60 (which is difficult) to this because that’s what your source is based on.

        Also please name the innovative apps you’re referring to so we can see what they are and if they’re cross platform otherwise you’re just making an unfounded supposition.

        Moving to Android would be a fundamentally stupid move for a lot of reasons.

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      2. I agree with Mark here.

        QT is nowhere near a difficult to develop for as Symbian C++ with all its idiosyncrasies was. Nokia also has things like PySide which will bring QT bindings for the Python language to symbian and meego which should allow even fast development.

        In the past it was a complicated process finding information about Symbian development with different companies owning different bits (UIQ, S60) but this has changed so much in the past year and the signs are good that things will continue to improve. It is now very easy to go to Nokia’s developer site get all the tools and informations and produce an app based in QT.

        I’ve developed for most of the mobile platforms and really do think that this is one area where Nokia is finally looking very strong.

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      3. Additional comments at bottom of thread.

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      4. Mark/APS – your arguments that “Symbian is now easier to learn and use” may be valid – unfortunately, VisionMobile’s survey shows that “Android has emerged as the mindshare leader” among developers, with large gaps between Android and Symbian on efficiency and other criteria. Again, while this is a recent survey with a good size sample (n = 401), I’d be interested in seeing other recent evidence on developers’ use, perceptions and intentions of competing platforms. GigaOm Pro is in the midst of conducting a survey with developers and should have results available soon.

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  6. They got some really good software people when they acquired Trolltech too. I wonder what those people are doing at Nokia now? Benoit Schillings for example?

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    1. Chief Technologist at Nokia. And Google is your friend.

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      1. Benoit does not work for Nokia anymore, he’s CTO of Myriad. Google is your friend.

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  7. Hmm, a welcome change at Espoo. Am assuming here that the Nokia board expects a lot from the new boss; a lot more than merely sticking android to Nokia hardware. That would be too easy – and wouldn’t require someone with the kind of background that Stephen Elop brings. That said, things do hot up now, more than ever before. Is there a room for a third smart phone OS? How big is the possibility that Nokia soon counts Dell or Acer amongst rivals? What happens now to Intel vs Arm?

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  8. Well im a 20 yr old finn and if you’d known Nokia has never been the biggest factor in Usa, cause the americans have allways favoured their own products, and until recently they’ve only reached the level of nokia.

    Nokia has been the biggest provider in everywere ealse in the world and it’s right now and it will allways be.

    You also fail to see that the cheap phones have a hundred times bigger market and thats the point main point which has made Nokia the biggest.

    So yes iphone sells well (but only for a little % of people). You look at how well apple phones have grown but there is a certain limit, you know the market and so on, so the iphone has reached that limit. So as a company u have to do every day every year a better result. For apple to stay in this position their every customer had to buy a device a year(talking about phones) and i dont see that happening. spacially the new phone not being much upgrade. They’ed have to attract a lot of new customers from other parts of the world so there ull compete against othercompanies and speacially against cheaper options.

    So by having one phone on market it can stay for a short period of time but to really get threatning they’d have to get so much bigger. Apple is not looking for that and they don’t have the resources like nokia. So the growth of apple in phones is just % but when you compaire apple and nokia in mass, in this i mean everything that comes to phones, it would take for ever to apple to reach it.

    And as Steve says if they are not good at something they wont do it. So The iphone cant really grow in any direction, they can just have the basic platform and have itunes and some apps. Nokia is on the otherhand creating its own navigation systems and so onand has millions of patents and so on. They make their own applications tooand they will grow even ´bigger. Their smartphones are getting on the same level if not better specially on the longrun apple doesnt look promising…

    at the end of the day smartphones are the thing people talk about but eat very small piece of market. In couple of years you cant sell them for 800, theyll be more like 100 and then aplle is screwed. theyd have to come with a new idea in few years and i fail to soo such major upgrade. so apple is screwed

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    1. Gustav – you’re only 20 years old and you can’t really see what’s going on in the world.

      Smartphones are winning based on hardware AND ecosystems. iPhone and Android are way ahead. Nokia’s hardware is overpriced and dated, and the Symbian ecosystem is way behind.

      Feature phones are competing based on price. Nokia can’t win this battle either. China Inc is going to take Nokia’s share here. Have you seen the phones on display in Shanghai and Hong Kong?

      In other words, Nokia is being squeezed out and unless something drastic happens, Nokia is dead. Don’t forget that Windows Phone 7 is also about to launch, which will erode Symbian market share even more.

      Nokia: reinvent or perish.

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  9. I would embrace Android too and build services around that. But I am an iPhone fanboy, so, what do I know.

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  10. Nokia’s selection shows their recognition of the tough i= they face – kudos. Elop (though I am usually biased positively about Canadians) doesn’t seem to have ANY experience nurturing/delivering innovation based products. He was at Juniper for about a year (Jan07 -Jan 08?) and ran Ops at macromedia (’98 onwards) and was CIO @ Boston Chicken prior to that. So where exactly is the snippet of DNA that will deliver the kind of disruptive thinking that Nokia needs at the moment ?

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