For me, the most interesting part of Cook’s presentation was the announcement that iPhone has 5% of mobile market share worldwide. What I like about it is the sense of rebellion Apple brings to legacy market assumptions as usual. When Apple launched iPhone in 2007, there were lots of top investors who called this move stupid. They called Steve Jobs a “bigoted selfish individual” (if he was a female probably they would called her Ayn Rand resurrections) who is going against all business common sense and tries to enter a very mature market, with well established players and low margins. Steve Jobs proved that even if you are “the last” to enter a market, you can win if you produce “the best” with “highest margins” and still beats everyone. Even a lazy giant like Nokia!
It happened much sooner than I thought. “Nokia Corp. said it was replacing embattled Chief Executive Olli-Pekka Kallasvuo with Microsoft Corp.’s Stephen Elop, as the world’s largest handset maker seeks to reverse steep declines in earnings and market share that have decimated its share price”. After four years of constant struggle and lack of a clear strategy toward future products and particularly high-end mobile phones (smartphones) Mr Kallasvuo kicked out of the door. It was a well know fact that Nokia is heading south, but the speed of it was really surprising for everyone. Many analysts feel that Nokia was caught flat-footed by the iPhone’s success and blame its weakness in smartphones for shaving about 70% off of Nokia’s market value; or more than $90 billion, over the past three years. Basically, Nokia morphed into a “giant dwarf”; a huge player but not a huge force to shape the industry; a follower and not a leader. And it was not all about market share; the overall management of the company was a shenanigan! Former employees describe the structure of the company as a confusing matrix organization, akin to the “Soviet Union.” While Nokia was ahead on hot trends in the tech industry such as internet services and 3-D, lengthy approval processes and a lack of leadership inside of Nokia bogged down these innovations. One former employee added that Nokia, given its size, was never eager to invest in innovations that didn’t have a high volume potential across many of Nokia’s markets. Even the timing of the announcement is awkward and shows a little bit of rush and chaos within the organization. Next week, the company holds its annual “Nokia World” conference in London, where Mr. Kallasvuo was expected to articulate a new strategy to regain its footing in the industry and to present a new smartphone, the N8. The switch at the top of the company will likely draw attention away from those issues. But how this change is going to affect Nokia as a company? First of all Mr Elop is not Finish; he is not even European. “Nokia is definitely a Finnish company. It was born from Finnish culture,” says Juhani Risku, 53, a former Nokia executive, who also wrote a book about the company. He is Canadian at least and not American, so he can be a little bit less brutal. But in any case, this is going to be a dramatic cultural shift for Nokia. Northern American management style is definitely more aggressive and non-European. Secondly, the momentum is already shifted toward Apple, Google and HTC as the leaders of smartphone market. And finally he comes from Microsoft; well they have their own struggles in mobile market for the past couple of years. It will be tough to change it in short term. How Mr Elop is going to tackle these issues and change the direction of the company are questions that will be answered in the next couple of months, if not years.
Olli-Pekka Kallasvuo took over the world’s largest mobile phone manufacturer in the summer of 2006. Six months later Steve Jobs unveiled the iPhone, and it has been downhill ever since. Nokia’s shares have tumbled by nearly two-thirds. Its profit margins have withered from 15% to 7%. And the firm has all but imploded in America, despite Mr Kallasvuo’s pledge to conquer the region. Since 2005, experts in mobile industry started to predict a very gloomy future for the dying giant. While they stick to their legacy phones and are happy with major penetration in the developing countries; read it as high volume low margin domains, other competitors started to target higher margin products including smatphones. Developing countries will be all using smartphones within the next five years anyway.
Although people think Nokia’s most obvious problem is being squeezed out of the smartphone market, its biggest mistake was lack of vision for much higher margin products that come with them; applications! Smartphones are not only lucrative in themselves; they are the gateway to the even juicier market for services and “apps”. Apple’s iPhone and Google’s Android range compete on “cool”. BlackBerry is synonymous with business. But what does Nokia stand for? As usual Nokia still chases the pack. Mr Kallasvuo argues that the forthcoming N8—an all-singing-and-dancing handset that is due to hit the stores in October after several delays—will “mark the beginning of our renewal”; I guess this the fifth or sixth time they are waiting for such a product in the past five years. But previews suggest that the phone is more about catching up than setting the pace. Nokia’s ads tout its “revolutionary” touch-screen technology, built-in camera and GPS. Yet such baubles are already commonplace. It is time for Nokia board to wake up and consider a new direction. GM was once dominating car industry, but lack of innovation forced them to bankruptcy. Nokia should learn its lessons; things are changed!
It is sad to see Nokia is closing its flagship store on London’s Regent street after suffering slow sales and poor footfall; just after 2 years! While the fortunes of the Apple Store opposite are buoyant, with the Mac-maker frequently touting it as the most profitable store in its arsenal, Nokia’s Regent Street shop failed to generate enough interest. During same time and at same location, it is the product and user experience which dictate success of a company. Nokia should understand it was not Apple store which attract people; products in the store were the main reason customers were going to Apple store.
Olli-Pekka Kallasvuo, chief executive of Nokia, in an interview with Financial Times mentioned his company wants to be a music and application supplier (http://www.ft.com/cms/s/0/2b1204ea-9009-11de-bc59-00144feabdc0.html). I guess Mr Kallasuvo has bought an iPhone recently! As the market leader, Nokia has seen its average handset selling price fall to $80 from $108 in the fourth quarter of 2007. Nokia’s lack of success in mid to high-end phones (smart-phones particularly), push the company to focus on developing countries as its main market. This will reduce Nokia’s profit margin even further in a brutal market with a shrinking margin.
While its new phone releases turns into disappointments; N97 was the latest flop, Nokia’s latest ventures into application domain was another disaster. Ovi application store started with a crash and dramatically lost the vibe. Nokia needs to understand, iPhone success is part to hardware superiority, but mainly it is because of Apple’s successful application delivery platform. Apple developed vertical value chain before launching its iPod and iPhone line of products. I guess its time for Nokia to go back to its root; rubber and shoe.