How Nokia was disrupted. Part 2
In this two part article I look and try to understand what happened to Nokia over the past 4 years and what’s next for the company.
In short – what happened was pretty simple. Nokia was disrupted by the new model of true mobile computing invented by Apple and then accelerated by Google’s Android.
In the first part of this post I looked at how disruption in general works, and how the disruption of Nokia started. The second part looks at how Nokia tried to fight back, lost and surrendered. And what may happen to Nokia next.
Nokia disruption ends
Nokia’s response to the new disruptive true mobile computing threat – was a classic incumbent. First dismissing the new development as niche and not a threat. Then quietly developing a competitive answer, without any real understanding what they are competing against. With phone hardware/feature guys in charge, their first try at a real mobile computer – Nokia N97 – was born crippled by underpowered CPU and too little RAM. The platform- S60 5th edition, with it’s thin touch layer over the aging phone/keypress optimized OS – was buggy as hell and a nightmare in usability. Developer tools were still antique, nightmare to learn and use. Early versions of Nokia (OVI) app store – boderline unusable too.
Their next try – Nokia N8 and Symbian^3 – could have fared better, but it was too little to turn things around and, what’s worse – it was way too late. Symbian^3 had a significant performance/usability improvements over S60/S^1. Had it come out in late 2009 or, at least as promised, early 2010 and then have been quickly followed by a major interface revamp in the second half of 2010, Nokia could have pulled through. Symbian^3 had a good chance to stand up against Android 1.6, and Nokia N8 was pretty competitive compared to the Android phones on the market for most of the first half of 2010. It’s possible that N8 could have even lured some potential iPhone 3GS buyers in early 2010.
Alas, it was not meant to be. In a typical incumbent fashion, Nokia first spent 2 years in a futile effort to modernize S60. Then, when they finally figured there’s no way to make it work, they severely underestimated the time and effort it would take to rewrite Symbian for the touch world. So Symbian^3 was late by at least 6 months from the planned launch date, probably a year to really help. And the typical phone company penny pinching – putting in a weaker CPU/GPU into Nokia N8 (680 ARM11 CPU/Broadcom BCM2727 GPU) then a year old iPhone 3GS had (600MHz Cortex A8 CPU/PowerVR SGX535 GPU), on a flagship that was supposed to show Nokia’s technological prowess, didn’t help either.
By the time N8 shipped – October 2010, it was up against iPhone 4 and a slew of Android 2.2 competitors on fast 1GHz Snapdragon chips. The only way Nokia could compete against them – was price. The pent-up demand from longtime Nokia fans, holiday shopping season, huge marketing initiative and comparatively low Nokia N8 and other S^3 handset price, helped to bump up Nokia smart device sales volumes a only a bit in Q4 2010.
And by early 2011, Nokia smartphone sales started slowing down. Then, this spring, preparing for the arrival of their next generation dual core powered Android 2.3 devices, competitors slashed prices for their last year’s flagships. Suddenly Nokia N8 had to compete with the likes of Samsung Galaxy S2 and HTC Desire not only on price, but in the overall user experience as well. Similar thing happened to the available Symbian^3 devices at all price points. In many cases, competitors were able to match prices of cheap Symbian^1 handsets with much more attractive offerings too.
That was pretty much game over for Nokia as we know it.
Nokia smart phone sales this April/May started falling off the cliff, with little hope of recovery. I strongly doubt that Symbian Anna, the new phones like X7 or the promised 1GHz Symbian devices this fall will help much. Especially when next generation iPhone will push iPhone 4 prices near the high end Symbian price range, while early 2011 Androids will get even cheaper.
And, in a typical incumbent fashion, the latest Nokia flagship, N9 is too little too late, again. Even Nokia itself doesn’t seem to believe that it can make a difference.
The main problem with Nokia N9 and Symbian Anna is that they are Nokia’s answer to a problem – user interface – that Android and iOS solved before 2011. And while Nokia is joining this battle of the past, Apple and Google have moved on to a bigger and better things. Building out a cloud services, creating working wireless payment systems for developed world, improving accessory/device integration, disrupting PC industry, making their mobile platforms a central point for home automation and more.
Some would like to blame Feb. 11th Microsoft partnership/Symbian death announcement for current Nokia woes, insisting that while Nokia had some execution issues, it was on the verge of turning around. The announcement may have had some limited effect, but I don’t think the effect was that big. Latest in Nokia software achievements – Symbian Anna and Meego 1.2/Harmattan, especially the time it took to make them market ready, only confirms it. Nokia problems were much deeper, started way before Feb 11th, were already visible early last year, the crash started in the second half of 2010 and Nokia was simply too slow to do anything about it.
Game over? Is this the end of Nokia?
So the game over for Nokia? Is this the end?
Not necessarily. Not all disrupted companies disappear. Some of them just lose the former influence in the industry, go through a major restructuring and, focusing on their key strengths, continue to live and sometimes prosper. Just look at IBM, who’s mainframe business was disrupted by the advent of mini and then micro computers, and who went through near death experience and major rethinking of it’s purpose during the nineties. This is where Nokia may be headed.
While I have some doubts of whether Nokia can survive 2011 as an independent company – those doubts are mostly related to the sharp decrease of Nokia share value. With Nokia as a company so cheap now, it can start attracting hostile takeover bids and I ‘m not sure it will be able to fend them off. As for the core business itself, even if Nokia starts losing money due to the crashing smartphone sales and declining mobile phone volumes, it should have enough cushion to get through 2011. And if Nokia’s bet on Windows Phone pays off in 2012, Nokia will survive and might even prosper eventually.
It’s just over for the Nokia as we knew it – a dominant force and trend setter in mobile industry. Nokia lost the battle for the current generation of mobile platforms and surrendered. From now on it should be important, but just one of the many mainly hardware players in the new true mobile computing world.
I know, the abrupt abandonment of Symbian and it’s next generation successor – Meego – upset a lot of loyal Nokia fans. Especially when, according to Nokia public statements all through 2010, Nokia transition was almost over, and the next generation Symbian and Meego devices were just around the corner. The problem is, these next generation devices – N97, N900, N8 and now N9 – have been just around the corner and then ready to turn Nokia’s fortunes around, for years. None of them arrived in time or were good enough to do that. Nokia N9 shows that, given time, Nokia can come up with software that may be good enough for a mobile computing platform. But there is no time, industry is moving too fast. And, probably because of it’s deep roots as a hardware company, Nokia is unable to keep up. It took almost 2 years for Nokia to get from Maemo 5-N900 to Maemo 6/Meego 1.2 Harmattan-N9. Android went from 1.6 to 2.1-2.3 (Gingerbread) and 3.1 (Honeycomb) in the same time frame, while Apple delivered iOS4 and iOS5. Google and Apple are moving too fast, solidifying their lead in the things that matter in true mobile computing every month.
Faced with this unpalatable truth, Nokia surrendered and turned to another former smart phone industry incumbent –Microsoft. Microsoft recognized the disruption happening in mobile world years before Nokia, then took radical steps to save their business in time when it could still help. And had the necessary competencies to do it. They are still very late in the game, but, by most accounts, their new mobile computing platform –Windows Phone- is good enough to compete with the new incumbents – Apple and Google. It just lacks commitment from mobile device hardware makers and distribution.
With Nokia’s excellence in hardware and power in distribution, this alliance just might work.
What about the mobile phone business? It may be more interesting then you think
With all the talk about next generation true mobile computing devices (mistakenly called smartphones today) people usually forget that smartphones are only a half of Nokia mobile device business. The other part is mobile phones. And while the top, most lucrative part of mobile phone business has been taken over by smartphones/mobile computers, more then 70% of mobile devices sold in the world are still phones. And there is a big question how much of those 70% are actually susceptible to mobile computing disruption anytime soon.
Both iPhone and Android are designed around and strongly rely on internet connectivity for a great deal of their functionality. And they use huge amounts of mobile data compared even to smart phones. Take the connectivity away, and mobile computers lose a lot of their appeal. But mobile data is pretty expensive, and it’s unlikely it will get much cheaper anytime soon. Even in developed countries, there’s only a finite number of users who are ready or can afford to pay premiums for a data connection required to get the most from the iPhone or Android handset. In more poor countries, the amount of such users is even smaller. And as those who can afford and are ready to spend on mobile data get their mobile computers, moving down market might become a bit of a problem for data hogging devices. Data frugality may soon become much more important then anything else. Michael Mace of Mobile Opportunity just penned an excellent post about this issue.
There’s no doubt that even the lowest end mobile phones will be getting more and more computer like functionality. But will they become true mobile computers with app/net centric design, like the smartphones at the top end of the market did? Probably not for at least quite a few years yet. Vendors will have to figure out how to deliver computing experiences on a very thin data pipe. And here lies the opportunity for Nokia. While nobody seem to want Symbian devices anymore, Nokia S40 phones are still selling pretty well. Some recent developments hint that Nokia has quite an interesting vision how to add a mobile computer functionality to S40. And data frugality plays a very important role in this vision.
First – it’s Nokia Browser for S40, which, similar to Opera Mini – compresses internet pages on Nokia servers and can reduce data consumption by up to 90%. Then there are Nokia Web Tools for S40 enabling Web App development for S40 browser. Nokia Maps are now shipping on a number of S40 handsets, and require no or very limited data connection to work. Nokia is also working on a new full touch interface for it’s (S40) mobile phones, and N9 shows that they may have finally figured out how to make full touch centric UIs well. And then there’s a biggie announced during Nokia Connection event on June 21st. Nokia is porting Qt core to S40. Which will transform S40 into a smartphone platform overnight. And, with S40 sales volumes, it could become the biggest smartphone platform in world pretty quick. If Nokia is able to execute this vision well, they may soon have a new platform for mid-tier and lower end smart devices, which could succeed were Symbian has failed. And become a major competitor to Android and iOS in lower end, data constrained environment.
Unfortunately this is just a vision for Nokia now, or, more accurately – some hints of the vision Nokia may have for S40 mobile phones. And vision without an execution is just a dream. Nokia had many beautiful dreams about Symbian/Meego/Qt/OVI over the past few years and look where they are now. If Nokia fails execute again on their Microsoft alliance and on whatever they have in store for S40, then all bets are off. Nokia may be history much sooner then you think.
So let’s hope the new management have learned their lessons from past Nokia failures, and can finally deliver on the execution front. For now, the talk sounds pretty good to me. We’ll know if they can do the walk in the next 6-10 months.