Nokia's announcement today that it will cut nearly 10,000 jobs over the next 18 months comes as little surprise. Nokia has problems. More precisely, the company has an Android problem. Google’s proxy army has encircled the Finnish cell phone giant and is slowing killing it with a thousand - make that a million - cuts. Can Nokia stave off the robot army to reclaim leadership in mobile handsets?
Problem: The High End
Nokia was late to the high-end smartphone market. It did not immediately recognize that the iPhone Apple released in 2007 would usher in a new era of mobile computing. Nokia started to create its own operating system, Maemo, to battle on the high end. Maemo eventually merged with Intel’s Moblin and became MeeGo, which is now called Tizen and not associated with Nokia at all. (To date, only a handful of devices have ever been built with MeeGo/Tizen.) Nokia had reached a dead end.
But the iPhone was just a harbinger of Nokia’s dire situation. The company's real undoing has been the rise of Android. This is where Google’s proxy army, its manufacturing partners, comes into play.
Nokia has had to battle several giants in its effort to secure a beachhead in top-of-line smartphones and consumer mindshare. The generals of Google’s army – Samsung, HTC and Motorola – all outsell Nokia’s top devices. Each comes with a unique Android offering, including Samsung’s Galaxy S series, Motorola’s Droid and Atrix, and HTC’s Evo, Bionic and One series. When Android went on the march in 2009, Nokia did not have a single product to battle these stalwarts.
In 2011, Nokia partnered with Microsoft to create high-end Windows Phone devices. The company had several choices: build with MeeGo, partner with Microsoft or join Google’s army. If it had chosen an alliance with Google, it would have immediately become Google’s biggest partner, even bigger than Samsung, a company that has taken over Nokia’s longstanding spot as the world’s largest cell phone maker. Instead, it chose Microsoft.
That decision was akin to starting over. Nokia had to start fresh while Google’s generals pumped high-end device after high-end device into the market and Apple continued to gain market share. The first Windows Phone device from Nokia was not released until November 2011 (Lumia 800) and the first device to compete on the top of the market (Lumia 900) did not come to the United States until April 2012.
Herein lies the rub for Nokia. While high-end devices may be only a portion of the worldwide smartphone market, they drive growth in all markets. If you are going to be successful, you need to be successful first with great devices in the markets that will promote them, mostly the U.S. and Western Europe. Top devices get the most marketing dollars, get the most people talking and push sales to their manufacturers' other devices. The high-end device is a showcase for a company’s entire product line. Nokia simply did not have a device worthy of competing with the Galaxy S, Evo or iPhone for several years. The devices it has released since the fall of 2011 have been nice but not groundbreaking, and far between.
Problem: The Low End
In a famous “burning platform” letter to the company’s employees in February 2011, Nokia CEO Stephen Elop observed that Asian manufacturers were able to compete with Nokia solely on price.
“At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, the time that it takes us to polish a PowerPoint presentation.’ They are fast, they are cheap, and they are challenging us,” Elop wrote.
As the world moves from dumbphones to smartphones, Nokia’s global situation has become increasingly precarious. The changing ecosystem means that Nokia’s feature phones are not selling as well as they used to. Meanwhile, its pseudo-smart platform, Symbian, does not hold a candle to iOS or Android.
The lieutenants in Google’s army are rapidly eroding Nokia’s base in emerging markets. Manufacturers like ZTE and Huawei can crank out low-end Android smartphones on a monthly basis. The dominant player is Samsung, which battles at both high and low ends. Symbian does not stand a chance against this wave of soldiers. It is outnumbered, outgunned and out-thought on a global scale.
Solution: Consolidation and Focus
And this is the tight corner in which Nokia finds itself. It is being pinched from above and below with a dying platform (Symbian) and an unproven one (Windows Phone). Nokia needs to become leaner and precision-focused on carving out niches in these markets before it is swallowed.
That, more or less, is what Nokia announced it is doing. Here are the steps the company is undertaking to address its crumbling sales and the competitive position:
• Reductions in research and development, resulting in the planned closure of facilities in Ulm, Germany, and Burnaby, Canada.
• Consolidation of manufacturing operations, resulting in the planned closure of a manufacturing facility in Salo, Finland. Research and development efforts in Salo to continue.
• Refocusing of marketing and sales to prioritize key markets.
Elop today said during a conference call that Nokia needs to “compete with Android aggressively.” To do that, it must develop not just one great Windows Phone in the United States, but several. The Lumia 900 is a good device, but it is available only through AT&T. Nokia needs at least one major device on every U.S. carrier and then a mid-range device that spendthrifts will look to if the top phone proves too expensive. And it means teaming with Microsoft (which has said it will help) to create Windows Phones that are available across the world at entry-level prices.
In short, Nokia needs to copy everything that Samsung has done with the Galaxy series and do it quickly.
This is a weird position for Nokia. It is not used to copying anybody else’s market strategy nor taking their lead in smartphone design. But Nokia is no longer the incumbent. It is the underdog and needs to disrupt in the same way it has been disrupted.
Will any of this work? It all comes down to whether or not smartphone users adopt Windows Phone. Consumers benefit from a strong Nokia because it keeps the Android manufacturers on their toes, fighting an enemy that does not make the iPhone. The entire mobile ecosystem would benefit from a strong third player in the market. Right now, it is just Android and Apple with Nokia/Windows Phone and Research In Motion’s BlackBerry scratching for a toehold amid the onslaught.