Analysis: The Fall of Nokia

Nokia invented the smartphone. It then went and re-invented the smartphone, rightfully insisting the enterprise/corporate oriented business phone should be replaced with a bigger, consumer smartphone market. Nokia introduced a gaming oriented app store, bypassing the carriers - something that was the prototype for Apple's App Store. They offered a touch screen smartphone two years before the iPhone. Nokia offered the world's first phone to do the real internet, and they offered the first phone outside of Japan to offer Wi-Fi. They brought cameras to enterprise-oriented business phones. And Nokia was the first smartphone maker to boldly claim that a smartphone was a 'real' computer. Today, that is now held as mantra by all of the six big PC makers, starting with HP and Dell.

Nokia results for fourth quarter 2010 are as follows: For the first half of the year 2010, Nokia grew roughly as fast as the industry. It ended 2009 with a 39% market share in smartphones. At the end of second quarter it had a 39% market share. Then in second half of 2010, catastrophically - Nokia growth slowed to a crawl. Nokia's quarterly growth was the slowest of any of the biggest six smartphone makers, and far slower than the industry. Nokia's market share crashed to 33% after third quarter and down to only 28% after fourth quarter. In six months, Nokia destroyed 11 points of market share - abandoned one quarter of its total market - in just half a year! This reminds me of the disastrous suicide-ride that Motorola embarked upon, but even in its worst period, never did Motorola lose a quarter of its market share in any six month period. I don't mean this is the end for Nokia, but the signs are very dangerous, if two quarters have already gone like this, the cause is no freak accounting error or component shortage, it is a major systematic problem that has to be corrected immediately before Nokia finds itself ranked 3rd or 5th or - like Motorola which went from 2nd to 9th in all mobile phones in only four years. Right now the Nokia market share is not in decline, it is in a dive.

In order to see what went wrong, let's go back a little. In 2006, Nokia produced more than half of all smartphones sold on the planet, was by far the biggest total handset maker in the world and was making tons of profits along the way. It had astronomical customer satisfaction and loyalty, and Nokia's phones were all known for great usability. Nokia also was known for incredibly reliable phones [a dog ate it, it emerged 'through' the dog later, and was fully functional, if perhaps a bit smelly]. And in spite of this, Nokia also sold some of the ultra-cheapest phones on the planet. Then a funny thing happened when a computer maker called Apple decided to release their first-ever mobile phone. A phone I called the first truly transformational phone, that we would measure time in "Before iPhone" and "After iPhone". The world for Nokia changed - it was the end of the good old days.

FAST AND GOOD OR CHEAP
I am often reminded of my boss early in my career, when I was selling computer networks for a PC networking company on Manhattan called OCSNY. Our CEO would often use the phrase when talking to customers who were trying to bargain with him - "you can have it done fast, done right, or done cheap - but only two of those three, which do you want." I thought it was a very good lesson for me in understanding the real world impacts of the typical positioning triangle.

Let's put the triangle into handset thinking. When we say 'fast' it's not highest speed internet, I mean 'fastest' to deploy something new - most innovative. SonyEricsson is known for this, they are often the first to deploy something new to phones. Cheap is easy, ZTE is currently among the cheapest phones in the world. And good means reliable, having all bugs fixed. These three are always in 'inherent conflict' i.e. you cannot have simultaneously lots of new features, and also the most reliable phone. Also if you make the phone very feature-rich, it will not be the cheapest, and to make a relatively new phone very reliable, it and good to use, it will not be the cheapest.