Employees at three major plants in Finland, Hungary and Mexico had been waiting anxiously for the announcement, which becomes the latest in a series of massive cuts to the company’s staff as it tries to find around $1 billion in savings to bolster the bottom line. Over the last year as Nokia tries to reorganize around its Windows Mobile strategy, the struggling mobile giant has slashed jobs, outsourced its Symbian development and closed a factory in Romania.

The company said that it reviewed its smartphone manufacturing operations and come to the conclusion that it made sense to move its manufacturing centers closer to the component suppliers, who are largely located in China. Instead, the remaining staff at the three locations would focus on receiving phones made in Asia and customizing them for the European or American market.

In a statement, executive vice president of Markets, Niklas Savander, said it would allow Nokia to act faster and be more responsive — two weaknesses that have been severely criticized as the business struggles to cope with the rise of rivals like Apple and Google’s Android.

“Shifting device assembly to Asia is targeted at improving our time to market. By working more closely with our suppliers, we believe that we will be able to introduce innovations into the market more quickly and ultimately be more competitive.”

Nokia hasn’t actually said how much money it hopes to save through the changes, but it is clearly hoping to squeeze more out of its relationships with suppliers and get products out without the extensive delays they seem to have been subjected to.

In many ways, the move has been a very long time coming — the vast majority of the electronics industry has already moved manufacturing to China, either in-house or outsourced to companies like Foxconn, and Nokia’s decision will add an extra layer to the ongoing question of whether Western factories can compete at all with the Asian market.

That was one of the subjects explored in a recent New York Times series focusing on Apple’s manufacturing operations, which have shifted from American factories to China over the years.

Of course, the job losses will sting — and cuts in Finland will hardly boost its standing at home. But the reality is that the company had few options: inside a generation, China has become not only one of the cheapest electronic manufacturing markets in the world, but also the one that sports the greatest amount of expertise.

Could Nokia have done anything else?

Photograph of Nokia plant in Salo, Finland, used under Creative Commons license courtesy of Flickr user uncle-leo

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His words were ringing in my ears when I turned on the computer this morning and read about Kodak’s bankruptcy. Shocking (and sad) as it might be, it is not all that surprising. People have been watching the company’s slow free fall for years. The Economist has a great rundown of what went wrongat the company — I recommend you read that and skip all the news-y nonsense – and my key takeaway from that wonderful piece: you cannot fight the future.

Companies that once were large and massive and failed to adjust to the new reality have been left behind.  Xerox that owned the photocopying industry is now a small player in what was essentially its core competency —  document management. AT&T used to be a giant wireline phone company that controlled how we communicated with each other. Now it is a cellphone provider and only a component of the way we communicate. Why? Because communication itself has since moved on to a new kind of network and isn’t limited by per-minute billing.

No coming back

Kodak Logo: through the ages

As my friend Pip Coburn says, turnarounds never turn. Kodak has been in restructuring mode for 15 years – cutting headcount, closing factories, tightening belts and squeezing rocks for blood. In other words — the company isn’t fat in a traditional sense.  But why none of its strategies worked was  because the company took too long and sat on its duff watching digital photography come and eat it for a mid-day snack even though Kodak R&D helped with the digital photo revolution when it launched the first digital camera in 1975.

And yet they failed to do what one of their major competitors – FujiFilm did — embrace digital with both arms and is now thriving. And when Kodak finally did embrace digital in 1993 it did with hesitance that comes when companies are afraid to cannibalize their existing businesses for the sake of the future. 

Today Kodak is experimenting with printers, commercial printing and other services as new ways to grow, but one wonders if that will be the path forward. I am pretty sure HP, Cannon and Lexmark have something to say about Kodak’s printing ambitions. And even if it succeeds and survives, it won’t be the Kodak of George Eastman. We might as well call it, a Corporation-Once-Known-As-Kodak!

Kodak, like many other businesses that have failed before it, made one fatal mistake – it forgot the true purpose of its business and instead focused on features, SKUs and products. (I have written about this before.) Kodak continued to define itself by “film” when all it should have done is define itself with “photos” or moments.

Who cared if the photos were on a slide, were printed and placed in albums, in digital cameras or on online sharing services. “The Kodak Moment” is what made that company powerful. Had it looked at the world from that lens it would be been an easy decision to adapt to new technologies and adopt them for benefit of their customers – us! In Mad Men, Don Draper tells the guys from Eastman Kodak when giving a pitch for their slide carousel:

This device isn’t a spaceship. It’s a time machine. It goes backwards, forwards. It takes us to a place where we ache to go again. It’s not called the Wheel. It’s called a Carousel. It lets us travel the way a child travels. Around and around, and back home again… to a place where we know we are loved.

Nokia’s Kodak Moment?

Nokia CEO Stephen Elop

There are many lessons for today’s companies in Kodak’s failure to adapt and eventual bankruptcy. Is Nokia the next Kodak? I hope not – for I like those guys – but Nokia is a likely candidate. Just as Kodak’s internal team was arguing for a digital shift that the top guys ignored, Nokia too, ignored all protestations from its resident experts who argued for an Internet-centric, touch-based and app-driven mobile device. Anyone remember the Nokia 770?

That phone could have been Nokia’s future, instead it is forgotten.  Nokia defined itself by a certain kind of a product – the 12-key phone. People at Nokia talked about a multimedia mobile computer, but it couldn’t look beyond those 12 keys. It took Apple and Google to show Nokia how to re-imagine the phone. In doing so they have defined how hundreds of millions view and what they expect from a smartphone. As I have said before – it is too late for the Finnish company.

Sure, Nokia has a brand, global presence and a sizeable marketshare. So did Kodak. It took 132 years, the last 15 of those spent in constant belt tightening, for the photo film company to sink. Having missed the big wave, Nokia doesn’t have the luxury of time.

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According to Finnish newspaper Helsingin Sanomat, Nokia’s nomination committee is preparing to bring in Siilasmaa later this year after a two year search for somebody to replace Ollila, the former CEO credited with turning the company into a global force in the mobile industry:

Nokia’s Board of Directors should publish the proposals on Thursday January 26, immediately after the company’s interim report.
[…]
One of the main strengths of Siilasmaa for the Nomination Committee is the fact that he knows the industry, and has acquired experience as chairman of the board of telecom operator Elisa.

Nokia’s board has made some surprising appointments in the last few years, chiefly Canadian CEO Stephen Elop who came from Microsoft under a cloud and subsequently decided to ditch Nokia’s Symbian software and swap to Windows Phone. But the company is said to be looking for somebody not only from Finland, but from inside the company’s board, to take over the chairman’s role.

If it does appoint the 45-year-old Siilasmaa, it certainly would not be straying too far from home — he’s a born and bred Finn who has invested in many Nordic startups and, perhaps more importantly, has actually been a member of Nokia’s board since 2008.

Still, that experience doesn’t necessarily make him an obvious choice. He is not a Nokia insider, and whether he would get support from the company’s middle management — many of whom are fiercely protective of the business and already feel undermined by Elop’s sweeping changes — remains to be seen.

Indeed, the HS report quotes one unnamed insider who questions whether Siilasmaa has the international experience and credibility to make him a good choice, suggesting the knives could already be out.

Still, if you want to get an insight into Siilasmaa’s way of thinking, then it is worth taking a look at this video of a speech he gave after being awarded Nordic Chairman of the Year in 2009.

In it, he explains his view of how a board and chairman can operate alongside a CEO — not just as a rubber stamp for management decisions, but as somebody who can challenge the management if things are off. That’s an important factor for Nokia to consider, since it is trying to turn around its troubled smartphone business, shore up its declining market share and fight a public relations battle all at the same time.

“A board position must be a two-way street,” he says in the video. “The company gets a lot by getting great board members, but the board member needs to get something as well — and it can’t just be compensation: the board member who’s focused on compensation is almost, by definition, a bad board member. One should have a passion about the company’s business and have an enjoyment from learning about what the company does, and about the world itself through what the company does.”

Before going on to describe his working relationship between chairman and CEO, he also points out that the board’s role is not simply to support the chief executive.

“Somebody would tell you that the board’s only real job is to pick the CEO — many people would subscribe to that view,” he says. “But obviously things are not that simple. A strong board supports the CEO but also challenges the CEO. A strong board supports the management team, but also challenges the management team. A good board also works with the shareholders, maybe sometimes challenging them, in addition to working for them in the company.”

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StatCounter’s figures, which Royal Pingdom examined, show that Symbian took a 33.55 percent share in smartphone web browsing up from 30.25 percent at the start of the year, keeping it ahead of iOS, which saw its slice decrease from 25.02 at the beginning of the year to 22.61 percent in December. Android followed with 21.76 percent, up from 14.61 percent at the start of the year. Meanwhile, Research in Motion’s BlackBerry OS fell from 15.03 percent in January to 7.82 percent.

The figures don’t track with recent device sales marketshare. Gartner last month said that Android led all third-quarter shipments with 52.5 percent ahead of Symbian (16.9 percent), iOS (15 percent) and BlackBerry (11 percent). But it reflects the fact that Symbian has been a market leader until very recently and still has a big installed base. Even with declining sales this year, it’s still got a lot of people using its devices, especially in emerging markets, where Nokia is selling a lot of cheap devices. Symbian’s strong showing might also be due to the fact that it has a lesser selection of apps, so users are more apt to go online compared to iOS or Android users. As I recently reported, app usage is on the rise and eclipsing mobile browser use in the U.S.

People shouldn’t assume that Symbian is still a top contender considering where recent sales have been going. But the StatCounter data also shows there’s an opportunity in emerging markets that will be up for grabs as Symbian sales decline. If Nokia can hold on to that market with Symbian phones or get those existing customers to switch to Windows Phone 7 based devices, it has a shot at staying very much in the game. Microsoft-based phones, however, didn’t even show up on StatCounter’s figures.

Staying competitive in developing markets is going to be tough as cheaper and cheaper Android devices flood the market. RIM has also been doing more and more business overseas in emerging markets but it will face a challenge as it moves to QNX-based phones late next year that will make it harder to hit some of the lower price points it’s reaching with current phones. Apple could take a share with cheaper or smaller iPhones while Samsung is also poised to compete with its Bada OS.

Symbian’s ability to stick around is a nice bragging point for Nokia, which can use some good news right about now. But it may just be a reminder of its former glory. The bigger question is who jumps into the markets where Symbian is still popular? That will be an interesting battle in 2012.

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I met Dediu in a coffee shop in one downtown Helsinki, where the native son of Romania used to work as an analyst for Nokia for for eight years. Dediu was educated in USA and attended the Harvard Business School. In 2007, when Apple introduced the iPhone, he saw it as an immediate threat to Nokia and the reigning mobile world order. Of course, no one listened. When Apple introduced the iTunes app store, he started a company that would help others build iPhone apps.

In order to get constant attention to his company, he decided to blog on Asymco.com. That was in February 2010. Soon after, John Gruber of Daring Fireball linked to some of his analysis, and before he knew, his apps consultancy business was shoved aside as he started focusing almost fulltime on the blog. These days, his analysis is being read by more than 300,000 visitors a month. He is so unlike other analysts, which is why everyone from fellow bloggers to hedge fund managers and mutual fund gurus eagerly await Dediu’s next blog post.

Analysis Matters

As we sit and sip our coffees, the conversation turned towards how he approaches the market. I wanted to know: What makes him tick? He paused and thought hard in response to my questions and then concluded that what worked for him was the fact that he was an outsider. “Lot of analysts reply on connections and it is usually that what they are doing is gathering information and not doing any analysis,” he said. “I don’t have any such inside connections. What I have is Internet as my connection as it is more valuable to me than those special connections.”

So what is on his mind these days? Horace said he was thinking about the TV business and how Apple would play a role in the Internet-enabled TV revolution. “Next year will be about a new kind of a television experience,” he told me, explaining that we will start to see more “different” use cases emerge for connected television. “We need a new way of thinking about content and not duplicate the old way of thinking about content,” he says. Agreed!

Just as apps were able to become a big source of revenue on mobile phones, apps will open up monetization opportunities for video-centric content. YouTube based monetization is difficult, he argued, because one needs big audiences to create ad dollars. However, if you get paid directly for apps, even small, niche video content can thrive. These apps, of course would have to be re-imagined for bigger displays and new interaction methods through new kind of controllers – iPad or Siri, for example.
And before we part ways, he points out, all the tiny bits of information are out there in public, on the Internet.

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The launch of the 710 is the opening salvo for Nokia as it works to re-establish itself in the U.S. following its decision to adopt Microsoft’s Windows Phone 7 platform. It might disappoint some users who are more anxious to see the Lumia 800, which has gotten positive reviews since it launched in Europe. But T-Mobile said the 710 fits with its strategy of targeting the 150 million Americans who have yet to buy their first smartphone.

“It’s been T-Mobile’s strategy to really upgrade folks who haven’t used a smartphone before to their first smartphone,” said Rhone Rarick, senior product manager for T-Mobile. “The barriers for that are really cost and intimidation of something too complex. From T-Mobile’s perspective we think Windows Phone is a great platform for those folks and from a hardware perspective we need to make certain things happen to get down to great price point of $49.”

The 710 offers a 3.7-inch WVGA display with a 1.4 GHz Snapdragon processor, 8 GB of storage and a 5 megapixel camera. It will be able to access speeds of 14.4 megabits per second on T-Mobile’s HSPA+ network. The T-Mobile version of the Lumia 710 will also get Netflix pre-loaded along with T-Mobile TV, a streaming video service. The Lumia 710 will join two other Windows Phone 7 devices, the HD7, T-Mobile’s first WP7 smartphone, and the HTC Radar 4G.

”The Nokia Lumia 710 is the perfect first-time smartphone: a well-designed product that delivers the most compelling Windows Phone experience in its price range and with access to great content and thousands of applications,” said Chris Weber, president, Nokia Americas in a statement. “This is the perfect first Nokia Lumia experience and the start of our re-entry into the U.S. smartphone market.”

The news was widely predicted after Nokia and T-Mobile sent out invitations to a Wednesday night event. An FCC filing also indicated the upcoming device would be the 710, removing any doubt about a possible Lumia 800 launch. But the choice of the 710 is still a disappointment in some ways considering the mounting pressure on Nokia to show that it’s serious about its new direction with Windows Phone 7. Our reviewer Kevin really enjoyed Nokia’s N9, the design the Lumia 800 is built off of.

Launching with T-Mobile would also seem to be weak choice for Nokia to debut its Windows Phone 7 line in the U.S. But it makes sense in that T-Mobile has been a strong supporter of Nokia for years. And Nokia is familiar with T-Mobile’s bands so preparing the devices for the network was relatively easy. But it still means that Nokia is starting with a struggling fourth-place carrier and will need to move quickly to roll out on the other operators. This is just the first step for Nokia but it will need to do a lot more to really make good on its bet on Windows Phone 7 in the U.S.

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“What we see is that youth are pretty much fed up with iPhones. Everyone has the iPhone,” he said. “Also, many are not happy with the complexity of Android and the lack of security. So we do increasing see that the youth that wants to be on the cutting edge and try something new are turning to the Windows phone platform.”

I cracked up when I read that headline and that post. When I used to travel globally, the Nokia ringtone and the SMS beep were ubiquitous. Today not so much. I have seen more people with iPhones in more places. The “young people” are the ones with the iPhones. This Nokia executive’s statement is nothing short of bizarre.

I co-incidentally happen to be in Helsinki, a few miles away from Nokia’s global headquarters in Espoo, Finland. Walking around the downtown (where I am staying), I have seen many more iPhones than Nokia phones. And most of the startup people I met have some variation of the iPhone. One of them who is still in college told me that Nokia gave him one of their new phones, and he decided to use it as a way to support his nation’s largest employer. A month later, he switched back to the iPhone. Ouch! When you can’t give away your phones to your own “youth,” it is time to stop hating on other platforms and look for ways to get people to use your product.

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But did anyone think it was this tough?

Even the company’s most hardcore supporters — that is, users in its home territory of Finland — seem to be defecting to rivals, with new figures from IDC showing that it has lost more than half of its smartphone market share there over the last 12 months.

According to a Finnish language report from Helsinki’s Taloussanomat, Nokia’s share of the smartphone market for the third quarter of 2011 has dropped to 31 percent — that’s down from 76 percent the same time last year.

The company’s main challenger is Samsung, which now has a quarter of all smartphone sales in Finland — rocketing up from just 3 percent for the same quarter in 2010 and putting it narrowly behind Nokia itself. In third place is Apple’s iPhone, which has traditionally received little support from many of the Finnish operators. It rose by five points to take 16 percent of the market.

Of course, in broader terms, this doesn’t mean a great deal to Nokia’s bottom line — after all, Finland’s entire population is little more than 5 million and the company shifted more than 100 million handsets worldwide in the quarter in question. And since the Lumia was not yet on the cards during the quarter in question, sales may have been affected more than usual.

Yet this low blow will hurt, not least since Nokia’s dominance of the Finnish economy is hard to overstate. Its tentacles are everywhere, and the company has traditionally enjoyed a level of dominance at home that is unprecedented.

As Taloussanomat notes:

Smartphones only represent one part of the global mobile phone market, and Finland itself is a small market area.

But Nokia’s collapse is relevant, however, since the company’s position in its home smartphone market has traditionally been very strong. 

The rest of the field, if you’re interested, is made up with Sony Ericsson (11 percent), Huawei (11 percent) and ZTE (6 percent). It seems the Asian manufacturers are really making inroads, even in unfamiliar markets.

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Faced with this, the company has fired back with an attempt to lift its spirits. As
Reuters reports:

Nokia said sales of its first Windows Phone model, the Lumia 800, were off to an excellent start in Britain . . .

“Lumia 800 sales in the U.K. are off to an excellent start,” Nokia said in a statement. “Based on earliest data the sales start of the Lumia 800 is the best ever first week of Nokia smartphone sales in the U.K. in recent history.

“By our measures, we have gained significant smartphone sell-out share in the channels in which we are operating in the U.K.,” Nokia said.

There are plenty of qualifications in there: “An excellent start” is fairly unquantifiable; we don’t know what the “earliest data” is; and “in recent history” is vague enough to feel like a piece of spin speak. But with so many writing the whole enterprise off on the back of a limited launch and a handful of reports, you can’t blame Nokia for wanting to put out a different message.

The thing is, the claim and counterclaims make for easy headlines, but they almost all overlook what this situation is really about for Nokia.

The Lumia certainly isn’t about winning, at least not in the short term: It’s about reclaiming ground. It’s about stopping the rot, making products that some people love — perhaps not everybody. It’s about plotting a strategy and creating things that will drip down into the markets where Nokia is strongest over the next few years.

The share price drop suggests we have learned nothing from the short-termism of the financial crisis. Our distorted sense of what constitutes success creates these boom-or-bust moments that often ignore reality and increase the volatility in the market. Our increasingly frenzied news cycles pick up on small pieces of data and magnify them beyond all reasonable proportion.

After all, how many of us had heard of Pacific Crest (the analyst firm that estimated Nokia would sell) before yesterday? How many investors who saw reports that the Lumia launch was “a bust” realize that the reports are based on somebody looking at Google Trends? How many of us even trust analysts to get it right?

Don’t get me wrong: The stakes are tremendously high for Nokia here. Every statistic deserves to be scrutinized, every announcement should be pored over, every report has some weight to it — and if Nokia gets this totally wrong, it could be a long-term problem that is near impossible to recover from.

But turnarounds — if they happen at all — don’t happen overnight. Maybe we should stop behaving as if they do.

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“People like Nokia,” he said. “We’re reliable. We’re durable.”

“We comb our hair each morning. We pick you up from school. We would always send you a birthday card.”

“But it’s not enough.”

In order to get where it needs to be, Elop said that Nokia needs to be adored. It needs to be exciting. That’s why the company unveiled a slate of new devices, spearheaded by the Lumia 800 and 710 — a pair of shiny Windows phones that it hopes can be enough to turn the company’s flagging fortunes around.

Elop called Lumia “the first real Windows Phone”, presumably a slap at HTC, and then handed over to Kevin Shields — a former Windows Phone engineering executive hired by Nokia to help it get shipped — who ran through the product.

By and large, the announcements seemed to be roughly in line with what was expected. And visually it wasn’t a shock either: the Lumia 800 seems pretty close — almost identical — to the previously seen N9, which our own Kevin Tofel said is “among the nicest and well-designed smartphone hardware I’ve ever used”. The specs, too, are familiar: the Lumia 800 has an 3.7 inch AMOLED screen, 1.4 GHz processor, Carl Zeiss lens camera, 16GB memory and 25GB free cloud storage.

Under the hood, the handsets run Windows Phone Mango and from the outside appear smartly done and really usable. On top of what you already get with Mango, the devices come with added extras such as satnav; music and radio player; and a partnership with ESPN to deliver sports content.

Availability

More to the point though, it’s coming soon — perhaps very soon, depending on where you live. The Lumia 800 is being made available in the main European markets first, rolling out across Germany, France, the U.K., Spain, Italy and the Netherlands in November. Russia, India and (along with Hong Kong, Singapore and Taiwan) will see the Lumia 800 before the end of the year. North America, on the other hand, won’t get it until early 2012, shortly followed by mainland China.

Pricewise? Well, on launch, an unsubsidized Lumia 800 will cost €420; the 710 is priced at €270.

Success?

Make no bones about it, this was a big deal for Nokia. You could almost hear the tension, the eagerness that sometimes slipped toward hysteria. And for good reason, the presentation was an attempt to make a big point: the future for Nokia has arrived. The N9, based on MeeGo, was a place marker — a way of showing that Nokia can actually get products out — and the Lumia is where they’re going.

Still Symbian

The biggest surprise for me, though, was the amount of emphasis put on another range of devices being launched today. Kevin had suggested Symbian would get sidelined entirely, but before the Lumia was shown, Elop spent a long time pushing another line called Asha — featurephones that incorporate both a touchscreen and keyboard… and run Symbian S40.

This is clearly an attempt to push from both ends of the market, and the company is trying to capitalize on its hard-fought reputation in fast-growing markets. But it’s also worth remembering that Nokia is far from unassailable in those countries — it’s under threat there, just like it is everywhere else.

Look at India, where revenues are flat and (perhaps more importantly) its share in the feature phone and smartphone market — precisely where Asha is targeted — has dropped from 49 percent in 2010 to 37.5 percent in the first half of 2011.

Whether or not the burning platform is on fire any more remains to be answered. But even if the flames have been quenched, there’s still been a vast amount of damage done. Can Asha turn that around? Can Lumia?

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The news has sparked some excitement around Nokia’s stock, which is up in the hopes that the company is managing its transition well and may be turning a corner. But the real challenge awaits as Nokia prepares to unveil its first Windows Phone devices next week at Nokia World, beginning to show how its big bet on Microsoft’s mobile operating system will play out. That’s where Nokia will need to make its stand, because it can’t rely on feature phones, which will only become more like smartphones over time.

Smartphone penetration continues to grow, and feature phones are increasingly going to be left behind. The average selling price of low-end phones plummeted 20 percent year over year, dropping Nokia’s operating margins to 2.4 percent compared with 11.3 percent a year earlier. The future for Nokia is in smartphones, a market it used to lead with its Symbian devices, which have fallen behind Android and iPhone devices in popularity with many consumers. Nokia’s smartphone sales fell to 16.8 million units in the third quarter, down 38 percent year over year and up just 1 percent sequentially from the second quarter. A lot will rest on what Nokia can conjure up and how interesting it can make its phones, which will be competing against devices from other Windows Phone makers.

Nokia’s CEO, Stephen Elop, said Nokia will bring its first WP7 devices to specific countries later this year before a systematic increase in markets and launch partners in 2012. That means that this coming quarter is also not likely to reflect a big showing in WP7 devices, or smartphones overall, unless Nokia creates an absolute home run that can move units in a big way despite a limited rollout in select countries.

The big test will be next year as it ramps up distribution of Windows Phones. But the pressure is on for Nokia to demonstrate that it made the right bet on Windows Phone and that it has some pretty stunning hardware to show for it. The handsets will need to be markedly better than anything it has in its stable, including the N9, a very compelling device that launched with Nokia and Intel’s MeeGo OS. Positive reviews of the N9 have prompted many to wonder why Nokia essentially discarded MeeGo in favor of Windows Phone 7, something Elop will have to answer by showing just how much Nokia can do with Microsoft’s platform.

I still have some reservations about Nokia and Windows Phone. There’s no guarantee that Nokia feature phone and existing smartphone users will automatically move up to a Nokia WP device just because of the brand name. The two companies will need to bring their A-game and show that any device they collaborate on can stand up to the iPhone 4S, with its new operating system and new Android 4.0–based devices. As we’ve noted, Mango is a big software update that puts Windows Phone in a great position to compete, but some of those improvements are starting to get lost in the frenzy around iOS 5 and Android Ice Cream Sandwich.

The stakes are extremely high for Nokia, which has bet the farm on Windows Phone. All eyes will be on the company next week, and it’s got a great shot at showing how far it has come in this rocky transition. But it’s going to have to rise to the challenge: The market is only accelerating toward smartphones, and Nokia knows it can’t bank on feature phones to bail it out in upcoming quarters.

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1. Apple sold 4 million iPhone 4S devices during the first weekend.
2. Google has 190 million Android phones.
3. Nokia is developing Meltemi OS for low end phones.

When it comes to the phone business, there is no doubt that Apple vs Google makes a great headline. After all, who doesn’t like the battle of pachyderms. But in reality it is Apple and Google versus the others. And by others I mean, those old fashioned phones, ones with the 12 key pads.

For nearly a century the phones have been a single function device. You used them to make phone calls. In the beginning, an operator connected us. Then came automation. We got the rotary dial and then the keypad. The design changed, the backend switching technology changed. Even the economics of the service changed. New features were added — voice mail, for example. What didn’t change: functionality. Phones just made phone calls. A century later we had a certain idea of a phone imprinted in our head.

Fast forward to July 2007. Apple launched the iPhone and in one swoop questioned the very notion of phones, how we use them and what we use them for. Google’s Android Phone efforts only made us rethink the idea of a phone and what is it good for. And they were very different than the 12-keypad phones.

Apple’s iOS and Google’s Android are operating systems designed to run on devices that have the Internet and the ability to run its myriad services as part of their core genetic make-up. The classic voice-oriented phone as we know it is one of the many services. Like Yelp or Pandora. Yeah, the phone companies still charge us a hefty fee, but you pay for the comfort of convention, more than anything. Skype, Nimbuzz and others can help you make phone calls if you want and you don’t need the phone numbers. Google Voice will even send and receive text messages. But we like the comfort of having “phone numbers” because it is easy.

Today’s Internet-centric communication device (for the lack of a better word) is in competition with the old way. Thanks to new chip technologies, cheap sensors and fast growing networks, the idea of what is a phone has changed. This is leading to behavior changes and new interactions. They are behaviors of a new connected life. These new behaviors will change many different parts of society and business.

At the launch of the iPhone 4S, Apple chief executive office Tim Cook said that Apple accounted for only 5 percent of the total (not smartphone) market, pointing to his company’s ambition and opportunity. Apple and Google-based devices are going to be eating away at the traditional phone. It is not a surprise to hear Google boast that it has 190 million devices activated already, or Apple announce that it sold four million iPhone 4s devices on the first weekend the phone became available. Their success will continue — not at expense of each other but at the expense of Nokia, LG and anyone else still trying to stay true to the old format.

Nokia’s New OS

A few days ago, it was revealed that Nokia was working on a new OS called Meltemi that was targeting the low-end phones that are the bread and butter for Nokia. The idea behind the OS was that it would replace the aging S40 platform and it would be made for feature phones. I think even here, Nokia has missed the boat.

In the early days of iPhone, Nokia executives constantly dismissed it as a toy, even though I turned blue in the face talking about the change in consumer behavior and our expectations of the phone. That inward looking thinking cost them the leadership position (and profits) in the mobile business. One could almost forgive them for not noticing the iPhone – Nokia was after all happily selling a lot of low-end phones in the hundreds of millions of units. However, what is difficult to swallow is the fact that the Finnish giant didn’t prepare itself and predict the impact of touch-centric, Internet-enabled iPhones/Androids on the low-end of the market.

One of its biggest rival – Samsung did when it launched BadaOS and it is seeing the gains already.

The fact is that at the low end of the market, there is a certain expectation from buyers. And that expectation is of an iPhone-like device. ”The very simple phone that does talking and texting and maybe you know, not much more, I do believe that over time that will become less and less and less of a market,” Dr. Paul Jacobs, CEO of Qualcomm told me earlier this year. Even at the lowest end of the market we will see “Internet-centric” phones become dominant players, he said. Android-based low-end sub-$100 phones are becoming commonplace in booming telecom markets such as India, China, Indonesia and Brazil. These are not from big brands but mostly from lesser manufacturers. For Nokia and those who believe in the company, this is not good news.

Anyway hope to be back with more later this week.

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We all know that Jobs was not simply a designer — but what does it really mean to be a designer? I think it’s someone who can take abstract ideas, turn them into reality and delight users. And make money while they’re doing it. By this definition, the last hundred years have not seen a greater designer than Jobs.

Some might disagree and claim Jonathan Ive is the real design force behind Apple.You could have said that of Susan Kare, who created many of the Mac interface designs some 30 years ago, or countless other brilliant designers. But recognising Jobs’s genius is to believe that design is always a process — the birth process of services and objects.

Jobs transformed the computer industry twice, first with Macintosh and more recently with iPad. He revolutionised the phone business, plus the music industry with iPod and iTunes, and the movies with Pixar. He even influenced retail with the Apple shops often referred to as “tech temples” for camped-out fanboys. Where else do you see customers smiling as they queue?

When I speak with friends, they all have their Steve Jobs inspiration stories. CEOs, business unit heads, general managers, product leads, business development: from everywhere within a company, from creative to financial, all look to Steve for inspiration, and salute his exceptional skills.

Great products are born out of deep, relentless dissatisfaction with the present and the status quo. Inside Apple’s walls, Jobs almost seemed to carry the burden of all humanity’s frustration with bad products. Apple kept its part of the bargain; now it is up to the rest of us to continue Jobs’ legacy of pursuing elegant simplicity.

Dear Steve, not only did you bring us great fish, you taught us to fish. Your craftsmanship was evident across the latest Apple products launched this week, and they are again an example of your leadership.

I believe you taught us that users do not only need new objects. What they need is constantly improving and empowering experiences. Form may be what ignites the lust in us, but it is experience that sustains our love. Steve Jobs was, and through his incomparable influence still remains, a true design genius.

Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.
– Steve Jobs, 1955 – 2011

Christian Lindholm is the Chief Innovation Officer at Fjord, a London-based convergence design agency. He worked at Yahoo and also spent ten years at Nokia in various roles. He invented the Nokia Navi-key user interface and is regarded as the father of the Series 60 user interface.

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Tero Ojanperä, who has been with Nokia for 21 years, is leaving the company and is going to be working for a new investment fund, Vision+, that will fund apps and services for the Nokia and Windows Mobile 7 platforms. The fund is going to be backed by Nokia, which is an anchor investor in the fund. Ojanperä will be a managing partner.

Ojanperä’s exit is yet another sign that the new Nokia, which some have criticized as a battleship going around in circles, is breaking links with the past. For the past six months I have been hearing that Ojanperä was being eased out. It seems that instead of Nokia’s giving him the old heave-ho, he and the company found a mutually compatible exit strategy.

And why not? Ojanperä has been a good soldier for the company and has done whatever was asked of him. He was a champion of Nokia’s mapping efforts and during many conversations, we discussed how location could be the key to the mobile experience. Ojanperä, who was Nokia’s EVP of services, was a big champion of the Ovi store and helped make that a reality. He was previously chief technology officer, chief strategy officer and head of research for the Finnish company.

When he was speaking at our Mobilize 2010 conference, I gave Ojanperä some lip, but he was very graceful. Ojanperä was a good ambassador for Nokia, especially during troubled times, because he didn’t wear blinders — though I would argue that like many of his peers at Nokia, he stayed in denial of Apple’s iPhone for way too long. I am going to miss talking to him and discussing the future of Nokia and mobile. Or perhaps he will be more candid in his new role as a managing partner at this new fund.

From a broader perspective, I see this exit as yet another negative for Nokia. Ojanperä’s exit takes away some of the institutional knowledge of the Symbian platform, which is still an important component of the company’s revenue stream. Ojanperä’s exit raises doubts about the NAVTEQ mapping platform too.

So far, Stephen Elop hasn’t really set the world on fire since coming over from Microsoft. Nokia’s sales are imploding, and by the time the company get its new Windows Mobile 7–based phones to the market, it might be too late.

P.S.: Join us at Mobilize 2011, our mobile Internet conference scheduled for Sept. 26 and 27 in San Francisco.

Tero Ojanperä speaking at Mobilize 2010

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After all, the Finnish executive has a couple of terrible moments in the last year. First he quit Nokia last fall after running into trouble with MeeGo — the project to build the company’s next generation operating system that he had been overseeing. Shortly afterwards, the system was all but executed as new Nokia boss Stephen Elop decided to partner up with Microsoft instead.

Jaaksi’s timely exit came after Palm boss Jon Rubinstein lured him to HP to become senior vice president of WebOS — the project to build that company’s next generation operating system. Last week, of course, just a few months after the Finn made the jump, HP has discontinued its Touchpad and killed off all WebOS hardware. The entire system is not yet dead, but the writing must surely be on the wall.

So what’s happened? In an interview with a Finnish newspaper published this weekend, Jaaksi outlines the reasons that he left Nokia.

First, he suggests that Nokia never really wanted MeeGo to succeed, or at the very least could not wean itself off an addiction to its existing Symbian system — a “sacred cow” that took precedence at every turn.

“Symbian was a religion inside Nokia,” he told Helsingin Sanomat in an article only available in full in print but excerpted here. “The organization built around MeeGo back then made it impossible to work; I could not see how I was going to do my job.”

Although there have been plenty of reports suggesting that former Nokia boss Oli Pekka Kallasvuo had set up Symbian and MeeGo to compete with each other, Jaaksi says that he was always hampered by internal politics weighted against him — leaving him often turning up to gunfights armed with a knife.

For example, when the N900 was released in November 2009, the company’s biggest worry was not whether the product worked: “The biggest concern was how the telephone affects Symbian,” he said. “Not on how good the phone was or whether it sold.”

Second time unlucky

Although Jaaksi doesn’t address HP’s latest news — the interview was presumably conducted before last week’s bombshell announcement — he still comments indirectly on Palm, suggesting that he was tempted by the idea of leaving a company in trouble and moving to a safer and more fertile environment.

“HP wanted me more than Nokia, in every way possible,” he says in the interview. “And I’m not just talking about my paycheck.”

In fact, HP seems to have been in just as much of a mess as his previous employer, even though it may have been turmoil of a different sort. The fact that HP was bringing in senior figures less than a year before killing off the whole idea of building WebOS devices implies that the company was as directionless and confused as Nokia.

Jaaksi has remained publicly positive since the Touchpad news, making a foray onto Twitter to tell the world that “we will continue webOS platform full speed!”, but it must feel particularly galling to have traded one sort of uncertainty for another.

So is it from the frying pan and into the fire? Well, the parallels are not exact. It would seem crazy to claim that WebOS was the victim of a religious war inside HP, for example. But the ultimate outcome at both businesses seems to be the same — if Nokia was hampered by technology as religion that left it unable to change, then HP seems to be troubled by a sort of agnostic attitude that means it has been unable to commit.

The result? WebOS has been left in purgatory… and Jaaksi must be hoping that he can avoid yet another lightning bolt sent down from the heavens.

Photograph used under Creative Commons license courtesy of Flickr user Szilveszter_Farkas

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Weber, who worked with Microsoft for about 16 years (and left in Sept. 2010), is a believer in Nokia CEO Stephen Elop and joined the Finnish cell phone maker in December after Elop took over as the chief executive. I remain extremely skeptical of Nokia and its chances. and wasn’t shy about sharing my opinions with Weber. Weber, of course, is more optimistic, though he candidly admitted that the company clearly has a couple of challenging quarters ahead.

I would say so. If its current sales numbers are any indication, then Nokia’s on-the-fly reinvention is like Wile E. Coyote racing off the cliff in pursuit of Road Runner, and flapping hard before going splat. If there continues to be a global economic slowdown, then Nokia would find itself in a pretty bad place much sooner than the company can handle.

Nokia doesn’t plan to introduce a Windows Phone 7-based device until later this year, and it will be 2012 before the company can introduce the devices in volume. That long, risky transition gives another six to nine months for Android and iOS to essentially suck up market share. The company will introduce a portfolio of products and form factors in different price ranges, Weber said, arguing that it was how the company was going to win over customers.

We are different

“We have a differentiated product, and it is a differentiated consumer experience,” he argued. “The challenge is to break through to the consumer.” You don’t say! Weber argued that the Windows Phone 7-based devices will have seamless context without needing apps and it would use voice-based inputs/outputs in a clever sort of way – and that’s what makes it different from Android and Apple.

“Static apps and icons are an outdated model,” he said. Of course, you wouldn’t know that if you took a look at Apple’s recent earnings or Google’s claims that over 600,000 Android phones are being activated every day.

I wonder if Nokia is whistling in the wind. Thanks first to Apple’s iPhone and then Google’s Android-based phones, consumers have embraced the touch-based, app-style, interaction model. Microsoft wants us to learn yet another mobile behavior – not an easy task. Weber believes the company is going for first-time smartphone buyers and has an opportunity there.

The third option

Weber wasn’t coy about his opinion of Android and argued that fragmentation is going to be a big issue for Google. “As they try to address it, they will find it tough to retain what makes it (Android) attractive,” he added. “Fragmentation in Android is going to end in a poor consumer experience and that’s what we can take advantage of and we can give a better experience for first time smartphone buyers.”

The company, along with Microsoft, is willing to spend a lot of money to get apps and developers on the Windows Phone 7 platform. Will that be enough? Weber argues that mobile phone companies want a third option to Android and Apple, suggesting WP7 has a chance to be a viable third option.  Yeah sure – this from a company that has no market share and brand presence in the U.S., but waited years to cease Symbian and S40 device sales here.

Elsewhere in the world, Nokia might be better off, but they need to hurry, because Chinese companies like ZTE and Huawei, in addition to biggies like Samsung, are starting to eat into their market share. Weber’s optimism doesn’t factor in that Research In Motion and Hewlett-Packard are also in the running for the third spot.

Having followed Nokia from the day when they introduced their first GSM mobile phone, I cringed at the mention of them settling for being the third option. But I also don’t want the company to fade away into obscurity. After all, like many of us, Nokia was our gateway to the mobile web, and that should (and it does) count for something.

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