Whither Nokia?

There was a whiff of desperation about Nokia’s annual “World Show” event in London on Tuesday. When your bigwigs are driven to say things like “We’re not going to apologise for the fact that we’re not Apple or Google or anybody else — we’re Nokia and we’re unique,” you have to wonder who they’re trying to convince.

And that wasn’t an isolated piece of boasting. The whole event was peppered with swaggering sound bites. “In the past quarter, people bought far more Nokia phones than Apple and Android combined. On average, people buy 260 000 new Nokia smartphones every day — that’s more smartphones sales than any other company by far — period,” blustered Niklas Savander, one of the company’s seemingly endless supply of executive vice-presidents.

What Niklas fails to mention is that, while Nokia makes an average of about $60 in profit per phone, RIM, which owns the wildly popular BlackBerry range, makes more than twice that, and Apple makes 10 times as much. Between them, Apple and RIM currently capture more than two-thirds of all profits in the mobile phone market.

That leaves Nokia and its industrial age competitors (Samsung, LG, Sony Ericsson) to churn out tens of millions of humdrum phones for the masses at ever-decreasing profits. Not exactly an edifying future for the world’s leading cellphone-maker.

Nokia’s execs imply that Apple and Google are tadpoles in the mobile phone pond while they are still the big fish. Yet its inability to keep up with the innovations of these new competitors is showing clearly in its share price.

Since 2007 Nokia’s shares have lost 75% of their value. What happened in 2007? Wasn’t that when the iPhone came out? Pure coincidence. And wasn’t Google’s Android operating system released in 2008, when Nokia’s shares took another big hit? More coincidence.

Dogged determination and pragmatic stoicism
Nokia was built on the Finnish ideal of “sisu” — the untranslatable word that encapsulates the dogged determination and pragmatic stoicism of its whole nation. This allowed it to grow from a medium-sized paper and rubber company at the turn of the 20th century into the world’s largest cellphone manufacturer. Nokia now accounts for about 5% of Finland’s economy, and a third of the value of the Helsinki Stock Exchange.

But that very sisu may also be its undoing. With few exceptions, Nokia has always made good phones — solid, dependable handsets in lots of different shapes and sizes. In the 1990s when it was essentially driving an entire new market, this sort of dependability and width of range was important.

That early market shaped Nokia’s corporate culture into what it is today: a vast and stubborn bureaucracy focused on selling as many cellphones as possible to as many people as possible. That kind of culture favours features over true innovations, more choice at the expense of standardisation and caution over creativity.

This organisational inertia is exactly why Nokia failed to capitalise on the smartphone revolution, even though it saw it coming. Of the three things that defined that revolution — new generation touch screens, faster processors, and open software platforms — Nokia ignored all but one.

Perhaps the most vital component in the iPhone’s success was the ecosystem of independent application (or “app”) developers that grew up around its platform. Apple’s online app store made both buying and selling these small chunks of useful software so simple and pleasurable that more than five billion have been sold in less than three years.

But independent developers will only commit to a platform if three things are certain: standardisation, revenue and reach. At the moment Nokia has none of those three. It is saddled with two separate operating systems — the older Symbian and the convoluted Meego — and refuses to declare either of them its new standard.

And while Symbian may be the de facto leader in the mobile operating system race, most people with Symbian phones either don’t know about apps, or don’t care enough to learn how to download them. Even those few who do want to download apps find Nokia’s Ovi app store maddeningly difficult to use.

Much deeper problem
What Nokia needs right now is a huge shot of innovation. The retirement of its stalwart CEO, Olli-Pekka Kallasvuo, is the perfect opportunity for just such an injection. Alas, it has opted instead for Stephen Elop — a man poached from the least innovative division of Microsoft. He may not be a bureaucrat but he certainly comes across like one.

Hopefully Elop will at least standardise Nokia’s software and thus give it a fighting chance in the app market. He used to run Macromedia, so he must have software in his blood. Whether there is any spark left in him after his stint at Microsoft remains to be seen.

But Elop really needs to fix a much deeper problem: Nokia is still a phone company while its whole market has shifted towards mobile computing devices. What used to be sideshows — browsing the internet, sending email, watching video — are now the main event. But the stubborn Finns don’t seem to get this shift. They’re still making good phones when most people now want sexy, sleek gadgets.

Nokia seems to understand this intellectually, but still clings to the cherished idea that it is the market leader, worthy of adoration and respect. It just doesn’t get why everyone is making such a fuss about these silly, flashy new kids on the block. “The reality is that Nokia invented the smartphone,” grouses (yet another) executive vice-president, Ansi Vanjoki. It may be true, but that doesn’t make it sound any less petulant.

Follow Alistair on Twitter: @afairweather


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