Since Nokia recently launched the Lumia 900 together with AT&T here in the US there has been a lot of discussion about what Nokia is doing and whether it is enough to stage a comeback in the smartphone market. I think that the opinions in this matter are very influenced by two things.
How do you define success for Nokia and where do you see them starting off from?
My view is that no matter what market share Nokia has had in the past, the company was essentially starting off from scratch. Symbian, which today can be viewed as a first generation smartphone OS was basically dead from a usability standpoint in comparison to the competition and should have been replaced several years ago.
When Elop took over the helm at Nokia it was clear that the smartphone business was no longer a phone hardware business but a software business where the OS plays the dominant part in relation to the user as well as the now important app development community. To think that Nokia, essentially a hardware company, would be able to out-innovate Apple, Google, Microsoft and the general Valley community, on their home turf, software, is wishful thinking. That strategy would have had such a low probability of success that it would not have been prudent to bet the company on it.
In my view, it does not matter how great the MeeGo OS was, once the industry you are in becomes a software industry it is game over. I have a hard time coming up with a single “old world” company that has out-innovated the greats of the Silicon Valley and the software community over an extended period of time.
Assuming that Nokia did start off from scratch, looking forward, how would you then define success? I think you have to be realistic and realize that it is unlikely that Nokia and Microsoft will reach the old market shares any time soon, or more likely, ever. I think that if they could hit a 5-10% global smartphone market share of new sales, not installed base, over the coming 12-18 months, that would be a great place to grow from.
To achieve this goal, it is important to understand who Nokia is actually competing against.
In my view the main competition for Nokia is not Apple or the iPhone but Google and the Android sphere. The reason for this is twofold. Looking back, Nokia did not start losing significant market share until Android came along, the introduction of the iPhone had very limited effect on Nokia.
Second, looking forward, the situation for Nokia and Microsoft is a little like that story about the zebras outrunning a lion on the savannah. In order for Nokia to have lunch (smartphone success) they do not have to catch the fastest (most premium smartphone maker) company out there (Apple), they just need to catch one of the slower ones (less premium smartphone maker in the Android community). While this will not be easy it is by no means impossible even though no other company has done it before.
To achieve this goal of a comeback in the smartphone market Nokia has made some strategic choices in aligning themselves with other companies that partly share similar strategic goals. I believe this is key to achieve success.
Linking up in a partnership with Microsoft is definitely the biggest such alignment. Microsoft has just like Nokia been forced to reassess their mobile strategy and have had to release a completely new OS and mobile strategy. The new Windows Phone 7 OS user interface also appear to have many user interface similarities with the upcoming Windows 8 PC OS which will further enhance user familiarity with each device, just like Apple is introducing iOS features into OSX. This will be very beneficial for Nokia and Microsoft in the future.
Another strategic partnership for Nokia is their launch partner for Lumia 900, AT&T. Nokia has for years had severe difficulties in the US market due to their rumored poor relationship with the carriers here. This lack of a presence in the US became devastating for Nokia when the smartphone business changed from being a phone business to a software business. Previously, the US market was an important market but not critical. The solid market position for Nokia in europe as well as in the fast growing asian and latin american markets made it possible for the company to thrive without a significant presence here (or in Japan). Today the US is the most important smartphone market in the world and the lack of a significant presence here would hurt any brand.
There are certainly bigger markets and markets ripe for faster future smartphone growth than the US market, but since it became a software industry, new developments and most consumer behavior seem to originate here and spread across the world. Silicon Valley has become the second Hollywood but instead of movies and TV-shows, they are spreading software and consumer behavior across the globe. If Nokia can make it here, they can make it anywhere.
The partnership with AT&T (as well as T-Mobile for the Lumia 710) is strategically important for two reasons.
First, it appears as if Nokia has now been able to heal that age-old rift between the company and the US carriers. Second, and more importantly, it signals that AT&T as well as T-Mobile has understood that a major change has taken place in the device market and that carriers are now losing power and consumer loyalty quickly to not only handset makers but more importantly device OS platforms.
AT&T has realized that they are now being cornered by an OS duopoly of iOS and Android and that it is in their best interest to do anything they can to make Nokia/MS or any other viable competitor to iOS and Android, succeed. Because the smartphone business is now a software business, it has very limited strategic effect for an operator to sell fifteen different Android phones from different handset makers. From a consumer standpoint they represent one platform. While the role of the carrier is bound to diminish in the eyes of the consumer over the coming years, the more fragmented the device OS-market is, the stronger position the carriers will have for a longer period of time. AT&T and T-Mobile has understood this important relationship between number of device OS and the strength of their own bond with their customers. Many other carriers have not.
I wouldn’t be too surprised to see some Nokia/Microsoft products launched with Verizon or Sprint within the near future. Verizon was early on forced to bet heavily on Android because of the AT&T iPhone exclusivity and while they now sell the iPhone, a Verizon launch of the next Nokia device would help Verizon throw a wrench in the Apple/Google plans to take over the consumer relationship from the carriers. Although Microsoft probably have similar goals as Apple and Google, the more fragmented the device OS space is, the weaker the power of the OS players in relation to the consumer and carriers.
While there have been calls for rapid changes at Nokia after each disappointing quarterly report recently, I think there are only a few important things for Nokia to focus on at the moment to achieve success.
1. Continue to develop and release great products.
2. Work closely with Microsoft to speed up the OS development to catch up to Google and Apple. The main reason for future success lies with the OS, we already know that Nokia can churn out great hardware.
3. Work tightly with carriers and other partners and make sure that they understand that their relationship with their customers are under threat not only from their carrier competitors but more importantly from the OS players. It is in their best interest to have a more fragmented market.
4. Never look back. Your future success depends on what you do now, not how great you were in the past.
5. Make necessary changes to keep the company afloat long enough to achieve success.
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