The Target, The Hitman and The Collateral Damage – A tale about a smartphone company

The other day what seemingly was an internal memo leaked to the press. The memo was written by newly appointed Nokia CEO Stephen Elop.

Nokia - Windows Phone 7 Hybrid Logo

The memo is brutally honest and pinpoints some of the problems that Nokia is currently facing. (The memo is available for further reading at the far bottom of this post)

The Target

For those following the market the last few years it has become painfully apparent that Nokia is doing bad, very bad.

They used to be the top device producer, manufacturing great hardware with a geniuine quality feel to it and they used to have a simple and intuitive UI. From the basic UI’s in the dumb phones to the feature phones, they did really excell. I remember when I swapped jobs and thus cell phones before, I used to hope that the company I was going too were using Nokia as I had such fond memories of my very first cell phone that was an old Nokia.

Then along came the smartphones, but Nokia still did good, to start off with. In Q42007 it was said that Nokia held a market share of 50.9% of the total smartphone market!

This figure has now fallen to 28% in Q42010 (and it’s without a doubt decreasing as you read this). Something needs to be changed for Nokia, and in September 2010 a new CEO, Stephen Elop, took the helm after Olli-Pekka Kallasvuo that had then been with Nokia for 30 years.

The Hitman

Picture of Stephen Elop, CEO of NokiaStephen Elop was the man chosen to take on Nokia and hopefully get the ship sailing again.

Elop then came from Microsoft, having been president of the Business Division responsible for among other things the Office suite and many of the communication tools in Microsoft’s portfolio.

Canadian born Stephen Elop previously worked for Macromedia, Adobe and Juniper Networks. This is what was written in a communique from Nokia about whether Stephen was expected to change Nokia’s strategy when he joined:

Does this mean we’ll see a new strategy for Nokia? The core strategy is solid and Nokia will continue to power through what is a substantial transformation (from a hardware company to a software company). Elop will help to accelerate that (he’s a get-things-done guy) and his fresh eyes and ears will enable him to take a fresh look at big questions as to that strategy is executed.

The role for Elop was set, he was the hitman. Hired to clean house, take out the trash and redecorate. Question is: what way is he going to take?

The Collateral Damage

Nokia had invested in two mobile software platforms, Symbian and MeeGo.


The Symbian platform was a big merge of components form different companies (Nokia, Symbian Ltd, Sony Ericsson, NTT Docomo), planned to be an open source platform. In 2008 Nokia bought up Symbian Ltd. and became the owner of the Symbian OS. Since then being the driving force behind the development of the platform.

The latest incarnation of the Symbian platform is Symbian^3 (pronounced “Symbian three”) and so far there are four devices released with Symbian^3, all from Nokia.

One of Symbian’s good points being that it’s really developed with the design principle “all resources are scarce” making it rapid even on not so powerful hardware.


MeeGo smartphone interfaceThe mobile operating system MeeGo is a Linux-based open source OS project as well.

The project was announced at the Mobile World Congress in Barcelona 2010 at a joint press conference held by Nokia and Intel. MeeGo was the attempt at joining the former Intel project Moblin and Nokia’s Maemo project into one common project.It was targeted against smartphones but also nettops, infotainment systems, netbooks and even entry level desktops.

Of all the mobile operating systems it stands out in a way that it not only supports ARM processors but also x86 processors with SSSE3. So far no device has hit the market running MeeGo, only one Nokia project has been running it, and a developer prototype developed by Aava.

The Hit

On Friday the 11:th of February Nokia is holding it’s capital markets day (starting 11:00AM CET).

Rumors have been buzzing about in the blogosphere for a while about what Stephen will announce during the event, and fueled by the leaked memo and added to by a rumor that Nokia already dropped the only MeeGo project before it actually hit the market – it’s pretty evident that some things will change.

All bets are probably that they would join an existing ecosystem. And the choices would be Android or Windows Phone 7.

Nokia and Microsoft have been meeting lately, they have a long standing collaboration relationship so this is nothing new. But the rumors insist that Elop and Ballmer have been talking about Nokia adopting the Windows Phone 7 platform for their devices.

Then we have Vic Gundotra from Google saying on Twitter: #feb11 “Two turkeys do not make an Eagle”. Which doesn’t really seem like something a business partner would say regarding joining forces. (But then again, who knows)

Question is also what is going to happen with the current platforms Nokia is involved in?

The Bystander

My personal predictions are that Nokia won’t drop Symbian, they still produce too many lower segment devices with Symbian on them and they still rake in money here. They are under heavy fire in this sector as well, mostly from upcoming competitors from Asia. Probably there will be some changes announced regarding the development of the platform, but I’m still guessing it will still be utilized by Nokia even after tomorrows event.

As for the smartphone devices I suspect they will go for Windows Phone 7 and join forces with Microsoft. Elop and Ballmer have been colleagues for a while and Stephen is well versed in Microsoft’s offerings. I suspect he believes in the platform and is willing to risk investing heavily in it and dropping MeeGo. Which will then enable quite a lot of developer resources to focus on evolving the Nokia offering, software wise, instead of focusing on developing OS, software as well as the ecosystem for it.

Question is if this is the right way to go for Nokia though. Adopting a current ecosystem means they will be just making devices again (more or less), and this after trying to sway the company over to a software business mostly. And mainly being a device manufacturer means directly competing with the likes of Samsung, HTC, LG etc.

Nokia have always produced great hardware, well almost at least, and if they keep that up there might be a market for them in the Windows Phone 7 sphere. But question is if this is going to be enough of a differentiator? And I seriously suspect that it will be hard competing against the other major device manufacturers regarding production cost.

A company like Nokia should have more of a differentiator in my opinion. Sticking to MeeGo would be tough, but finding more joint partners developing for it would be a good alternative. Share the development cost and speed up progress. But if the rumors hold true that Elop already trashed the only MeeGo project then I guess there is very little chance we will hear Nokia say that they are staying with MeeGo.

Being particularly fond of Windows Phone 7 myself, I’d of course welcome a shift to Windows Phone 7 if it happens, as I think the platform would benefit from it. And for us Scandinavians it’d be great to get some devices we could be proud of (although the new Experia Play and Arc are looking like they could boost the Scandinavian spirit a bit as well!)

Stephen Elop’s memo to the Nokia staff

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.

We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.

Over the past few months, I’ve shared with you what I’ve heard from our shareholders, operators, developers, suppliers and from you. Today, I’m going to share what I’ve learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.

Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.

On Tuesday, Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It’s also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.

Nokia, our platform is burning.

We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.


The Target, The Hitman and The Collateral Damage
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