How to make the elephant dance again

I must start this post with a disclaimer: what’s expressed here is my private opinion, may not reflect my employer’s official position and it’s based solely on publicly available information and my own thinking alone.

That being said, I must admit I was pondering this post for quite a while. Living in Finland and working in the telecom industry, it’s impossible not to take notice of the travails that Nokia is traversing. Its market share in smartphones is steadily going down; its revenues are declining (latest warning was issues just days ago); its capitalization has fallen below most of its traditional or newfound, former or present rivals (most recent company to surpass Nokia’s valuation is Ericsson). Most importantly, its image of innovative, cool, high tech company was badly tarnished in the developed world (with the exception of Finland, perhaps).

To be fair, Nokia is still the one to beat and it performs very well in emerging markets, mainly due to its world class supply chain and ability to deliver cheap feature phones. But ignoring the clouds on the horizon would be a fatal mistake; smartphones seem to dominate for years to come and that’s a battle where Nokia is on the loosing side.

Nokia’s situation is similar to that in which RIM (the maker of Blackberries) finds itself. Its products are loosing their shine and being able to read emails on your mobile phones is no longer a differentiating feature. Both companies are trying desperately to strike back: Nokia’s netbook (have you heard of it lately?), RIM’s tablet announcement, touch screens etc are all desperate attempts to catch up with the new guys on the block (Apple and the Android camp).

So why is Nokia losing its battle and how could it bounce back?

There are several root causes. The first one, in my humble opinion, is the insistence on Symbian, a long ago outdated operating systems that few people develop software for. If Nokia would have opened it up 10 years ago, the world would look different – but it insisted on a semi-closed, hard to develop for system, trying to do everything (or most) itself. The strategy failed and now seems to be too late to change that. Coupled with a less than well planned ovi.com launch, Nokia lost precious time that allowed others to surpass it.

The second cause has to do with design. Nokia’s phones may be feature-packed, but bricks they are. Coupled with software designed for engineers rather than average people, these are as appealing as a 60 year old former top model who refused to undergo a  lift-off surgery.

There are many more reasons, but I’ll stop here and rather focus on how this may be turned around.

So, what should Nokia do? Continue as today?

Definetly not. There’s another company with a lot of resources that is desperately trying to (re)gain ground in mobile devices. They have a great backend to build on, they have the resources, but somehow they keep slipping back in this domain. They also need a big lift to bounce back. Well, in my humble opinion, Nokia shall partner with them.

So, which company am I talking about?

It’s Microsoft.

It has been steadily loosing ground with (outdated) Windows Mobile, while trying to apply the same model as in the PC business (provide the software, let others do the hardware). Windows Phone 7 seems to be a step in the right direction, but with the same model, it will be terribly hard. On the other hand, Microsoft is great in cloud computing and the control of big Windows is a huge, under-utilized asset. Imagine a well designed, cheap to produce phone that runs Windows and integrates perfectly with the desktop, sporting thousands and thousands of apps – mostly the same as in the PC world. It  would be a great offering that would be hard to match.

What is needed is someone to provide that phone with which the software can be tightly integrated – and that’s why partnering with Nokia would be a match made in heaven (or hell, if you are ‘one of those’). The company cultures are compatible and the team-up, with the right marketing, would create the ‘wow’ factor both companies badly need.

One could argue that this means Nokia giving up its ambitions of becoming a services and software company. I disagree. The team-up – short of a merger of some kind – would offer a lot for both companies and would create an eco-system from which both would benefit. Nokia can still continue its services efforts, but leverage on Microsoft’s Azure; develop software, but on a platform that is likely to be far more user centric than what Nokia has ever built; crucially, it provides access to the American market, something that Nokia failed to penetrate.

I’m convinced that this battle will play out between Apple, the Android camp and Windows phone. Apple is the one-man, fully integrated show; Android is the traditional software-hardware decoupling; a Nokia-Microsoft alliance would be the middle ground that would bring the best of two worlds – IT and telecom – together.

A winning formula. But time is running out.

P.S: A graph to tell it all, fresh from Bloomberg.

One Response to “How to make the elephant dance again”

  1. Johan says:

    At least, now you can say – “I told you so”
    http://tech.fortune.cnn.com/2010/09/10/can-stephen-elop-fix-nokia/

    Cheers,
    Johan