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What’s Wrong With These People? #3 – Nokia

  • Strategic Microsoft and Nokia partnership so far not working
  • Lumia line is good, but hasn't translated to sales
  • Nokia needs a hit before they run out of money
Written by Adam Wajnberg
15/06/2012

This week, Nokia revised their 2012 strategy sharply downwards, expecting much slower unit sales and a shift towards services (especially maps). This was followed with a ‘streamlining’ of the executive team and about 10,000 layoffs, ahead of an expected 40,000 layoffs.

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             Nokia Lumia 800

 

How did it come to this? Like RIM, the makers of the BlackBerry and the focus of our second piece, Nokia was the National Champion of an advanced economy with a small population (Canada for RIM, Finland for Nokia). Like RIM, Nokia was once synonymous with quality and booming sales. Unlike RIM, Nokia has taken a sincere strategic approach to fixing what’s wrong – the only problem is that it isn’t working. Yet.

Early days

old nokia logo

 

Nokia has one of those fun, interesting backstories that help illuminate an industry as fundamentally nuts-and-bolts as Telecommunications. The firm started out as a textiles conglomerate that incorporated paper, rubber and cable. This was back in the 1860’s, when Finland was part of the Russian Empire. So to put it mildly, the company has pedigree.

The power needs of mining magnate Frederic Idestam’s fledgling firm was what led the company towards the power generation business near the turn of the century, where it could leverage its cabling and rubber businesses. At this point, the company has taken the name the Nokia Company, after the village where its second woodpulp mill was erected. It floundered throughout the 20’s and 30’s, but was an integral part of post World War 2 rebuilding in Europe and the Soviet Union, particularly in cable-laying.

The electronics business started getting into gadgets in the 60’s, mostly for industrial use. By the 70’s, Nokia was starting it’s ascent in communications, building switches for telephone exchanges and competing with Ericsson and Siemens. This business was profitable enough to carry the other flagging divisions, and by the time Nokia started building a Mobile Telephony Network in the 80’s, it was clear that this old-world firm was going to be part of a new communications revolution.

Nokia was shoulder to shoulder with Motorola and Ericsson in the car phone business, and initiated the rush towards miniaturization (which would become the mainstay of their business). The Senator car phone of 1982 was nearly 10kg; the Cityman handheld released two years later was 800g. It also cost about $5000 in today’s money.

GSM

Nokia was a major developer of the Global System for Mobile Communications (GSM), the standard that was first set in Europe and is now a global mainstay. The world’s first GSM call was made over a Nokia network in 1991, on an early Nokia mobile handset.

In 1992, Nokia released the Nokia 1011 (on the 10th of November, hence the model name). The matte grey handset employed the candy-bar format – a thin slab of state-of-the-art. It was beautiful.

 

nokia 1011

Boing!

 

The 1011 was mostly used in Europe, while Motorola ruled in the US. Here in Australia, Analogue Motorola handsets were popular until 1998, when the digital switchover was well underway and the Nokia 5110 came to town.

Superstar

nokia 5110

Remember this?


It would be hard to overestimate the impact the 5110 had. I worked at Telstra MobileNet in 1998-99, and only two mobiles were on offer – the Ericsson A1018, and the Nokia 5110. The 5110 was to phones as the Chicken Fillet sub is to Subway – the default model. The norm. Every call I got was for the 5110; its popularity wasn’t just what made Nokia synonymous with mobile; it also shaped what a mobile phone was expected to be for the next 9 years. It was durable. Handsome. Came with games (Snake!). Compact.

The mad success of the 5110 launched the first mad rush for mobile. Over the next few years, everyone and their dog tried to be the next Nokia. Siemens. Hyundai. Samsung. They tried and failed. Only Motorola and Ericsson (which paired up with Sony) could make a dent in Nokia’s market share, with Motorola coming close to catching up with the clamshell RAZR, and Sony Ericsson approaching the throne with their Walkman series phones. It was truly something of a Golden Age in mobile innovation: the guts had become standardized, and now it was about who could make things smaller, add better cameras, or otherwise catch the attention of the hordes of teenagers eating up mobiles.

Click here to check out a nice graphic of every Nokia ever made to 2011!

Nokia started to leverage their enormous success into other fields. They made some rather dandy little laptops. They fiddled around with Communicator phones, ancestors of modern smartphones (though the BlackBerry got there first, and set the tone for that market).

2003 remains the high point for Nokia. The 1100, intended as a throwback to their early days, was so cheap and bulletproof that it quickly became an essential part of Africa and India’s entire economy. To date, the humble 1100 is the top selling gadget of all time, beating out the Walkman, iPod and iPhone, with over 200 million sold.

In 2005, Nokia got sexy. They dropped the bright and colourful palette for grey, silver and chrome. The 8800 was pure lust. The 6630, the first 3G phone, was straight out of Star Trek. The 7000 and N-Gage series were high-end mobile gaming machines (well…they wanted to be). The 7280 was…well, the 7280 just was. It remains a terrific symbol of Nokia’s “What is Money?!? Live Life!” enthusiasm at this point.

 

Nokia 7280

IT'S A PHONE. DUH.

 

2006 and 2007 were a bit of a hangover period. Nokia woke up from the early 2000’s binge, yawned and started to clean up. Novelty lines were closed. Energy transferred to flip phones. Time was spent updating Symbian, the independent mobile operating system that Nokia had brought in house. Nokia was set to enter a maturation stage, as the elder statesmen of the mobile world, ready to sit back and rely on their momentum to take them forward. It was Finland’s largest company, and had the luxury of worrying about too many people buying their products and not being able to keep up with demand.

Nokia was seeing some competition emerge from Samsung, who had worked out their own way to build durable, throw-around handsets, and HTC, who were having success with touchscreen smartphones. Even the BlackBerry, with its high price point, was eating their lunch. Nokia tried to take their rounded, cheerful aesthetic into more whiz-bang gadgets, but floundered until the release of the N-Series, which incorporated advanced GPS technologies and excellent cameras. All was good.

Uh-oh.

Nokia did not scoff at the introduction of the iPhone, the way RIM and others did. They were too big and powerful in the mobile space to really notice. They were looking to disengage from mobile anyway; to concentrate on other developments. The iPhone started to decimate the competition in its own space – HTC, LG, BlackBerry – but Nokia was still far and away the bedrock of the industry.

Samsung, meanwhile, was patiently learning. The Korean giant was starting to be recognized as more than just ‘a cheap alternative to Sony’, as Sony was going through its own magnificent collapse. It was emerging as a major competitor in the ‘featurephone’ market, and once it saw that HTC was going to shift to Android powered smartphones, it shifted there. Samsung still to this day doesn’t have a market that it created by itself, but in Android smartphones it quickly supplanted HTC as the major force to be reckoned with.

In 2010, Nokia sought to step away from the hardware wars to focus on services, with Nokia Maps and the Ovi Music Store. This is where they lost everyone’s attention. Instead of being in the game, or at the head of the game, they suddenly looked like observers – who needed Ovi in the age of torrents and iTunes? Who needed Symbian in the age of Android and iOS? Who needed…Nokia?

Refocus

In 2011, projections finally started to shift Nokia out of the top spot that it looked like it would hold forever. Samsung was slated to become the world’s largest cellphone manufacturer; Apple had surpassed it as the most profitable. The 2nd quarter of 2011 was the first quarter in which Nokia recorded a loss, of a sobering 368 million euros.

At this stage, Symbian was redundant, but Nokia already had the N8 in production and the N9 in development. At some point, Nokia was going to have to make a decision – if they wanted to stay in mobile at all, they needed to settle on an ecosystem. Symbian was a dead-end, as were MeeGo and Belle (an advanced Symbian build) – because even though the operating systems were capable, they had no app market behind them.

If Nokia were to go with Android, they would join an army of barely distinguishable competitors – Motorola, LG, HTC and Samsung were all making shiny black rectangles that ran Android. Nokia couldn’t compete as a 4th entrant to that party, and younger people buying mobiles didn’t necessarily look to Nokia for inspiration.

So what to do? Join Android? Develop Symbian? Go back to woodpulping?!?

Meanwhile…

Microsoft were arguably in a similar situation to Nokia. Their product wasn’t just a leader in one industry; Microsoft operating systems were the backbone of the world economy. Microsoft was ALL industries. But they too had been disrupted by Apple.

Apple and Microsoft were old foes (kinda…Microsoft got their start writing software for Apple, and are still a major shareholder in Apple) who had fought a war over control of people’s home and office computers. Microsoft decisively won that. So Apple had to work around them, and go for people’s pockets. The iPod was the first foray into that, bringing music and video. The iPhone went much further, bringing communications and computing into a space much more intimate than the 60 cm between you and your PC. It was a brilliant strategy, allowing Apple to circumvent both Microsoft and, well, Nokia in the mobile space. To say it paid off is an understatement; Apple surpassed Microsoft as the world’s largest tech firm around the same time Samsung passed Nokia as the world’s largest telephone manufacturer – on their way to surpassing ExxonMobil as the world’s largest company.

Nokia’s CEO, Stephen Elop, announced a strategic partnership in February 2011 with Microsoft. Elop, a former Microsoft employee, was going to circumvent the industry by rejecting both death (Symbian) and mediocrity (Android). Microsoft would gain a specific manufacturer out of the deal, one with just enough cred to turn its fortunes around, and to boost the profile of Windows Phone.

      Nokia Microsoft Lumia

The fruits of this union have so far been the Lumia line, anchored by the Lumia 800. These handsome phones boast great materials, excellent software (besides Windows Phone 7.5, there’s also Nokia Drive, a GPS that’s finally good enough to replace your Tom Tom) and an excellent camera. Alas, sales have been slow across the entire line, and Nokia’s timing has been lousy. This week’s announcement, coupled with statements that Nokia will be looking to compete with the lower-end Android market, signal that Nokia is going to retreat for a while and wait for the current situation to change. But with over 100,000 employees and falling revenues, Nokia hasn’t got long to produce a hit before things get unsalvageable.

Is Nokia bad?

No. Aside from a nasty lawsuit in 2009 with Apple’s lawyers (in which Nokia sued over 10 patent infringements, so Apple countersued with ELEVEN patent infringements) Nokia has remained calm and polite during a tricky transition. It has taken the knocks with aplomb, and avoided silly campaigns like those employed by RIM. Like HTC, it is attempting to do what it does best – innovate, and offer better products to win back the love of the market. It's even trying bonkers moves like the Pureview 808, with a 41 megapixel camera. You can't hate a company willing to go out on a limb like that (See: Samsung Galaxy Note).

Nokia’s planned shift to compete with lower-end Android devices is a clever one. Android is right now at a stage where it attracts many new customers with budget handsets. Once those customers are accustomed to owning a smartphone, they won’t go back. But they will get fed up with the limitations of those crummy Androids. Some will migrate to higher quality handsets, like Samsung’s Galaxy line and HTC’s One. But plenty will also want to move on to something more user friendly. And that’s where a friendly Nokia phone and a pleasant Windows Phone ecosystem will appeal.

Of course, those same customers will also have Apple to choose from, and therein lies the danger. Apple’s only real weakness is cost and a much longer wait between handsets. And with the iPhone maturing, customers will be able to choose from year-old models that offer good-enough specs and still offer the excellent Apple ecosystem of apps and peripherals. Apple doesn’t have to do a ‘budget’ line – they can just sell last year’s model as a cheap alternative.

If Nokia, with Windows Phone does manage to knock the cheap Android market on its head, then that’s the best chance for success. Nokia still has a reputation for overall quality – their cheap phones were never bad, they were just simple. Samsung and HTC, meanwhile, seem to release chintzy Android phones designed to purposefully annoy people into upgrading. If Nokia offers their high quality handsets at a similar price point to sub $300 droids, then why would you take the latter? Even if Nokia and Microsoft lose money for a while, it will help them in the long game.

Otherwise, Nokia seems to be putting other irons in the fire. Their Maps program will replace Bing Maps on Windows Phone, hinting at a post-gadget future where Nokia make high quality mobile software. At the very least, Nokia can’t be accused of sticking their heads in the sand. They came late to the smartphone game, but they’re taking it seriously and putting in the hard yards. The challenge now is to get somewhere before their money runs out.

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