In the past few weeks, rumours of Nokia re-entering the Nokia phone market has gained momentum. (Though this may depend on its terms of agreement with Microsoft, some say it could be as early as 2016). In a related development, Microsoft announced that it was writing off a little over 6 billion dollars it paid for Nokia’s phone division in 2013.
Brand Nokia is close to my heart, I spent close to 12 years working for them, albeit in the networks division. As an ex-Nokian, I’m thrilled to hear of Nokia’s intent to re enter the mobile phone market and would love to see it emerge once again as the leader in smart phones.
However, having spent close to 2 decades in the industry, I couldn’t help but question the prudence of such a move. A sequence of extraordinary developments led to the fall of Nokia. In particular 3 external factors sealed its fate, the Apple iPhone, the free mobile OS/Android from Google and finally the emergence of mobile ecosystems and platforms.
Nokia A transformational company
Great transformations are not new to Nokia. Nokia has a history of change and innovation. It started life in 1871 in the paper and pulp sector. By 1967 it had transformed itself into an industrial power house with interests in rubber, cables, forestry, electronics and power generation.
Taking advantage of deregulation in the telecommunication sector, Nokia entered the market, introducing its first digital exchange in the year 1982. There was no looking back, by 1991 Nokia made the first GSM mobile call throught its network. Between 1989 and 1990 Nokia sold off its interests in paper, rubber and the cable business to focus on telecommunication. By 1998 under the leadership of CEO Jorma Ollia Nokia became a world leader in mobile phones.
Nokia’s decline started with the launch of Apple’s iPhone in 2007 and the emergence of devices based on Google’s Android OS in 2008. A decade of dominance came to an end with the sale of the mobile phones division to Microsoft in 2013. Today Nokia is predominantly a telecom network equipment company.
iPhone
According to Clayton Christensen, the renowned Harvard Professor and author of the seminal book on Innovation, companies are disrupted by innovations that initially target non customers and over served customers at the lower end of the segment. However, over time they move up the value chain, until they compete head on with the incumbents for the main stream customers.
In my opinion, Nokia was a well managed company, that kept a close eye on disruptive innovators gnawing at its feet. Nokia’s wide range of products from the lower end Asha phones to the high end communicators catered to every segment of users. They even had a independent brand called ‘Vertu’ that made gold plated, diamond studded phones that catered to the super rich.
When Apple introduced the iPhone in 2007, it was seen as an outsider with no understanding of the telecom sector. It lacked support for 3G, the fastest wireless technology of the time. Quirks like the inability to copy and paste or forward SMSes gave it’s competitors a few laughs. However, as history bears testimony, these drawbacks were more than compensated by the touch technology and sleek user interface. Radical. Yes. But was it the disruptive innovation that Prof Clayton cautions us about ?
In my opinion, iPhone was not a disruptive innovation at all. It was not low cost and didn’t cater to the lower end customer segment. On the contrary, it cost a small fortune to own (without a carrier contract) and targeted the premium end of the market.
Nokia was beaten not by a disruptive start-up but by a large established company that out innovated Nokia at the premium end of the market. Perhaps this kind of innovation is more fatal than the low end disruption that Clayton cautions about. Beating the company at the premium end hurts it financially, there by bringing it down faster. On the other hand, low end disruptive innovation is a slow death sentence, since it takes a few years for the new entrant to refine the product to a point where it can compete effectively with the incumbent.
Double whammy – Google’s Android
The story of Nokia’s decline is an extraordinary one. While it had to contend with the iPhone at the premium end, a range of cheaper cost effective phones running the Android OS were challenging its dominance in the lower end of the market. Nokia made superb hardware even for the lower end of the market. They listened to their customers, incorporated features such as special keyboards, making their phone water and dust proof, thoughtfully including a torch that came handy during the many power outages in emerging countries. But none of these innovations were as compelling as the a superior user interface offered by Android phones. Eventually Nokia began to lose market share to these entry level smart phones.
Battle of Eco systems
Nokia designed great hardware. Its phones were stylish, sturdy and functional. But it failed miserably at building an ecosystem. The intention of this blog is not to dissect the internal reasons for Nokia’s failure. That is a sensitive topic and one that I am not particularly qualified to comment on. However, looking back at history it is very difficult to understand why a company with such a great vision failed.
Way back in 2007 when Nokia announced the Ovi brand, it was meant to be a portal to access a range of software and services both from Nokia and it’s partners. It was meant to incorporate N-Gage a new gaming platform, a music store, a mapping application and a host of other soft wares developed by Nokia and third party developers.
Nokia’s vision of the future was in many ways ahead of both Apple’s IoS and Google’s Android Ecosystem. Given this history one can only attribute Nokia’s failure to sloppy implementation.
Partnership Dilemma, between the Devil and the deep sea
Nokia had a vision for a mobile eco system, but it failed to deliver on it. Among its spectacular failures was the N-Gage gaming platform. Other services like Maps and Music were more successful. Perhaps its biggest failure was in its inability to attract a sizeable chunk of third party developers. Ovi app store was no where near as vibrant as Apple’s app store or Google’s play store.
By 2010 it was evident that the race for smart phone domination would be a battle of the eco systems and not devices. Nokia’s own initiatives were falling behind, to stay in the game it had to choose between three options.
- Continue the in-house Symbian and MeGoo programs. This would have meant a delay in launching new products with great user interface.
- Partner with Google and produce Android phones. This would have made Nokia a me too brand with little to differentiate itself from its biggest competitor Samsung.
- Partner with Microsoft. This was the most logical of options available to Nokia. Microsoft was lagging behind Android and Apple, but it had the experience and money to put together a great OS. Nokia was a leader in hardware design and together they had the opportunity to develop great phones. At that time it would have been the most logical decision.
Hind sight is always 20-20, I am sure there are plenty of people who now believe that the decision to partner with Microsoft was THE blunder that led to the downfall of Nokia. I don’t think the situation was so black and white. Partnering with Google may have prolonged Nokia’s stay a little while longer, but the final outcome may not have been that much different.
Today we know that the partnership didn’t work, Nokia was eventually sold to Microsoft for 7.2 billion dollars in the same year that Facebook bought WhatsApp for 19 billion dollars. The tyranny of company valuations !
Current state of the industry
The mobile industry had changed considerably since the hay days of Nokia’s dominance. Apple has consolidated its position in the premium end of the market. Samsung is the new ‘Nokia’ with product offerings across the customer segment. ( Incidentally they now face the same problems that Nokia faced when they were at the top ) and a host of players like Lenovo, Panasonic and tens of Chinese and Indian firms at the lower and middle end of the market. Almost all of these players piggy back off the Android OS with customisations of their own. User interface customisations and price are the only real differentiators.
According to News reports Nokia plans to build Android phones with a customised launcher called the Z launcher. The phone will be designed by Nokia and manufactured by a partner. Sounds like a sensible plan, but take a step back and you realise that something is amiss.
- A Nokia Android phone is not very different from a Samsung one. The Nokia brand and the Z launcher would be the only differentiator, is that enough to tip the balance ?
- Is contract manufacturing the right strategy to adopt in a cost sensitive market. Can this model deliver a quality product at the lowest cost ?
- The sale of the mobile division to Microsoft included the retail distribution assets that Nokia had painstakingly built over the years, without it Nokia might find itself selling exclusively through the online channel. Though this might not be all bad.
Nokia was a strong brand and still evokes emotions among its customers. But is that alone enough to bring back the glory days ?
The way forward is Adjacent Innovation
Once again the industry is the cusp of change. Internet of things is a new and upcoming technology area with the potential to change the industry in much bigger ways than the smart phones did. Nokia understands this market and has the technology and IPs required to deliver compelling products. Wearable, health monitors, smart homes , connected cars are all examples of consumer applications of Internet of Things (IoT).
IoT opens the opportunity to build a new ecosystem of devices and applications, bringing together players from the consumer electronics, home automation and automotive sectors.
Imagine a Nokia wearable device at the centre of the consumer IoT revolution. A device that interacts with home appliances and home security systems through a Nokia Home Gateway. The home gateway could be an independent device or an application on the existing smart phone. The wearable device also interacts with in car systems and a host of personal health monitoring devices. Establishing it’s central role in this brave new consumer world and building an ecosystem comprising of consumer durable companies , car manufacturers, health care product and service companies will put Nokia back on the consumer map. Achieving this central role will make it easier for Nokia to add a phone functionality to the wearable device and leap frog back into the world of Mobile phones. This could be the adjacent innovation that propels Nokia back into the future of the mobile device.
Such an approach would not be very different from the one employed by Apple back in 2007 when it introduced the iPhone as an adjacent innovation to the successful iPod. Apple built an ecosystem / platform for the iPod and used that to leaf frog into the adjacent mobile phone sector.
I know I let my imagination run amok and most of it could be far fetched, but the point I am trying to make is, Nokia should look at more innovative ways of launching a mobile phone / consumer product. An Android device, even one with the Nokia name and a new Z launcher may not be the best way achieve that goal.
Nokia is a great company with a history of transformations, from paper to rubber boots, cables and now telecommunications. Nokia’s recent introduction of a Virtual Reality camera called Ozo is proof that the culture of innovation and experimentation is alive and kicking within the company. To stay true to its DNA, and the brand, it needs to do much more than introduce a me too Android phone.
