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Summary:

Nokia, for the longest time has been the undisputed ruler of planet mobile. The emergence of Apple and Google hasnot only shaken its core, it has also reduced its pre-eminence as a mobile superpower. The deal with Microsoft, it is the beginning of the end.

StephenElop

A long time ago, when World War II ended, two things happened. Two brand-new superpowers emerged, the United States of America and the U.S.S.R., and the world very soon organized itself into two camps. As this power shift happened, Great Britain lost its preeminence as a world superpower.

Hobbled by the heavy expenses of the war, Great Britain couldn’t muster up the economic heft needed to hang on to its superpower status. Not long after, the dominoes started to fall. It had no option but to give India, once its crown jewel, independence. The British Raj came to an end. And soon after, the British Empire came to an end.

That little snippet from history is less a political comment, but more as my way of trying to give some context to the mobile industry. All great empires come to an end, and perhaps today, we are seeing the beginning of the final days of Nokia, world’s largest mobile phone maker and the company that, among other things, championed the very idea of a smartphone.

After Apple and Google changed the rules of engagement of the mobile industry, Nokia has found itself becoming less and less relevant. For nearly four years, it has been in denial when it comes to the software-centric mobile platforms (and ecosystems). Nokia has failed to respond to its rivals. All it did was talk and talk and deny that Apple was a problem.

Low End Low Blow

Every single time, I took Nokia to task, I was flamed in the comments, with many arguing that it was still a very big brand in Asia and Africa and it had the volume. And, yes, Nokia was big in India. It was making so much money in India and other emerging markets that it failed to realize that it was beginning to lose ground in Europe. Moreover, the Americans had shifted mobile’s center of gravity to Silicon Valley.

Almost two years ago we wrote about the emergence of MediaTek and low-cost Android smartphones, which were eventually going to kill everything on the low end of the handset business. Nokia, my rants not withstanding, failed to realize that it was a frog that was being slow-boiled at the low end by the MediaTek-based phones and by Apple’s heat lamp on the top.

Just this week, Strategy Analysis came out with a report that both Nokia and Samsung were getting a lot of competition at the low end of the market from Indian handset makers with exotic names like Lava, MicroMax and Spice. These companies are going after very cost-conscious buyers in rural India, which incidentally is a massive market.

“National pride is a factor, but when people spend almost 4 percent of their annual income on a mobile phone, they are going to make purchase decisions based on what will get them the most for their money,” said Tom Elliott, Director of EMCS in a news report. How much do you want to bet that India won’t be making that much money for Nokia!

Indian and Chinese manufacturers know that they have a massive market, and they can use their domestic strength to springboard to other markets. Indian phone companies are looking to expand to Africa and other parts of Asia, so why shouldn’t Indian phone makers harbor such ambitions? It also goes for the Chinese brands — Huawei and ZTE are already making a killing. Nokia, which has ruled the emerging (phone) markets for so long isn’t going to rule them — its raj is over.

Ctrl+Alt+Del

Now let’s look at today’s deal: Microsoft and Nokia.

Earlier this week, I wrote a post about how companies have a tough time trying to reconcile with change. Make no mistake: Nokia is a great hardware company with awesome logistics capabilities. As a result, it makes perfect sense that it should focus on its core strengths, and it is doing so by teaming up with a partner who has the desire to spend billions to build an ecosystem. The problem is that it is picking the wrong partner.

There has been a lot of emotional outpouring on the Microsoft-Nokia partnership, so I won’t repeat much of it. Instead let me explain why picking Microsoft is the wrong strategy. Windows Phone 7 is a nice and interesting platform. Its difference has gotten it kudos. What it hasn’t been able to do is get a lot of developers. And despite all the public boasting, it doesn’t have that many users: only 2 million shipped sold. Those quibbles aside, Windows Phone 7 has a much bigger problem.

Four years ago when Apple launched the iPhone, it essentially defined the metaphor for a very touch-centric, smartphone world. Later when it added apps, it only reinforced usage behavior. The subsequent launch of Android OS and Android-based phones were a reflection of the user experience that had been popularized by Apple.

Today, from an average phone buyer’s perspective, Apple’s and Android’s UI is essentially the standard that consumers expect from a smartphone. Do Microsoft and Nokia truly expect that people will learn yet another new behavior? I think the two companies are being overly optimistic in their belief that their UI is going to catch fire with consumers just because Nokia is putting Windows Phone 7 on its smartphones. It is akin to buying a sports car today, hoping to pay for it with by winning the lottery on the weekend.

In a colorful note today titled “Ctrl+Alt+Del,” RBC Markets analyst Mark Sue asked the question: “This is a major reboot and it will take some time for Nokia to offset the decline of its Symbian devices with Win7 phones. Will this be a true partnership or will bickering stall the process before the first phones are shipped?” The bickering he is talking about is between happy friends today!

Mountbatten of mobile


So am I faulting Nokia for partnering with a third-party OS? No, I am not. In fact, if they were going to make the move away from their own proprietary operating systems, then they should have opted for not just Microsoft OS, but also for Google’s Android and whatever else is out there. Today Microsoft, Android in a few months, and whatever comes next — that would have been the right strategy. In other words, take a page out of Samsung’s playbook. It would have allowed them to have scale, have multiple market entry points and essentially leverage their core DNA: their ability to make good hardware and use their logistics to push it into the market.

Now imagine if the market gives Windows Phone 7 on Nokia a big thumbs down. What happens then? Curtains?

I can’t but feel that Stephen Elop, the Nokia CEO, is the Lord Mountbatten of mobile, essentially overseeing the slow and sure demise of this once proud company that ruled the mobile planet. In a few years, we will look back and see Nokia as yet another mobile brand, jostling for market share with the likes of Sony Ericsson, Samsung, LG, Motorola, the Chinese, the Indians and Apple. It will have the history, it will have the pomp and circumstance — it just won’t have the power.

The Raj is over!

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  1. I think you got it about right. Oh Nokia, that little boy in Finland called and said he wanted his pee back.

  2. glennfleishman Friday, February 11, 2011

    “only 2 million sold”: Only two million shipped, if I recall the briefing correctly.

    1. Glenn

      let me check into that. from my notes it is 2million sold! I will recheck and correct based on what I find out! thanks

      1. Om, Glenn is right. It was 2 million “shipped.” Not sold to end users.

      2. Nokia CEO, Stephen Elop, is the 7th biggest owner of MICROSOFT stock. His Nokia stock = 0

        Anti-trust, Fraud and Insider trading charges should be brought against him.

        He sold Nokia for $0 so that he and his Microsoft bosses profit.

    2. Yes it was “shipped”. And since I have yet to see a single WP7 handset held by an actual customer who is not a Microsoft or Dell employee it would not surprise me if WP7’s actual market share is even lower than published by Gartner, IDC, etc.

      Om: imho I think you are right. And thanks for the history lesson :)

      1. Also, lots of WP7 phones are handed out as prizes at giveaways, contests and the like.

    3. Not even that: at the time of the post, Microsoft claimed to have issued 2 million licenses for WP7. The numbers of WP7 phones actually manufactured, shipped, and sold are obviously less.

      A minor point. Microsoft is a minor player today in the Samrtphone marketplace no matter how you look at it. Otherwise, Om’s post is on point.

  3. But nothing stops them from adding Android too. For now, they are just taking Ballmer’s marketing money, on a non-exclusive basis.

    I think MS will pump enough money into WP7 and the ecosystem will take off. Especially now that Nokia is on board. Don’t forget also that carriers want leverage against Apple and Google. They would be happy to see a third platform succeed, so will support it as a counterbalance to Apple’s arrogance and Google’s dominance in the sub-Apple space.

    1. Are you sure there isn’t a clause on exclusivity in the agreement? I’m feeling Elop would make sure Nokia won’t have Andriod anyway. Re:the situation with carriers, it’s only in the US where Nokia isn’t a big player. Personally, I hope the carriers won’t have any leverage at all, usually when they’re in a strong position, they screw the customers.

    2. When your third in, and used as leveraged against the top two, that’s no way to go through life..

      1. Well it’s not ideal… but the mobile market is easily big enough to support 3 platforms. And part of this Microsoft masterstroke is that they just ended the platform wars: there is a bulge bracket of 3 (one of them being Microsoft) and all the rest are left to wither and die.

    3. Arrogance is when you think you are the best and you are not. That is not Apple, that is Nokia and Microsoft.

  4. Introducing The Microsoft Puppet http://bit.ly/ifBueE #nokia #msft

    1. Insider Register: Elop does not own any shares of Nokia stock – HS.fi – Economy http://bit.ly/hzBPiA

      Hilarious ;)

      1. But how many options does he have, or other similar grants?

  5. The part I struggle with is on the one hand “This is a very new market up for grabs!!” but then “Oh it’s too late for a thir party entrant – no one will want to learn a new OS/UI”. Didn’t Nintendo and Sony have the gaming industry locked up? There’s still a lot of time for a “Kinnect” moment in smart phones.

    1. well, it depends whether their different UI is a Wii, a new experience that customers didn’t know they want. So far, it doesn’t seem to be the case. Different only works if it’s also better.

      1. Thanks Eric. Think of Win7 as the xbox with the Kinnect moment still very possible in the future.

    2. No, the phone market is not new, and the made-up smartphone market is not new, and even the iPhone is not that new.

      Microsoft and Nokia sat on their butts and laughed at Apple for 4 years now. They don’t just jump in and catch up. They have to crawl, then walk, then jog, and so on. They have to get people other than the Microsoft and Nokia CEO’s excited about their platform. And they say they will not ship for another year at least.

      Plus, the Windows Phone 7 software is painfully immature. It’s the only smartphone without HTML5, which means they are in 2006.

      Kinect is a great accessory, but not the biggest thing to happen to gaming over the past few years. The 8 million Kinect users are dwarfed by 200 million iOS users and their huge library of 3D games. There are way more developers adapting their Xbox games for iOS than adapting them for Kinect.

      A smartphone without apps is just a feature phone. Why am I going to pay $1000/year to run a feature phone? Especially one that can’t even run YouTube?

      So it’s not early, but even if you think it is, Microsoft and Nokia are not even on the scene yet. If they arrive in mid-2012, they will meet iPhone 6, iPad 3 or 4, and a family of HP phones and tablets that is a year old, and of course many free Android phones at the low-end.

  6. Mountbatten of Mobile – love it !!

  7. “Nokia, my rants not withstanding, failed to realize that it was a frog” – WOW..hubris on your part and ofcourse Nokia’s…do you really think you are that important???
    You are good, love reading you, but lets not get carried away shall we?
    Nokia’s market loss is no different from what can happen to anyone that fails to manage its software (hardware after all is a commodity play)
    As you rightly said, Nokia forgot the future while focussing on the past (read phones of the 90s). Nokia will just become another hardware player.
    There is only one company that is flawlessly executing the software strategy and the hardware strategy – Apple and don’t go so hard on MSFT – give them time – they will catch up to Google or perhaps they need do nothing – Google is fast going down and MSFT will just catch it on the way above.

    1. Actually Om +is+ that important. Or, rather, he was reporting the truth. I was too. But jerks like you didn’t listen. You helped Nokia keep its head in the sand for the past three years, even as I kept coming back from Europe and noticing all the developers there had iPhones. You kept throwing insults, like you just did. You were wrong. You and your friends destroyed a company because you were NOT willing to see the truth. This is why fanboys sometimes are so horrid for companies. “Hey, we have fans, we must still be cool.”

      Om +is+ that important. He’s one of three blogs that the tech industry listens to. Nokia should have listened earlier. Its cultural arrogance was telling. Even up to December they still were arrogant on stage at LeWeb.

      But, now that I’ve cleared my throat and told you to back off of Om, I want you to listen to something. http://www.cinchcast.com/scobleizer/170737

      It is with a developer. It shows just how deep a hole Microsoft, Nokia, and RIM are in.

      There is only ONE thing that matters now: apps. Apps are driving the entire market. Developers still are only betting on Apple and Google. Can Microsoft or RIM or anyone else change that? The developers I talk to (and I talk with a ton, the recording I put up tonight is just one good sample) are saying Nokia/Microsoft/RIM are screwed. Will their management team listen?

      Not if they have the attitude you do.

      1. “…are saying Nokia/Microsoft/RIM are screwed. Will their management team listen?”

        But supposing they do listen — what can they even do at this stage?

        I’m sure Microsoft understands the importance of developers — that’s why they bribed a bunch of them to write W7P software. I have no idea what RIM does or doesn’t understand, but they are certainly the next Nokia — the BlackBerry is in free fall in the US market, being propped up by a dead-phone’s-bounce in the emerging world. But let us suppose RIM’s cheiftans fully understand how big their problem is — what can they do? They bought QNX and presumably they are trying to migrate it as fast as they can to the BlackBerry. I highly doubt that will rescue them.

        Anyone who didn’t say “oh shit” in early 2007 and do an all hands move to try and compete with the iPhone is in horrible shape right now. For the record the only company that took Apple seriously was Google, possible because Eric Schmidt was on Apple’s board. RIM’s people were claiming at a company meeting that Apple was lying about the iPhone’s battery life, that their iPhone claims were impossible.

        That was then, this is now — now what?

        P.S. I don’t think becoming an Android OEM is the way to riches. Look at Motorola — with the iPhone now stealing their customers on Verizon, it looks like they will ride the Droid brand all the way to bankruptcy. The $800 Xoom sure isn’t going to save them.

      2. Robert you are quite right when you say Apps are driving the market. But surely Nokia was in a stronger position using its own QT platform which as a full time .Net coder and occasional QT dabbler I can say without any doubt is just a good as MS’s environment.

        Nokia should have tried to build an ecosystem with all the other smartphone OSs – RIM’s QNX, HPs WebOS and any other that comes along, even WP7 – together they would be stronger than each on their own and QT really is built for easy porting between platforms.

        I feel like Nokia have failed so completely by miss steps and wrong turns. If Palm with its development budget could role out webos surely Nokia should have been able to reboot Symbian with the UI it needed or get Maemo/Meego out the door quicker.

        Incidentally friends within Nokia tell me that Meego *is* ready but now I don’t suppose Nokia will want to release anything that detracts or confuses its WP7 message.

        Such a shame

      3. Wow! Nicely said, Mr. Scoble.

      4. Om/Robert, Nokia’s failure was one of execution. I don’t think anyone would argue that.

        Symbian was on course for EOL in two to three years but MeeGo via Qt gave a clear transition to the next platform. Unfortunately they botched that by partnering with Intel (you would think that the Symbian Foundation would have shown them that doesn’t work) and trying to build an OS for all things rather than focusing on an ARM powered mobile platform.

        At a platform level – and not UI because Nokia bodged that badly – Symbian remained better for the current generation (2008-2010) of phones because of its resource management. The failure here was to package that attractively and generate engagement and hype.

        Lack of timely execution. Again and again.

        If Nokia had executed their strategy well then Friday’s announcement would have been different. As it is, Elop as gone in, seen that they’re nowhere near ready and selected an external OS for their strategy over the next few years. The interesting bit is that MeeGo will be bought back in house and used for future strategy. This suggests Nokia may be doing a Samsung – use an external OS to grow share and sales and then start introducing your own product (Bada in Samsung’s case) which will eventually take over.

        I also take your point about apps but I think it misses two things:

        1) The app market is still young and will have the same implosion that the .com boom did at the start of the millennium. Come on, Robert, you’ve seen the financials and they don’t stack up. The ones that survive will be the ones with the biggest addressable market, not the ones who think some platforms are cool and others are not.

        2) Ovi was the second biggest store by download volumes, ahead of GetJar, Android market, RIM and the rest. There were over 30,000 Apps provided by most of the big providers. Your argument about developers is true in some respects but not complete – it depends on who they are because the big guys will look to service all platforms. The smaller ones or platform focused ones will exclusively pick the currently in vogue platform. Sometimes it’s a good choice, often it’s not.

        Which is not to say you’re completely wrong – there are some key gaps in Ovi’s portfolio. Had Nokia got its execution right this may have been different and now Nokia have managed to alienate a substantial part of the developer community by pushing them in one direction and then yanking the carpet out from under them.

        All things come to an end. The same will happen to Apple and Google if they fail to adapt.

  8. Lovely post Om! While it makes a great article but all is not lost for Nokia. Don’t discount the fact the Nokia is #1 in India and China by a massive margin and the second place holder is nowhere in sight. And it holds this rank not by the virtue of smartphones. Combine India+China and you have 2.5 billion (i.e 1/3 of humanity) living in this part of the world. Apple is barely able to sell anything there. So, the alliance is a smart move, in the sense, it will get the smartphone users back(they’ve barely drifted anyway) and the lower segment will remain as strong as ever. While others can dream of achieving 1% growth here, Nokia will remain the king for a long time to come. Also, Mobile penetration is hovering around 50% in China and 35% in India and about 5% in Asian countries like Myanmar. This is where the next billion will come from, Remember that. Talking of growth..Go figure

    1. This is backward looking data, which is exactly what Om is referring to as something people keep pointing to. + they are facing market share declines (and Om refers to upstarts there too). Also those markets are low cost/lower margin. And plenty of competition and more so in future. Rememeer – when you have a high market share, you go in one direction – down. staying flat os best case and the entire universe comes after you. just my 2c.

  9. I was a Nokia die-hard before the i-Phone altered the landscape forever. It’s easy to dismiss this as another blunder in a series of blunders but I think the long term outcome of this marriage would be interesting to follow and watch. Two former giants going against the two that are currently dominating.

    Don’t get me wrong, I agree with most all of the points you make, but considering the depth, reach, history & influence of these behemoths, maybe, just maybe. . .

    cheers,
    Dennis

  10. By 2012 when Nokia is ready to come out with WinPhone7 there will be 4 core mobile CPUs. What do they expect people will expect? A different UI experience between their productivity suit say based on Win 8 and their phone, pads. Or a seamless experience between all their devices?
    WordPerfect expert users glamored how fast they could reach any keyboard macro nobody else could remember, poor GUI morons. In the end the morons won, from that we can assume a unified [touch] UI experience will take over from here on. Menus are the macros of the past, generalized productivity application will change or be replaced by task apps.

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