Nokia is off the burning platform - can it reach shore?
- 26 October 2011
- From the section Business
In February this year Nokia's new chief executive, Stephen Elop, shocked his company. Nokia, he said, was standing on a burning platform. The company could either burn and die, or jump into the icy waters below.
After a long, long drop, Nokia now had its splashdown.
Trouble is, the Finnish phone giant has yet to prove that it can swim.
To stretch the metaphor: Mr Elop thinks he has two strong arms that will help him to make it to shore. In other words, he plans to attack the mobile market from two directions.
For starters, there is the all-important premium market - redefined by Apple with its iPhone, but in terms of volume now lead by Google's Android operating system.
Let's not forget that until a few months ago Nokia's Symbian was the leading smartphone operating system in the market. It was cumbersome to use, lacking capability. Frankly, it was very long in the tooth. Only the Nokia brand sustained it during the past five years.
But Mr Elop saw the writing on the wall. Market share was collapsing and profit margins were shrinking as network operators were unwilling to stock Symbian phones.
Opting for Android would have been a "me too" strategy, plus Google's Android has its very own problems in the world's patent courts.
Mr Elop, on the other hand, knows how to deal with Microsoft. After all, he worked for the US software maker until taking over as Nokia boss.
"From a consumer perspective, from the experience delivered, [Windows Phone 7] is better than anything else in the market," Mr Elop told the BBC.
The problem is that while Windows Phone 7 has a highly original interface, it is also a very standardised platform. In terms of software there is not a lot to choose between, say, the Nokia Lumia 800 and the Radar, one of HTC's Windows phones.
'First real Windows phone'
Mr Elop hopes that branding and services will make the difference.
He calls the Lumia 800 "the first real windows phone", delivering not just Nokia's industrial design, build quality and "industry-leading camera", but also a range of services that make full use of what Windows Phone 7 can do.
There are premium services for music, mapping, navigation, sports news and video - although Nokia seems prepared to give away an awful lot of these services for free.
Mr Elop even tries to segment the market, positioning the high-end, metallic-looking unibody Lumia 800 to compete head-on with the iPhone and top Android phones like the Sony Ericsson Xperia Arc S and Samsung Galaxy S II, while sending the Lumia 710 with its cheaper plastic body to challenge phones like HTC's Wildfire.
But why not a more drastic reworking of the Windows Phone 7 user experience?
Ukko Lappalainen, the man running Nokia's smartphone division, is very frank: "We don't want to mess it up."
Having said that, Nokia's restraint may end soon. Just as Microsoft "baked" social media and networking into its Mango upgrade of Windows Phone, I am told that Nokia hopes to deliver a similar integration with its location-based services, once it rolls out more Windows smartphones next year.
Quick to market
Most importantly, Nokia is avoiding the cardinal mistake made by many phone makers: leaving it too long between launching a phone and getting it into the shops.
During Mr Elop's presentation, the company showed a live video from one of Nokia's factories in Finland - with a Lumia 800 going fresh from the production line into its blue box, ready for shipment.
Key European markets will see Nokia Windows phones next month; the United States will get the Lumia range early next year.
As Ukko Lappalainen puts it: "We have learned a lot from our mistakes."
The other "arm" in Mr Elop's strategy is to capture the brand loyalty of the next premium customers while they are still poor.
Nokia is - still - the world's largest mobile phone maker for a reason. The company is successfully selling cheap but sturdy phones in developing countries. The margins are thin, but these economies are rapidly getting richer.
Last quarter, Nokia sold 90 million of these feature phones. Of its pre-Windows smartphones, Nokia sold just 17 million.
Profit margins for feature phones may be very thin (they contributed just half of Nokia's total phone revenue), but these economies are rapidly getting richer.
Nokia hopes to capture the young and dynamic consumers in these markets. Yes, they are poor, but full of aspirations. The new range of Asha phones is cheap, priced between 60 and 100 euros, (£53-88, $84-139) and (depending on the model) packed with much-wanted mobile phone features, from 32GB of storage for lots of music, to loudspeakers loud enough "for the streets of Nairobi", to web connectivity, to 5 Megapixel cameras, to touch screens, to Qwerty keyboards, to strong batteries.
Screens are designed to be bright enough for poor but very sunny parts of the world.
Getting to consumers
The Nokia brand, Stephen Elop argues, can still excite these customers.
He points to India, where phones with two Sim cards are very popular. Nokia launched its first dual-Sim phone just three months ago, but instantly captured 18% of the market.
It's this kind of marketing prowess, this access to the retail channel that makes this mobile phone launch so important not just for Nokia but Microsoft as well.
Two years ago, Microsoft scrapped its old mobile operating system and started from scratch. The most recent version, dubbed Mango, was positively received by most analysts and the media.
In the real world, though, consumers still shun everything that reminds them of the awful Windows Mobile experience of old. Right now, Microsoft has a mere 3% of the smartphone market.
Microsoft hopes that the Nokia brand will change all that.
Carolina Milanese, top mobile phone analyst at research firm Gartner, forecasts that by 2015 Windows Phone 7 could have an 18% market share - with 90% of that coming from Nokia.
It could be even more, she says, if Android's problems in the patent courts continue, or if Google's recent takeover of mobile phone company Motorola spooks hardware partners like Samsung and HTC.
Of course, Nokia (and Microsoft) might arrive just a smidgen too late.
Many former Nokia customers have moved on to iPhone and Android phones, says Nick Dillon at telecoms consultancy Ovum, and have "invested" in these platforms by buying applications and living their lives in the Apple or Google cloud.
"Nokia will have a challenge to convince them to switch to what is a largely unknown, and therefore risky alternative," says Mr Dillon.
But Gartner's Carolina Milanese believes Nokia's investment in emerging but rapidly growing markets gives it a key advantage.
That's why Nokia is right to make a big play of its Asha phones, built on Nokia's own old S40 operating system. That's why the company continues to roll out new Symbian phones.
After all, says Ukko Lappalainen, in charge of Nokia's smartphone division, as long as Microsoft Windows Phones can't support Chinese, Arabic and new services like contactless payments using NFC technology, Nokia will need the Symbian operating system.
Microsoft has a lot invested in Nokia. It will support the company's new phones with both technical support and advertising dollars.
For Nokia, meanwhile, the success of both the Lumia and Asha phones could herald the make or break for what is Finland's, and arguably Europe's, most important technology company.
As Mr Elop put it to the BBC: "This is a new dawn for Nokia, it's the beginning of the next step in our journey of transformation, so a lot rests on it. But we know we have to make decisions and improvements."