How to Stop Nokia Channel Boycott And Save The Company
6/15/2011 by: Tomi Ahonen
Editors' Note: With this analysis by a former Nokia VP and one of creators of 3G strategy that made the company a global success, we recommend to listen to Frey: How To Save a Life and One Republic: Apologize.
Ok. Let's try to save Nokia. What should Nokia do?
There are two gigantic problems. If Nokia was a person, it would be in the hospital in the emergency room, where a little while ago it had stopped breathing, and now also the heart had stopped. Nokia's doctors would need instant emergency assistance to get the heartbeat back, and to get the patient breathing. Then after that, for the patient to stabilize at least that much, that it need not be in the emergency room anymore.
Two Disasters Simultaneously
I explained the two problems. The problem over the past two months or so, has been that the reseller chain (mostly the mobile operator/carrier customers of Nokia) had stopped selling Nokia smartphones. In effect the retail channel has started a Nokia smartphone boycott. What few Nokia smartphones are now selling, are sold with enormous discounts so Nokia's corporate profit engine has stopped performing. As Nokia warned us a few weeks ago, where it was supposed to have something like about 600 million dollars that Nokia projected for profits in second quarter 2011 only two months ago, to about zero dollars Nokia now says in its profit warning two weeks ago.
And there is a severe knock-off effect, that Nokia's non-smartphones (i.e. 'dumbphones') are also selling far less than expected this quarter, partly due to the reseller boycott, and partly due to overall Nokia brand collapse.
The second problem (ie the heart suddenly stopping) is the news in the past few days, that Nokia's share price has fallen well below the critical level, where now Nokia shares are so cheap, that Nokia would be worth more if it was split up and sold in pieces, than if kept together as one entity.
What Caused It?
Nokia resellers are boycotting Nokia. Why? It all started on February 11, when CEO Stephen Elop stupidly announced that Nokia would replace its current Symbian operating system with the Microsoft Phone 7 (now called Windows Mobile 7 ie WP7) operating system, while Nokia had no such phones to sell or even to demo to prospective buyers. This announcement also included the end of Nokia's evolution path from Symbian to Nokia's brand-new operating system, MeeGo, an open-source, Linux based, touch-screen optimized 'next generation' smartphone OS, that Nokia had been developing with Intel. Nokia's related Qt development tools and the Ovi store lost their value as assets in the Symbian and MeeGo strategic vision. This vision had gained strong Nokia Symbian developer support, and Nokia shareholders had rewarded Elop over the first about half year of his CEO tenure, during which Nokia share price had grown by about 10% up to February 10.
Stephen Elop witnessed the smartphone sales collapse and the severe dive in Nokia share price (which has today lost over half of its value from February 11), and Elop responded with several typical CEO errors that have further angered his distributor channel, the carriers/mobile operators. Elop has launched dual SIM card phone, said he will not use the traditional Nokia smartphone development teams who have made smartphones that the operators/carriers on all other five inhabited continents have loved to sell (except in North America where only about 1% of Nokia's smartphones were sold). Instead he said the first Microsoft WP7 based smartphones from Nokia would be designed 'in California' and would be designed to appeal to US consumers - which obviously is not the preferred way for the 99% of Nokia branded smartphones that used to be sold in the other markets outside of North America. And now, the latest CEO blunder was to talk about Skype for Nokia WP7 phones. The carriers/operators hate Skype. We now hear that since Microsoft announced the Skype deal, apparently several of the carrier stores are now also actively steering buyers of (non Nokia branded) WP7 phone buyers to select rival phones using Google's Android OS.
Meanwhile today we learned that Nokia's CTO has been sent on indefinite leave because he had disagreed with Stephen Elop's WP7 strategy. And already 3 ratings agencies downgraded Nokia stock. The major analysts are mostly projecting far more decline in Nokia share price value. Some major analysts are now targeting Nokia's share price to fall to less than half where it is now.
Nokia needs to achieve two difficult objectives under these very hard times. First, Nokia share price value decline has to stop. Nokia share price has to recover at least about 10%-20% from the current levels (still 30% below the recent peak of early February), for the danger to dimish that Nokia might be sold for its parts and split up.
Secondly, Nokia has to get its reseller channel to stop the Nokia smartphones boycott and recover at least partially the sales of Nokia smartphones and at least partially the lost dumbphones sales, so that Nokia's handset unit can deliver modest profits in the 2% - 5% range for third quarter of this year.
We have to somehow convince the carriers/operators to stop their Nokia boycott, and also to get the share price to recover at least somewhat for now. That would bring Nokia back from the brink of extinction. This is how I would do it.
The Unlikely Scenario: Fire Elop, Cancel Microsoft
So, obviously, the carriers are boycotting Nokia primarily due to Stephen Elop's idiotic statements from February 11 and since. And what little affection they may have had of the Microsoft WP7 smartphones, clearly vanished when Microsoft bought Skype. Nokia cannot recover smartphones sales (and thus cannot recover profits) until the resellers stop the boycott. And there it is not enough for Elop to apologize or to try to backpedal any of his statements. Now the situation is truly that bad, that Elop has to be fired and Nokia has to cancel the Microsoft phones.
But also, remember, its not enough to get smartphone sales back, Nokia also needs to get the share price to stabilize and turn to a modest recovery. So how to handle Elop firing?
I would have Nokia Chairman Jorma Ollila call an emergency press conference. In it he would make the following announcements: CEO Stephen Elop has been fired (or perhaps it might be worded that Elop has "left the company") due to disagreements about the smartphone operating system strategy. And that Elop is no longer in Nokia's employ. The job of interim CEO would be taken over by Jorma Ollila in the interim period while Nokia seeks a new CEO on a fast schedule.
Jorma Ollila is the nearest thing to the gold standard, in the eyes of Nokia investors. If he made a 'return' (a little bit like Steve Jobs returning to Apple) - even if only for the interim period - this announcement, to me, combined with the firing of Elop, would help stop the decline in the Nokia share price. But that is not enough obviously. We need the smartphone sales to recover.
Then clearly, Ollila would announce Nokia has cancelled all plans to launch any Microsoft WP7 based smartphones. And that the current smartphone development projects around WP7 would have been terminated effective immediately. These are absolutely vital steps and unless Elop is fired and Microsoft WP7 smartphones cancelled, Nokia cannot recover.
Android Not An Option
I know that many of my readers would say this is the time for Nokia to go with Google Android OS. Many investors would also welcome Android. But Android now would mean Nokia would have to delay Nokia's next generation smartphones by another year to 18 months from now! Nokia knows Symbian was on borrowed time back before February 11, and is far more wounded now, after the Stephen Elop debacle. No, Android is not it. The only viable migration for Nokia, from Symbian, is obviously to MeeGo. For that Nokia still owns the Qt developer tools which support both Symbian and MeeGo. And Qt will also enable developers to make apps for Android, so in a way, Nokia's MeeGo (and Symbian) would be 'compatible' with Android. Not completely compatible, but MeeGo and Android would be now pitched to Nokia sales channel, developers, investors and employees, as kind of cousins.
Ollila would also reverse the other silly decisions Elop had made, such as the ending of Ovi brand, which Ollila would restore. He would announce Nokia's maps, carrier billing etc would not be made available to Microsoft, nor any WP7 partners/rivals like Samsung, SonyEricsson and HTC.
How to Resume Symbian Sales
Currently, even if Nokia said 'read my lips, no WP7 phones' - that would not restore Symbian smartphone sales. Nokia would have to make a very powerful statement about returning to Symbian (and made by Ollila obviously).
So, first, say Nokia returns to Symbian platform. That is not enough. The only way Nokia carriers/operators and the sales staff at retail stores to return to selling Nokia Symbian smartphones, is if the sales people and carriers/operators truly believe, that Symbian is going to be long-term viable.
How could that be? The Symbian OS had been losing market share. Even after the well-selling latest edition of Symbian, the S^3 version; the overall sales of Symbian had been losing market share. That was all before Elop destroyed the credibility of Symbian.
Here is my 'gimmick'. What if Jorma Ollila announced that Nokia returns to Symbian, but not just to power current smartphones, that to show how totally committed Nokia was to Symbian, Ollila would commit Nokia to migrate all of its dumbphones running Nokia's S40 OS, to Symbian! This would bring over 100 million new handset sales to Symbian - per quarter (after the migration was completed) per quarter. Bear in mind, the nearest rival to Nokia smartphones, Apple's iPhone, only sold 18.7 million smartphones in Q1, Apple's best quarter ever. So this announcement of Nokia's shift of all dumbphones to smartphones, would at least in theory, propel Nokia/Symbian to an almost unassailable lead in smartphones. But understand, that cannot be done in a year or even two. If Ollila committed to migrating its total dumbphone unit to Symbian by a very aggressive year, and I'd say by end of year 2014 - this would be a bold, dramatic and feisty move. Suddenly Nokia would have regained its mojo!
Note, that whether Nokia actually migrates all dumbphones to Symbian by December of 2014, or if Nokia would end up missing that target by some months, it nonetheless would be a massive goal, and if Ollila said it now, that - and perhaps only that - could jump-start the stalled Symbian sales.
Would it be costly? You betcha! But no matter what costs, that was Nokia's long-term goal anyway, for perhaps a 2016-2018 target, so this was not that crazy as it may initially seem. Obviously Nokia would then have to pursue this target very vigorously, and if in 2014 it seemed that some of the cheapest handsets could not be met to this target, Nokia could simply abandon those cheapest phones, to very modest revenue and profit 'damage' while this announcement now in 2011, would help save Nokia.
And the typical 'blah-blah-blah' about this Symbian transition commitment, that this was the unanimous commitment of Nokia's Board of Directors; and that the next CEO would be committing to this target also in public, etc. Note, this bold target - where the scale of how huge Nokia's smartphone production would then become - would change the Nokia smartphone market share picture totally - and would help recover some Nokia share price.
But it is clear, that Symbian is not viable at the high price end of Nokia smartphones into 2012-2013. Nokia needs a new migration strategy now, and Microsoft WP7 cannot be it.
Anssi for the Next CEO?
Ok. Then the 'next CEO' consideration. Ollila should announce that Nokia would seek to hire a new CEO very rapidly. It could have been (and perhaps should have been Anssi Vanjoki. I think Anssi would be a great Nokia CEO, in particular in how he handled the N97 problems, the N8 and Symbian S^3 launches, making sure the two were ready before they were sold to the public. Anssi is far more dynamic and entertaining as a public speaker than most Finnish execs. He's the nearest thing we Finns have of a 'charismatic' executive (but not in a Steve Jobs level haha).
However, this is not the right time for Anssi. Nokia now needs someone who is not seen as a Nokia insider. Nokia now needs to restore its retail channel trust, so the new CEO would need to be particularly favorably received by the mobile operators/carriers.
But I don't think Anssi would even do it. He's plenty wealthy. He has a new job. But Nokia would really need him now. So lets assume Jorma Ollila manages to get Anssi Vanjoki to return to Nokia, temporarily, as co-CEO in the interim period to help run the Nokia in deep trouble, together with Ollila, until the new CEO has been hired. Nice idea? Anssi could for example instantly take over the recall and redesign of the failed E7 flagship phone, and even more importantly, to oversee the rapid launch of Nokia's first MeeGo phone (the N9) which was ready for launch in January but killed by Elop only days from launch.
How Do You Get Anssi?
I honestly think that no number of astronomical shares, stock-options, cash, bonuses, would get Anssi Vanjoki to agree to come back to such a lousy job. To fix Elop's mistakes, and then to have step aside when the new CEO is hired. But I have an idea.
Imagine if Ollila would offer Anssi Vanjoki with the ultimate reward. Yes, obviously pay him royally well and give massive stock options and give bonus-incentives. But the gimmick. What if Ollila privately promises Anssi that Nokia will name its next flagship phone after him! The Vanjoki. So Nokia would have two flagships, the Nokia Communicator and the Nokia Vanjoki, released with updated editions on alternate years. And that Ollila would give Anssi carte blanche to design the first edition of the 'Vanjoki' which would be priced in the above-iPhone scale, and Anssi could then use whatever form factor he wanted and put in whatever features he wanted. Imagine, the first phone of the industry, named after the man who came in to help save Nokia... (Nokia really needs Anssi now, this is how to get him)..
Who Should Be The New CEO
And what of the new CEO? Not someone from California from the IT industry. We have now seen what a Microsoft guy attempts to do (whether Elop or Steve Ballmer) or someone like Steve Jobs at Apple (I am not suggesting Jobs would ever for one second consider the job, I just mean this is the thinking of West Coast US execs) - they all want to bypass the carriers/mobile operators! So while the investors would like an American, any US IT guy would be seen as another threat.
No, what if Nokia said, half of all mobile phone users are in Asia. And Nokia's distributor chain is the mobile operators/carriers. So wouldn't it be the best way to soothe the hurt feelings of the carrier community now, if Ollila said that the next Nokia CEO will be hired from the top management of a mobile operator/carrier - from Asia. Someone like say Neil Montefiore of Starhub (formerly CEO of M1) of Singapore. A Nokia-friendly CEO who is super-hyper-competent, in ultra-competitive customer-oriented Singapore. A country where already today 75% of all phones are smartphones! Isn't this like the obvious way to restore Nokia's management to the right path, and rapidly heal the rift between carriers and Nokia?
Will Not Recover Nokia to 2010 Levels
Note, this is an emergency procedure. Nokia currently is about to die. Nokia needs to get the share price back up, and must get the carriers to stop the Nokia boycott.
Even before Elop messed up Symbian, there was trouble in selling Symbian based Nokia phones. After the above, there is no way Nokia's smartphone market share could recover to the 29% levels it was before the February 11 silly Elop announcement. But I think Symbian sales would be partially recovered. To what level now? Maybe 10% or 15% or at best 20%. That is still massively worse than what it was in 1Q 2011 at 24%. And then in the near term, Nokia would suffer enormous costs of forcing the expedited shift from S40 based dumbphones to Symbian.
Symbian is an old system. Its app development is very hard. The Qt development tools are still under development themselves, so not all things work there yet. But this is now the best strategic option left for Nokia.
Nokia has to fire Elop. Nokia has to end the Microsoft partnership. No ifs, ands or buts. That will only stop the downward spiral of Symbian sales, market share, revenues and profits (i.e. losses). But if Nokia did all the above moves, I do think Nokia would have some reasonable chances to recover. And Nokia would start to sell MeeGo phones before the end of the year (likely already in third quarter) and forcing dumbphones to Symbian, Nokia would actually still potentially challenge Android for biggest smartphone maker. A costly and resource-hungry move, but at this point, there is no other option.
Jorma Ollila has to step in, and in an ideal world, Anssi Vanjoki would join him for the short term. And the next Nokia CEO would come from an Asian mobile operator/carrier. Then in the mid-term, Nokia could actually become quite competitive once again.
But remember, Nokia's problems of the past were mostly execution and marketing, not phone design or software or ecosystem. And even here, an CEO coming from the carrier/operator community (especially from Asia) would bring far more urgency and marketing-customer focus to Nokia compared to what it has had in the recent past.
This is not the way to get Nokia back to a leader position. This is the way to stop the two disasters today, and get Nokia distributors to stop their boycott of Nokia, and to get the stock market and shareholders, to restore some faith and trust in the company...
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