Tag Archives: Nokia

Could the alliance with Microsoft kill Nokia?

The last two years have seen Nokia’s market share and company value completely crater.

It has gone from being the global leader, to a company struggling to survive and define its future. The writing was on the wall a long time ago, but the last two years have  seen an implosion of every corporate metric, apart from losses, which continue to escalate.

The cause of this is pretty straight forward. Nokia made lousy smartphones. Simple as that. The world wanted smartphones; Nokia’s offerings didn’t make the grade, so they didn’t sell.

– The Blackberry was more secure and suited to enterprises.

– The iPhone redefined usability (something Nokia was never great at) – and provided a usable ecosystem of content (again something that was always terrible with Nokia devices).

– And Android provided a free credible operating system to every OEM who wanted it.

Symbian was acceptable for a while, but iOS and Android showed that a new OS was needed.

Nokia was slow to respond and the marketplace was never going to wait.

MeeGo, Nokia’s next generation OS never matched iOS and was dogged by a failure to deliver. The decision to kill this had a logic, but it also carried a risk which Nokia could lose control of its own future … and it has.

So Nokia was left as a company that could make good hardware, but failed dismally on the software.

Given this, the decision to focus only on Windows mobile seemed sensible. It provided a credible mobile OS, protection from legal attacks (Microsoft knows about IP and protects itself well) and the chance to ally with a major force in computing.

But … what seems to have been missed in many of the discussions is that this decision brought trade offs too.

A strategy is not just defined by what you do, but also what you don’t do (or no longer have the option to do).

– Nokia was unable to make phones to benefit from the Android juggernaut (and be a part of the 1.4m daily activations)

– Nokia is reliant upon Microsoft for new features to be implemented and adopted (and Microsoft is not agile)

– Nokia is dependent upon Microsoft release cycles for updates and the ability to counter competition it faces (as opposed to threats Microsoft faces)

– Nokia is reliant upon approval from Microsoft to develop its ecosystem … you could argue that it doesn’t own the ecosystem anyway. It is just a functional part of Microsoft’s ecosystem.

Nokia has stated that it wants to own and develop its ecosystem. By partnering with Microsoft, this will not happen. Whatever Nokia thinks – Microsoft wants to own the ecosystem. It will agree to allow Nokia to be a key partner, but owning the ecosystem? Absolutely not.

So, does the dedicated alliance with Microsoft provide Nokia with an overall positive or negative result?

Nokia has a partner that is committed to help keeping it alive through challenging times, but the company health is still very poor with an uncertain and worrying outlook. It may be saved for now, but is this at the expense of its long term viability and critically, its independence?

Judging by any accepted measure: revenue, cash flow, market share, handsets shipped, customer satisfaction, partner confidence, share price … Nokia is in big trouble. To reverse this position would require massive sales of Lumia phones – globally, at a price point that provided Nokia with viable, attractive and sustainable margins. It is this last bit which is hard to see happening any time soon. With Android having 1.4m activations per day – it is clearly the market leader – at least in the lower end of the market and for sheer numbers. With Apple about to launch the iPhone 5 next week and iOS 6 later this year – it is hard to see how the growth of Apple will be impacted. To most consumers, the iPhone is the default choice and Nokia offers little to change this. In fact, if you include the ecosystem as a key decision factor – Nokia is not a serious competitor at all. The Lumia scores well on usability with many reviewers, but a search of phone discussions will show that the Windows 8 interface and tiles do not appeal to everyone. And Nokia has no ability to offer anything else.

Even if Windows phone does gain traction in the market, other OEMs are watching this carefully. Several competitors including Samsung have announced Windows 8 phones (even if they didn’t actually have one built yet). So, should the Lumia start to sell and find that people want Windows phones, it will face increasing competition from other manufacturers. This is exactly what Microsoft wants to happen, directly in contrast to what Nokia wants.

The truth of course is that Nokia was in trouble before the Microsoft alliance. The failure of its R&D teams, the lack of focus on a changing market, the lack of discipline in delivering innovation were all clearly evident before the former Microsoft executive, Stephen Elop took his role as Nokia CEO. The board at Nokia must have known what Elop would do. There was only going to be one strategy when you appoint from the Microsoft top tier, but was this the right strategy?

Elop was right in pointing out that Nokia had a burning platform, but doing this publicly before he had the answer ready to sell was certainly not a smart move. All it did was undermine Nokia, accellerate the collapse of sales and lose confidence with consumers, partners and developers.

By allying with Microsoft, Nokia took a huge risk – because in doing so it forgoes some of the strategic options that may have helped its position.

But was there a better option?

– Could Nokia have delayed or downplayed the Microsoft announcement and delayed the implosion of Symbian sales. Absolutely. This would not have changed the ultimate collapse of Symbian, but may have slowed this down and kept confidence with partners until Windows powered phones were shipping.

– Could it have developed an Android phone, that although it would mean entering a crowded market, would have potentially slowed the growth of Samsung, delivered much needed ongoing revenues and kept its brand and reputation relevant. Absolutely. Margins would be lower, but revenues, jobs and manufacturing capabilities could have been protected. This was never a viable long term strategy, but for the short-medium it term offered a pragmatic strategic option. Unlike Samsung, Microsoft, Apple or Google, Nokia does not have a diversified portfolio of businesses, able to sustain an unprofitable part whilst the core survives. With Nokia, phones are the core business. Perhaps this is one area where Elop was the wrong choice. Would another CEO have recognised the danger of the Microsoft partnership and demanded more independence? I think so.

– Could Nokia have continued to develop MeeGo? Against Apple and Android, it is hard to see this being credible, but as a way to demonstrate innovation, build intellectual property and provide some worst case scenario resilience and autonomy, there is a logic to this. Not at the massive scale it was, but certainly as a niche OS, particularly if this was focused on a particular vertical or industry.

So was the decision to ally with Microsoft the right one?

It depends on what you measure and when.

Nokia is still alive … just.

But if you measure a company’s health by its share price – which is crude but valid – then to go from almost $40 to $2.46 in less than 5 years could never be judged a good outcome.

The story isn’t over, and we have seen other companies recover from similar weak positions, but the outlook is not good. Perhaps allowing customers to actually buy the product that you have just announced would be a start.

As with all market leader failures, the merit of strategic choices and the rejected options will remain the mainstay of MBA Case Studies for years to come. Of course, it is not over – but with the big announcement made, the new phones being announced (not launched), it isn’t looking good.

UPDATE: Sep 3rd 2013. Just under a year after this post was made, Microsoft announces they are buying the phone business of Nokia. Stephen Elop will step down from Nokia and rejoin Microsoft.

 

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Nokia Lumia basic marketing fails

I wanted Nokia to do well with the Lumia launch.

I’ve had a lot of Nokia phones, and I’ve never been disappointed with the build or the phone itself.

Well, before Nokia made smartphones that is. I found every one of their smartphones painful to use, so I never bought one.

And that is the problem. Neither did many other people either.

Nokia simply didn’t make good smartphones.

So when Nokia (who can make great hardware) decided to partner with Microsoft, things were looking up. Strategically I think the decision to align exclusively with Microsoft was very risky, and may still cost Nokia its survival – but Microsoft can write good software and has some great design people.

And then the launch …

I’m interested – tell me about it.

1) Looks good, attractive design, I like the tiles, great camera, Windows 8 seems really promising …

You’ve got me … I am a potential customer – and I’m waiting for the two last pieces of information.

2) How much?

3) When can I buy it?

… and then the event finished.

Without answering two of the three important questions:

1) Tell me about it and why I should buy it – TICK

2) Tell me how much it will cost me – FAIL

3) Tell me when I can buy it – FAIL

What the heck!!!

You announce a new product, with no price and no information on availability?

Has anyone at Nokia marketing ever heard of Apple?

Do they understand how Apple work?

Apple follows the above steps to a tee.

Every time without fail.

1, 2, 3 … we get excited and we go any buy it. Apple has closed the doors to competitors.

The sad ones even queue outside (you all know the stories)

BUT Nokia announced vapourware. Simple as that.

Without a price, without a date at which I can buy it, it is vapourware. It doesn’t exist.

So what happens next?

Unable to actually buy a Lumia, I wait until next week and see what Apple have to say.

I know they will launch the iPhone 5. I know they will tell me the price, and I know that they will tell me when I can buy it. I also know that it is probably going to be from the 21st September.  And then any window that Nokia potentially had to attract me and millions of others have gone.

Some will wait. Most won’t. Few will care.

Microsoft and Nokia will market hard and shout, but the timing was wrong.

Sorry Nokia. You should have announced the price and availability.

I know that there are lots of valid reasons to explain Nokia’s position and timing …

– As a spoiler to Apple (mmm … can’t imagine Apple were quaking)

– As a spoiler to Amazon (nope, different markets)

– As a precursor to Windows 8 launch (to keep excitement in advance of Apple and the Windows 8 launch)

Or the most likely reason …

– To guarantee that they got some coverage of a product that is pretty good before Apple launched the iPhone 5 and dominated every blog, magazine and advert –  although Microsoft almost certainly demanded that the phone be held back until the full Windows launch.

The delay does give Nokia and Microsoft the ability to announced agressive pricing AFTER the 12th and thereby position Apple as being expensive and the Lumia as being affordable, but Android phones are already out and more affordable, so this is risky and unlikely to dent Apple’s strategy.

Another reason is to prevent an Apple response to an agressive pricing strategy (which is valid), but also provided Nokia/Microsoft an opportunity to undermine the launch pricing of Apple – so this has been missed.

I hope Nokia knows what it is doing.

Nokia and Microsoft will have a clearly defined plan. Here is what I would do:

1) Ship Lumia phones globally to stores NOW. Have these ready to go.

2) Watch Apple’s launch on the 12th and make the final decision about pricing. You could change this. Hold off on this until you see what Apple do.

3) Announce AGGRESSIVE pricing to disrupt with immediate availability before the 21st September.

If you don’t do this – hold back until the Windows 8 launch and launch then, but don’t expect anyone to care.

They will all have bought/ordered iPhone 5’s.

Why the Lumia will not save Nokia

A day later we have the first reviews of the new Nokia models – the big Lumia and the cheaper Lumia.

The judgement from analysts appears to be favourable overall: Intuitive user interface, great camera and solid build. We need to balance this against the fact that both are in need of some weight loss, but the conclusion is that the phone is a credible offering. So, Nokia have a chance of rebuilding their success with this?

Absolutely not.

How can this be the case?

The phone is pretty good. Nokia is an established global manufacturer and it offers something innovative to the market.

Yes, yes and yes. And the answer is still the same. These will not save Nokia.

Instead of looking at what a load of geeks think, look at what market analysts are saying (those who advise whether to invest in a company or not). At the end of the day, Nokia was trading DOWN by 15.9%. Nokia launches its most important products – ones that will determine whether it has a future – and the analysts sell rather than buy shares?

Why?

Nokia launches a great phone, the geeks love it, and the shares get hammered?

To make sense of this we need to only remember one fact. Analysts (predominantly) buy/recommend shares of companies that meet one condition – they are expected to make more money in the future than they do today.

Thats it. Owning shares is about making money. Nothing else.

If the company promises and delivers spectacular growth, then the share price will quickly increase. Slow increases in growth result in slower rising share prices, and falls in growth will drop the share price. It is that simple. It is about growth.

Making money for shareholders requires companies to increase profit, from generating more revenue, from greater sales. Internal costs and a number of other factors play into this, but essentially it is whether the company has something that is going to sell by the bucketload for a good profit.

And the analysts don’t think that Nokia is going to sell loads of these. If it does, there are questions of whether it can do this at a margin that is expected.

The analysts are right.

So why will Nokia not sell loads of these. Two words: Apple and Android.

Next week Apple announces a new iPhone. This is predicted to sell more than all the other iPhones sold to date combined. Apple will not just sell iPhones by the boatload, it will do this at a higher profit level than anyone else can come close to.

If that wasn’t bad enough – this week Google announced that Android has 1.4m activations per day. That is 1.4 MILLION new Android devices being switched on and registered. Every day. 1.4m, again, and again … And the number is increasing every week. Not just phones, but also tablets. Tablet sales may slow, but they are there and they are growing. Nokia doesn’t have a tablet. Microsoft will launch Windows 8 next month, and this will increase tablet sales, but this will not help Nokia. Even if Nokia did announce a tablet, it is hard to see how it could compete against the iPad and the increasingly crowded and low profit Android marketplace.

Against the behemoths of Apple and Android, Nokia is simply irrelevant.

The other point that is often missed though is that it is not just about the phone, but the ecosystem. Apple doesn’t just have one source of revenue, but several. From the phone itself (the iPhone is the most expensive mainstream smartphone), from the phone contract (Apple gets more than anyone else), from accessories, from content and application purchases (30% goes to Apple). Let’s be clear about this – Apple has built a 21st Century money making machine. And it is only just starting to scale this. With potential moves into TV and emerging markets, there is still a lot of potential growth left.

Google’s Android ecosystem is nowhere near as mature or profitable, but Google also has other businesses that Android compliments – not least of all search. All that data from hundreds of millions of phones provides the intelligence to keep Google search secure in first position as well as providing a global market that will pass a billion users in the next couple of years.

So, despite making a very good phone, the maxim ‘too little, too late’ appears to be perfectly apt.