The Death of Nokia (or at least a really long slumber)

Some giants fall quickly, others go down trashing about in the water for years before they either drown or get swallowed up by a really big fish. Nokia happens to be a hybrid here- they are doing both. Not only have they lost sizable market shares quarter after quarter and year after year, but they may also be looking for a lifeline to be bought out.

What happened here? I think it’s the case of a myopic CEO – actually two of them back to back. Everyone who follows the mobile industry knows that Nokia has decided to drop its Symbian mobile operating system and has hitch its wagon with Microsoft’s Window’s Phone 7 (WP7) software. Dropping Symbian was a no-brainer. Back in 2008, I was involved in a bunch of meetings with Nokia Forum and the business managers were asking members of its development community, including myself, what it could do to make things better. A number of suggestions were made, and some of them were adopted, but at the end of the day it was clear that Symbian had to go. At best it was a clunky operating system and was built around the phones. It was never set up to be a stand alone software that developers could use to create apps, like iOS or Android.

The decision to move to WP7 is work of the current CEO, Stephen Elop, who, by the way, is an ex-Microsoft executive and led the MS Office business during his tenure while in Redmond. When he stood in front of the Nokia employees this past March and told them that he was unable to cement a deal with Google’s Android for certain exclusivity rights or advantages against other competitors and they would be moving forward with WP7, Nokia suddenly found itself following a very different path. Symbian’s original replacement, MeeGo, the Linux based open sourced operating system that Nokia was working in partnership with Intel with, was also thrown off the bus because its development time was far too slow. In fact, based on the road map, only three phones employing the MeeGo OS would be released by 2014. The previous CEO, Olli-Pecka Kallasvuo who left in September of 2010, never really took the rise of either Apple’s iPhone or the Android OS, as a real threat when they entered the market and never pushed his company to aggressively counter it. Such is the folly of sitting on your laurels.

So, now that Nokia is in the predicament that it’s in, they are left with either the Android or the Windows bandwagon to jump onto. Why Nokia decided that it needed some exclusivity with Android is beyond me. Samsung is in a solid second place with handset sales and is gaining rapidly on Nokia. They use Android, and have been quite successful. By comparison, only 4 million devices use WP7 as of Q2 2011 and even the fading Symbian OS is 100 times its volume worldwide in 2010 shipments alone.

How far has Nokia fallen? Well, in 2007 Nokia commanded 50.8% of the smartphone market. Today, they are down to 25% for Q1 2011. In the meantime, the number of smart phone sales have increased year after year. As a result, Nokia has lost 75% of its market capitalization and is potentially situated in the cross hairs of a possible buy out.

In its strategy to turn things around, Nokia will be focusing on the lower end market. These are still huge sellers in developing nations in Asia and Africa. However, Chinese and Taiwanese firms are hammering Nokia’s margins with inexpensive offerings of their own. Why just manufacture a board that goes into a phone, when you can make the whole thing and go straight to the consumer.

So, while Nokia won’t be going away anytime soon, it is in the fight for it’s life. They haven’t made any good decisions in quite some time. Even if the next dozen strategic decisions are the right ones, how much will they really recover, if at all. For the short term, they will undoubtedly lose more market share. For the long term, luck will have to play a pretty significant part.

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