Report

It’s Time for Nokia to Embrace Android

Table of Contents

  1. Summary

Analysis

Last month, Nokia reduced expectations for net device sales and profit margins, citing continued strong competition in the smartphone segment. Since the introduction of Apple’s iPhone, the emergence of Google’s Android platform and Research In Motion’s continued — though stumbling — transformation from enterprise to consumer, Nokia’s smartphone market share has dropped from around 65 percent in 2007 to less than 45 percent in the first quarter of 2010.

While Nokia is the undisputed king of feature phones, it doesn’t take a fortune teller to read the handwriting on the wall — the eventual trend dictates that smartphones will replace feature phones. Even in emerging nations, where Nokia is a powerhouse, feature phone sales grew 20 percent, while smartphone sales jumped 68 percent, according to first quarter numbers from Gartner.

Nokia makes stellar hardware, so that’s not the reason for the sales drops. Which leaves software and services to blame, and it’s rather telling that Nokia’s market share losses coincide exactly with its indecisive and often stale smartphone strategy. Nokia is often halfway done with a strategy before realizing it’s not one that can be implemented in time to rival competitors. The company then changes gears, and therefore never catches up to the likes of Apple and Google. Or it delivers a new flagship device, such as the N95, that isn’t fully baked and ends up doing more harm than good to the Nokia brand’s reputation. Even one of the longest-running enthusiast sites, Symbian-Guru.com, has had enough — the site shut down last week after nearly four years of Nokia evangelism. Site owner, Ricky Cadden, meanwhile, is buying a brand-new Google Nexus One.

So maybe it’s time for Nokia to follow Cadden’s lead, think longer term and embrace Google’s Android platform.

Why Mess With Success?

When I look back at the last few years in the smartphone space, I see Apple and Google innovating at near light-speed, while Nokia has trod slowly down the Symbian S60 path. It was only late 2009 when Nokia began offering a smartphone with a fresh new operating system — the N900 running Maemo. But Maemo is now combined with Intel’s Moblin Project and will be MeeGo when the first smartphone to run it appears in the second half of 2010. That means it’s taken Nokia nearly three years to adjust for Apple’s entry into the market. Google, on the other hand, is on an annual run-rate of 58 million device activations. To say that Apple and Google are more successful in this space recently is an understatement at best. And sometimes the wisest strategy is the old “if you can’t beat ’em, join ’em” approach.

Nokia would do well to follow such wisdom, scrap plans to use Symbian S60, Symbian^3 or MeeGo, and instead leverage Google Android to unify all of its devices. Instead of creating or maturing other platforms in-house, those development resources could be used to customize Android for Nokia phones as needed. A move like that would reduce the support costs of tools developers use when creating apps for Nokia devices, to say nothing of the customer experience benefits and improved developer resources. And Nokia has lost much of the brand awareness it enjoyed a handful of years ago, while, meanwhile, more Android handsets were sold than those of even Apple in the first quarter of 2010. A shortcut to success would be for Nokia to stop fighting — and losing — the same battle over and over again by adopting a proven operating system like Android.

Attracting Developers to Market

Moving to Android would address another problem for Nokia — attracting developers. As it stands now, programmers for Nokia’s platform have to cater to hundreds of different feature phones and smartphones that are spread across several platforms. While hardware variances can potentially dictate changes to software, platform variances nearly always do as the result of code incompatibility. Nokia wisely plans to combat this with Qt, a cross-platform framework that provides more of a “write once, run on several devices” opportunity for developers. But while that might be a step in the right direction, Nokia is only just getting started with Qt, and there’s no guarantee that devs will embrace the tool.

While Google’s Android Market surely isn’t the most mature mobile software store out there — the Market is no iTunes and it certainly could use a cleanup — it already exists, is better than the stores of BlackBerry, Palm and others, plus it already has more than 65,000 titles available to it. Contrast that to Nokia’s Ovi Store, which can be buggy, isn’t as user-friendly and offers a variable experience depending on which device you use to access it. Why not reduce effort and resources by going with Google’s Android Market? Indeed, Nokia could market its own apps and Ovi services in Google’s storefront if it wants to continue down the service path.

Make Smarter Feature Phones

Embracing Android offers another benefit to Nokia, though one outside of the smartphone sector. Android runs quite well on limited hardware, so Nokia could transition its broad feature phone base from Symbian S40/S60 over to Android. Such a transition would reduce and eventually eliminate the costs of further Symbian development while also making feature phones “smarter” with advanced email, browsing and applications. Nokia could develop a custom Android interface to simplify the smartphone experience, but still position the devices to support its strategy of dominance in low-cost, emerging markets.

Perhaps the biggest challenge in this scenario is the required Internet connection needed to activate an Android phone with a Gmail account. Still, given Google’s open approach with Android, along with Nokia’s influence in the sector, it wouldn’t surprise me if the two companies could work out some alternative for areas where web connections are scarce. Perhaps an SMS activation might work. Such a strategy would allow for Nokia to still offer low-cost devices with an operating system that has room to grow as local telecom infrastructure matures.

Product Differentiation

Herein lies the biggest challenge if Nokia were to adopt Android: In a rising tide of Android phones from more than 20 handset makers now, how would Nokia differentiate itself? The answer lies in Nokia’s greatest strength today — hardware. No company in the world makes a wider range of quality handsets, and Nokia should leverage that attribute by designing unique and effective handsets to run Google Android. With a capable operating system that Nokia doesn’t have to pay for, it can focus on its core competency of hardware design. That concentration, along with reduced development and support costs for hardware, will surely raise overall profit margins.

What if?

Marrying top-notch hardware with a popular operating system would surely increase the number of Nokia smartphones sold and reverse the current trend of declining profits in Nokia’s smartphone segment. Internal development costs would be greatly eliminated while external development interest would increase as programmers are already building Android applications.

What would Nokia lose by taking such a drastic step? One could argue brand recognition from the drop of Symbian, but if Nokia wants to keep using the Symbian platform on lower-end devices, there’s nothing stopping the company from doing so. And with the company’s attention to design detail, Nokia wouldn’t be just a “me too” Android phone maker. Nokia may believe that Symbian — or now MeeGo — is its greatest strength, but for current shareholders, these perceived software strengths are glaring weaknesses and might be the biggest explanations to declining stock prices. With Android combined with Nokia’s hardware and global branding, those stockholders might vote in favor of breaking with the past and looking towards a Google future.

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