by Jean-Louis Gassée
Here we are, back from last June’s Nokia science-fiction romp. The company has finally elected a new CEO to replace OPK, Olli-Pekka Kallasvuo. 43-year-old Stephen Elop’s bona fides are in order: As President of Microsoft’s Business Division (since January 2008) he was in charge of the Microsoft Office money machine and was part of the company’s “Leadership Team”. He was well-paid (the 2009 proxy pegged him at $4.8M, excluding longer-term items) and rumor placed him at the top of the short list to succeed Ballmer…
So what possessed Elop to take the Nokia job?
The answer must be that he’s been given the opportunity to make his mark. Having seen Microsoft from the inside, he must have realized that he was being groomed to be no more than a competent caretaker. He might even have decided he wouldn’t get, or wouldn’t want, the big prize, the CEO crown. So, I speculate, he went for the challenges of a turn-around situation.
The goal is clear: Restore Nokia to its former glory as the ne plus ultra of smartphones. But the path to this renaissance isn’t a straight shot—it’s an obstacle course.
Numbers
Mr. Elop’s most immediate challenge lies in Nokia’s financial performance. During the last three years of OPK’s tenure, Nokia lost 75% of its market cap, plunging from $40/sh in 2007 (the year the iPhone came out) to less than $10 today, although with a nice 2% uptick following the CEO announcement:
A more direct way to look at the numbers challenge is a single datum: Today, Nokia gets about €155 ($196) per smartphone, down from €190 last year. In the meantime, Apple gets more than $600 per iPhone. (See the June 2010 Financial Times story here.)
It gets worse when the total average number is considered, smartphones and not-so-smartphones together. That average now hovers around €60, which means Nokia sells very large numbers of low-end phones that yield very little profit. They’re in great danger of being squeezed by the incoming low-end Android horde.
But the numbers are a mere proxy for the bigger trial: The product itself, the smartphone.
Once the category leader, Nokia is now struggling to catch up with HTC, Motorola, Samsung and, of course, RIM/Blackberry and Apple. Pugnacious Nokia die-hards adhere to the company’s sisu, but the market has spoken—and it enunciates more distinctly every quarter. See this Business Insider chart:
Given today’s market turbulence, one can’t help but admire the charter’s ability to “see” as far as 2014—but the trend is obvious. Will upcoming products such as the N8 reverse it? Early reviews are mixed. For Nokia, the N8 isn’t likely to do what the Razr did for Motorola in 2003 or what the latest Droids are doing now. Motorola’s conversion to Android seems to have righted the ship and Sanjay Jah, the Co-CEO in charge of the company’s mobile business, is on his way to leading a self-sustaining entity, one that could finally be spun off as planned.
Software
Today, Nokia pushes devices that use older Symbian S60 stacks, newer Symbian^3 and Symbian^4 engines, as well as a mobile Linux derivative: Meego. Imagine the chuckles in the halls of Cupertino, Mountain View, and Palo Alto. Even with plenty of money and management/engineering talent, updating one software platform is a struggle. Ask Apple, Google, or HP, and the chuckles quickly become groans. Nokia thinks it can stay on the field when it’s playing the game in such a disorganized fashion?
This is Stephen Elop’s first big decision: How to give Nokia a real software strategy. It’s not a trivial determination.
Let’s start with the technical dimension and look at RIM for context. RIM just announced their newest Blackberry, the Torch. In this (long) review, Joshua Toplosky pronounces the device “a generation behind the market… To call the Torch the ‘best BlackBerry ever’ wouldn’t be an understatement, but unfortunately for RIM and the faithful, their best isn’t nearly good enough.” A mere few weeks after the August launch, the Torch was heavily discounted.
Why? The original Blackberry software engine was extremely capable, the best in breed for the PIM task set. But RIM is now saddled with an older-generation software engine whose foundations are extremely difficult to modernize. Symbian, based on the also once very capable Psion OS, is facing similar architectural difficulties.
Nokia understood the difficulties and went for a mobile Linux derivative, Maemo, which they “merged” with Intel’s abandoned Moblin…and thus begat MeeGo. Nokia execs explain the issue in painfully contorted statements: “Symbian is the chosen platform for us for smart phones,” said Kai Oistamo, Nokia’s executive vice president for device, “MeeGo is about the next wave, where wireless devices will go next.” (See this Mobile World Clusterf#^k Monday Note for more obfuscating corpospeak.)
A noted French politician once promised “Change In Continuity.” It kind of worked for him, but it won’t do for Nokia: Elop needs to make a break from the past, rather than merely apply patches. As he takes power, some observers suggest that Nokia ought to follow Moto’s example and go Android. It’s a tough pill to swallow for Nokia, they’ll claim that they’ll lose control of their future…But haven’t they already?
A bolder move, and perhaps more likely, is that Elop will embrace his old employer and position Nokia as the most notable Windows Phone 7 licensee. Conspiracy theorists would have a grand day: It was planned all along, Elop was sent to Nokia with a mission, this is just the continuation of Microsoft’s partnership on mobile Office documents. (The latter item is a fun click. You’ll see the expected and pompous “Global Alliance” announcement of August 2009 and a video featuring Nokia’s Executive Vice President for Devices Kai Öistämö and his future boss, Stephen Elop. What you won’t see is how the two get along now. Kai has been replaced by Anssi Vanjoki, the colorful biker.)
Culture
This leads us to what is likely to be Stephen Elop’s biggest challenge: Nokia’s culture.
Blaming OPK for Nokia’s decline is understandable—but insufficient. OPK was a Nokia lifer. He joined in 1980 and has been a combined cause and effect of the company’s proud history.
Furthermore, Nokia’s choice of a Canadian—a non-Finn—is both encouraging and controversial. The Finnish press isn’t entirely happy with the decision, but the company’s Board has seen the need for new blood. It has watched Nokia’s spectacular failure in the US and has acted upon it.
Not everyone is convinced: “Nokia Makes The Same Mistake Again: Hires A Manager, Not A Product Visionary”. After reading the Silicon Alley Insider piece, I foraged around for more data on Nokia’s new turn-around man. His LinkedIn profile is more instructive than the official bio. Besides executives positions at Microsoft, Juniper Networks, Adobe, and Macromedia (before the Adobe acquisition), LinkedIn says Elop was CIO at Boston Chicken and Noah’s Bagels (it now transpires these two positions are just one). All this within 20 years of graduating from MacMaster University. You can parse him as a well-traveled executive with a very broad experience…or that he “moves around” a lot. The good news is that Elop, unlike OPK, knows the Valley and its networks.
We’ll pay attention to where the new CEO spends his time. Nokia’s US HQ is in White Plains, NY, while Apple, Google, HP, and Facebook are all headquartered within a five-mile radius in the Valley. If you’re in the fashion business, you must live in the garment district.
For Nokia to win, Elop must change the hearts and minds of 123,000 people, make unpopular decisions and make them quickly: The smartphone business is moving much faster than when Nokia was king.
Is Elop up to the task?
Possibly. Stephen Elop is tough. He’ll have to be if he wants to battle the old ways at Nokia.
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29 Comments
It’s a classic ‘bet the farm’ situation. Risk all and go it alone with MeeGo, or better safe than sorry with Android. I think the Finns are too proud to fold but will Elop share their view?
QT is a wild card. With Apple’s newly relaxed rules, could QT be extended so developers can target both iOS and Nokia devices together? That could change the game.
McMaster University. Not MacMaster.
I do like their hardware though. I’ve been through the Motorola W510 and ZN5, on my first Nokia 5130.
The Motorolas have been horribly laggy and buggy, while the 5130 does its job well.
Nokia has good hardware, they just need to move on with a better platform.
Amazing article, well written and laid out a great story, I’ll post on my site and also in Nokia Mobile Talk dot com. RSS marked, didn’t notice a twitter for Monday Note.
once again, great writing.
@John perhaps jlg has an unconscious bias toward the word ‘Mac’?
Excellent assessment of the challenges facing Nokia and their new CEO. I see nothing in Elop’s background that shows me he is the man to return Nokia to glory (or at least, good health). Except that a lot of very smart successful people have relied upon him over the years. Maybe Nokia’s board got it right.
What is right, I think, is bringing in an outsider. Nokia has to kill off one (or more) of their OS’s.
I love your sublime Nokia-Microsoft conspiratorial notion. That could work. I do not believe Microsoft’s Windows Phone 7 can displace iPhone or high-end Androids and thus Microsoft will retreat to their primary position — scalability. Nokia would provide them with that.
You did forget one important job criteria, however. Obviously, Nokia’s Finnish board required someone who loves hockey!
I spent some time with a range of Nokia execs a few years back, and came away utterly shocked that nobody seemed to understand what it meant to build (and maintain, over the long term) a software platform that developers might want to build on. Shifting the culture from “let’s put out another cute device” to “be the most attractive platform for developers”, that other companies will bet their livelihood on is something I have a hard time imagining Nokia doing, regardless how capable their CEO. Without it, a smart phone isn’t very smart, and hardly competitive. A private, Nokia-branded version of Android is their best bet I’d say.
LOL. “Early reviews” links to I don’t know what exactly, but it’s certaintly not a review, nor a “early review”, more like a late regurgitation of old info mixed with typical biased bandwagonner opinion (that author only mentioned the camera as the notable hardware feature of the N8?! Laughably clueless).
One more thing: You must be stupid or biased to use a variation over ONE year to extrapolate over the next FOUR years. That’s what you did with that chart.
Also, looks like Android is the flavor “du jour”, replacing the iPhone. So it’s no longer the iPhone that will dominate the world? It’s Android now? The tech media and its actors (bloggers, “journalists”, market “researchers”) are such a joke nowadays — we should rename them The Bandwagonners.
Hell hath no fury like a Nokia user scorned.
1. typo,you forgot the ‘c’: “former glory as the nec plus ultra of smartphones”
2. You are incorrect when you say: “A mere few weeks after the August launch, the Torch was heavily discounted.”. It has not been discounted. Amazon discounted it as they do with many other devices – on their own:
http://tech.fortune.cnn.com/2010/08/17/blackberry-torch-half-price-claims-half-baked/
3. Last but not least, you included a link to one of the worst review of the Torch written by an Apple fanboy “Joshua Toplosky”. It would have made sense to refer to a more neutral review…
@Jean-Louis:
On the software side, I think Nokia has a huge opportunity to lead in the emerging mobile banking and financial services sector.
Nokia has the footprint and penetration to become a formidable fully fledged bank by building on their investment in http://www.obopay.com – think: “M-Pesa on a Global scale”. They should acquire Obopay in totality and innovate like crazy in this domain.
See Sean Park’s post (of @nauiokaspark) where he articulates similar thinking: http://bit.ly/bAKzn4
In addition, Nokia should acquire http://www.Opera.com – I know directly from one of their largest shareholders that Nokia have considered this on and off for years. Nokia should hurry up and pull the trigger on Opera.
Definitely agree with your view that they should embrace Android.
http://twitter.com/aainslie
Very well written and researched. Why do we not get more such insightful articles. I will definitely be on the oulook for more articles by Mr Gassée
“The market speaks louder every quarter”
Indeed it does – http://graphics.thomsonreuters.com/F/07/GLB_SMPHN0710.gif
One thing weird about these graphs are, why Nokia, Apple and RIM are always singled out as companies, while Android and WinMo are always represented as a platform?
Nokia’s OS strategy is a little convoluted but not as much as you’re making out here Jean-Louis. They’ve still got S40 on the dumb-phones and a touch and non-touch version of Symbian S60 on some of the recent phones which seem to have been released as a stop gap because of Symbian^3 delays. New phones seem to be entirely Symbian^3 now. For example the C6 originally released with Symbian S60 v5 but the upgraded models of the C6 are getting Symbian^3.
Symbian^4 isn’t released yet. Neither is MeeGo.
The development platform for Symbian^3, Symbian^4 and MeeGo is the same – Qt. Developers only have to develop for ONE platform now.
Sorry for the immediate second comment but after I posted I thought ‘Hang on a mo’…. Apple has multiple OS platforms to maintain – iOS, MacOS and whatever is in their iPods these days plus multiple form factors.
Google has Android (multiple versions) and Chrome.
HP has Windows and WebOS and rumour has it, Android too.
Microsoft has WinMo 6.x as well as WP7. It’s keeping 6.x going for phones that don’t fit the WP7 mould. Plus they’ve Zune’s OS and then their traditional OS development.
I think you’re being overly harsh on Nokia’s strategy especially when they own the most comprehensive cross platform development framework going – Qt.
The business insider article misses the point.
Google Android is doing great w/o a “visionary”. Now out-shipping iPhone.
Samsung is the “go to guy” for the best in mobile technology; (a) Flash chips, (b) A4′s for iPhone, and (c) innovative Android phones & tablets. Samsung is #2 mobile vendor worldwide … all without some “visionary”.
Nokia can regain momentum in the mobile handsets if Elop can shake up the culture at Nokia.
One recommendation – relocate the smartphone team to silicon valley.
-Tek
https://twitter.com/TektonikShift
@Ben – because you cant license Apple, RIM or Nokia. they build a product from scratch and sell it. Android and WM are not companies, theyre OS platforms licensed by many companies.
MeeGo is Nokia’s safe bet, not Android. The Oracle lawsuit has merit and there is legal precedent in Microsoft’s $20 million out-of-court settlement with Sun. And Google’s Sergey Brin has publicly stated that Chrome OS is Google’s future. He is preparing the world for the abandonment of Android.
@Tek — agree about moving to Silicon Valley. The West Coast seems to build the best ecosystems — and that’s what Nokia needs above all else. Don’t quite agree on the visionary point: Andy Rubin has done a great job with Android; he’s just less public than Jobs.
@Shaun — developers care about ‘in practice’ more than in theory. Today Apple has sold over 100m iOS devices, with a highly consistent environment for apps, plus an affluent audience of frequent app-buyers. It’s a killer combo.
In contrast, Nokia has sold many more devices, but…
- no consistency of screen size
- no consistency of touch/non-touch
- no consistency of language (Apple is highly English-oriented)
- no track record of spending on apps
- no consistency of OS version
- no simple purchase experience
Those are just 6 big hurdles. When Nokia turns over a new leaf with the N8, it will hopefully tighten up the range of devices and specs going forward so that the promise of one QT app targeting all Nokia devices is fulfilled.
But that is in theory. In practice, it will be a long time before they can offer developers 100m devices to target with Apple-like consistency.
@Rurik – whilst I agree mostly, I think Nokia already have most of that in hand. The changes in the last few months for developers have been great both with the Ovi Store and the developer tools. It still could be better but we’ll see what NokiaWorld brings starting tomorrow. In that regard, and with recent changes to the CEO, EVP of devices going and from what I’m hearing, the Chairman announcing stepping down in 2012, it’s interesting times for Nokia.
@matt
Not really, Symbian is open source before Android’s even out.
What I am saying is, if we are comparing companies, shouldn’t we stick with companies?
Hi JLG, long time since we met in the Be days
Good analysis — much more in depth than I have had time to do. One thing in common from my notes on Friday: they indeed do not have the control analysts (and themselves) seem to think they’d lose by switching to Android.
But switching OS again doesn’t solve anything. The change is far harder. The way I see it, Elop should sit down on his CEO desk on Sep 20th, listen to an army of Nokiites for 10 days, and on October 1st, give two instructions:
1. Every business unit, development program, and division (of which there are too many), needs to shed 80% of program managers, whose main job today seems to be blocking progress by not making timely decisions. The rest should spend their time with the teams doing the work, not with each other.
2. Of the four (five?) operating systems Nokia develops (S40, S60 “legacy”, Symbian^3, Symbian^4, and Meego), only one will remain. The rest are killed immediately. Doesn’t matter how many already-in-development-for-3-years phone projects die alongside them. Doesn’t matter which one remains (arguably, only one is usable, and only one has a future, but they’re not the same one). Any one is better than focus divided between five. This is also why it doesn’t make sense to simply add Android, too.
It’s going to be a hard slog for the next 2-3 years anyway, but OPK should have done both of these when he took the reins — if he had, the company wouldn’t now need to go through the valley of death that’s fairly inevitable. As a Finn, I have to hope that a Canadian will have the courage to do what’s necessary for the company to return to greatness.
The one positive I can see for Nokia is Elop knows what a software company is, having worked at Microsoft and Macromedia. If he turns Nokia into a software company they could do well. That is exactly what Steve Jobs did since his return to Apple: he converted them into a software company.
In the past, software companies shipped on floppy disk or optical disc. Today, you ship on a storage chip, to which you might as well add another chip and a battery and a touchscreen to and ship the whole device. Especially when that ups your potential customers from 500 million nerds to 5 billion consumers.
Nokia still makes much more profit than all of Android combined. I don’t think they are in any way dead yet, but they have to become a peer to OS X and Windows, they have to build a ton of software.
Jean-Louis you’ve been away for too long ! “Change In Continuity.” was the
Valéry Giscard d’Estaing’s electoral slogan of 1974 (see http://www.well.ac.uk/cfol/giscard.asp) Chirac’s two mandates were”Continuity Without Change”
High positions at MSFT and Macromedia? I guess that’s the best they could do. I’d short NOK fast, just in case you have been frozen in a block of ice these past few years and haven’t gotten around to that yet.
I am a huge supporter of Nokia… I hope they can do well all the time…
It’s hard to find expert individuals about this matter, and you could be seen as do you know what you’re sharing! Regards
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