Blog Post

A Canadian in Espoo: Elop Gives Nokia a Chance

Stephen Elop, the Canadian-born ex-Microsoft (s msft) executive that was tapped as Nokia’s Chief Executive Officer in September, has seen enough. Elop reportedly sent a candid, company-wide memo that sets the stage for the significant changes at Nokia (s nok), which is watching its dominance in the handset market rapidly erode in terms of market share, profit and mindset. There’s no guarantee that Elop can turn the giant Finnish company around, but for the first time I can think of since the 2007 arrival of Apple’s iPhone (s aapl), his words bring hope for fans of Nokia.

Indeed, the memo mirrors several thoughts I’ve shared here about Nokia’s challenges over the past year or two, but the full memo, posted at Engadget, is well worth the read. Essentially, Elop likens Nokia’s situation to a person standing on a burning oil platform who can do one of two things: continue to watch everything burn around him or jump to the icy waters below. Neither situation is attractive, but at least one option provides a future. Some key excerpts from the memo tie back to thoughts shared here:

In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

Whenever I’m critical of Nokia in regards to Apple’s iPhone , the common and near-immediate response centers on how Nokia handsets outsell iPhones by leaps and bounds. Elop knows that this becomes less true with each passing day, and Apple has quickly become one of the top five mobile phone sellers in the world. It has done this with a limited line of smartphones while Nokia has continued to create hundreds of models with various features and functions. Of course, Apple dominates the high-end, so Nokia fans then turn attention to mid-tier market. But Elop knows that’s simply a trick of misdirection:

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.

Google’s (s goog) platform is already outselling products that run Apple’s iOS or Research in Motion’s BlackBerry (s rimm) here in the U.S., where smartphone adoption is rising quickly. But Elop knows that’s only part of the story, because Android sales have recently overtaken Nokia’s Symbian platform around the world as well. And today, the Gartner (s IT) research group confirms an 888.8 percent rise in the sale of devices running Android during 2010, even as the worldwide market share of Symbian devices dropped to 37.6 percent from 46.9 percent the year prior. Nokia’s Symbian device sales grew (as fans will surely tell you), but they’re growing at a slower rate when compared the mobile device market. That’s a problem.

Does the high level of U.S. smartphone adoption skew that fact? Probably. But Elop notes, there are examples of Android’s growing dominance in regions that have typically been Nokia strongholds. In highly populous countries such as India, where mobile broadband and smartphones are now emerging, $150 Android phones are taking large chunks of Nokia’s market share. What was once nearly two-thirds of the market has quickly dissolved to one-third.

“But wait,” cry the faithful, “Nokia still owns the low-end market, right?” Elop dismisses that question with a dose of reality: Thanks to system-on-a-chip advances, an inexpensive but functional handset can be built by nearly anyone these days, even at U.S. contract prices of $30 for a cheap Android handset:

Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally — taking share from us in emerging markets.

Elop’s memo reiterates much of our Nokia reporting of late: The company is losing ground on all fronts for a variety of reasons, ranging from a lack of internal collaboration to a lack of speed. The latter point bears particular scrutiny because Elop understands a key aspect that Nokia as a company and brand simply don’t. I can think of no better example than a post from last week where I suggested Nokia “continues to move as if the year is 2001, not 2011.

My comment revolved around a Symbian update that took months to produce yet brought little tangible benefit to end users, leaving key functions such as the browser and input method to be less than optimal. Yet the fans decried my thought, saying that the update was right on time and the fixes within it were the expected ones. One Nokia employee even suggested I didn’t know the difference between a major update and minor one. Such commentary illustrates the problem that Elop has seen: Nokia may be on time within its own schedule, but that schedule is far too slow to compete in this fast-changing market. His comment on the speed-to-market challenges exemplify this thought:

Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

How then is Nokia to proceed now that the CEO has taken step one, which is to readily admit to the problem? We’ll likely get a good idea of Nokia’s future path this Friday as Elop is expected to outline his strategy, but a glimpse can already be seen from this tidbit in the memo: “[W]e’re going to have to decide how we either build, catalyse or join an ecosystem.”

Although I suggested last July that Nokia consider Android, the better play now may be to extend the company’s relationship with Microsoft (s msft) and use Windows Phone 7 for the platform and ecosystem. Either approach will diminish Nokia’s independent brand, but what good is such a brand if consumers are more interested in products from other companies? Nokia makes excellent hardware, and Windows Phone 7 is a fresh take on smartphone software, so there’s merit in the partnership.

A year ago, it may have made sense for Nokia to buy Palm, and in turn, the company’s webOS platform. Nokia spent a reported $3.9 billion on research and development in 2010; for $1.3 billion, it could have had webOS and still had $2.6 billion left over. But that window has closed and Microsoft arguably has a stronger ecosystem than HP (s hpq) does for Palm’s platform.

Symbian and MeeGo are still on the table, of course, but even Elop doesn’t seem to instill confidence in either with his memo. For all the effort on MeeGo, he notes that the company is likely to only have one MeeGo device available for sale in 2011. MeeGo may stay, but progress will needs to come faster in order for Elop to consider saving it.

I suspect this Friday will bring several changes: a greater partnership with Microsoft, a large reduction in the number of future Nokia handset models and a timeline for MeeGo to prove its worth. Regardless of the path Elop sets for Nokia going forward, it will clearly be a major deviation from the prior path. And it needs to be. Up to now, each time Nokia faced a setback and modified its strategy, competitors were already two more steps ahead.

With an outsider’s observation combined with the grave realization of how dire Nokia’s current path is, Elop is at least giving the company a fighting chance to compete and grow. Not even the Nokia faithful can argue with that.

Related content from GigaOM Pro (sub req’d):

9 Responses to “A Canadian in Espoo: Elop Gives Nokia a Chance”

  1. If Nokia go WP7, then Nokia go from a burning platform to just plain drowning. They give up on being a platform company and just end up a manufacturer.

    If they go Android, then they could have forked it and built their own little empire, and created a platform for their Ovi services just like HTC is doing with Sense. With WP7, that freedom is gone. WP7, given its stringent hardware specifications, means that Nokia can’t innovate on that side either, where its been historically strong.

    They’ll probably just end up going WP7, not because it’s the better choice, but because Microsoft is all Elop knows. But I can’t believe that after all the time and money they’ve sunk into Symbian and Meego, that they’re still so far from the finishing line. Seriously, what the fuck have they been up to?

    I hope they don’t capitulate down the WP7 route.

  2. Yes, they should have bought Palm… a complete failure in terms of sales for the Pre despite its lauded OS and UI. Do you want to lay bets on how HP are going to do with it?

    Nokia need to:

    1) Improve Symbian’s UI and rebrand it, then continue to use for smartphone democratisation at the mid/low end.
    2) Consolidate services using best of in house and third party applications/service layers.
    3) Transition the high end to MeeGo/Maemo.
    4) Possibily go for a short term ‘in’ to the US market with another partner to gain traction.
    5) Grovel to the US carriers to get access to the market.

    Let’s see what tomorrow brings.

  3. Mr. Elop has generated a lot of buzz (not all good) about Nokia and has seemed to have stopped the device leaks so that outsiders have no idea about the MeeGo device they will release, not knowing if it will be ARM or Intel. I’ll wait and see what he has up his sleeve.

    Many have suggested that it is Microsoft’s services that Nokia is after since they are better than a lot of Nokia’s services. As well, if they can get better office integration on their products and perhaps get Qt as a platform for WP7 devices they can really win.

    Everyone is talking about dual-core CPUs but no other phones have come out with pentaband 3G and many new phones don’t even have international 3G. Nokia phones have unique attributes that they seem not to market and advertise very well. USB OTG, Bluetooth 3.0, FM Transmitter…it might not be necessary for all but if it were Apple they would highlight it in a commercial and everyone would go “ooh” and “ahhh”. They have great engineers but they need more than that and hopefully Mr. Elop can make alliances and partnerships that will do that.

  4. Agree with you 100% about the past and present. Palm was a big miss to Nokia and RIM. I definitely said that too way back.
    This guy can still save Nokia. And they are fortunate to have him do that now. Finally.
    But as the first poster I think that MS is just a bad decision for them.
    1. I don’t think – as well – that MS is going to get a big market share.
    2. Suppose that it would – other companies will join too. MS will not go exclusive! So what good is it?
    ==> They should go Android and prove their dominance in hardware and mobile eco system/services integrators.

  5. rohitsift

    … but doesn’t the partnership with Microsoft just delay the inevitable – paint me a scenario in 5 years where Nokia+Microsoft is a contender in mobile devices – the gravitational attraction around iOS + Android will make it hard for developers to move towards windows/nokia (Winok? a la wintel) platform especially as PCs become increasingly irrelevant for consumers and enterprise workers alike.
    mobile is a natural child of the cloud – and azure is by far the weakest cloud ecosystem out there and nokia has no cloud to speak of… so 5 years out its still hard to see how nokia/msft find a winning combination.

    elop is trying to be bold – tying nokia to msft may not be bold enough.

    • Agreed, but I’ve read shorter novels than Tomi’s blog posts. ;) In all seriousness, he has good insights, but I think he’s losing his way as time goes by when it comes to Nokia. Repeated chants about Nokia still outselling everyone and having the best strategy doesn’t mean much if competitors continue greater sales momentum and Nokia continues to drag its feet until its great strategies are outdated. That’s my take, which is of course, arguable.