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All is not lost for Nokia yet – Good, Bad, and Ugly [Opinion]

By Alok Saboo on January 31st, 2011

Nokia just announced its quarterly results and one of the highlights was Stephen Elop’s statement that indicated that Nokia may be considering “multiple ecosystem patterns” to bring the company on track. WSJ reported that this indicates a switch to Android. The recent report by Canalys suggesting that Android eclipsed Symbian to become the leading smart phone platform provides further evidence that things are not in great shape at Nokia.

I have always been a Nokia user before I moved to iPhone and hence I genuinely hope that Nokia is able to spring back. The good thing is that, despite the recent turn of events, all is not lost for Nokia and it can easily make its way back to people’s hearts. Here’s the good, bad, and ugly for Nokia…

The Good

Despite its recent bad run, Nokia is still one of the best “handset manufacturers”. Here are some of the strengths that will continue to keep Nokia going for long.

Nokia strengths

To summarize, Nokia has probably among the best distribution network, even in the developing parts of the world. It has a huge patent stock that is extremely valuable in this space. Nokia has great amount of experience in manufacturing mobile devices. At the end of 2009, Nokia operated 15 manufacturing facilities across 9 countries. The build quality of Nokia handsets is at par (if not better than) the best handsets available in the market. Nokia also has lot of experience developing mobile software, including Symbian and Meego. As one of the largest device manufacturers, Nokia has a huge brand equity. Finally, it has the highest market share and almost complete control over the feature phone market.

The Bad – Incumbent’s curse!!

After looking at the above figure, it is difficult to believe that Nokia is going through these tough times. In 2009, Nokia lost 2.2% market share from 2008. Nokia stock has also taken a beating, dropping almost 50% in the last year.

 Nokia Stock market performance

So, what could be wrong the company that gave us our first smart phone? There are several factors, but the major cause for the current state of affairs at Nokia is the inability to foresee and adapt to changing market conditions.

Nokia always focused on the hardware of the features of its phones. The OS or the apps running on the phone were all secondary. Nokia never actively courted developers or provided them adequate incentives to work on Nokia apps. The number of handsets sold in the developing world prevented Nokia from taking any risks, classic case of incumbent’s curse. Nokia was one of the last to have some form of app store to enable developers make revenue of Nokia phones.

What next?

While the present is not as rosy as the past for Nokia, the future may be even worse if Nokia continues with its existing strategy. With several smartphones available (or will be in the near future) for around or less than $100, Nokia may be pushed out from the segment that it has owned completely in the past. Why would someone buy a feature phone, if one can get a “smart phone” for around the same price? Nokia may be forced to further go down the value chain, selling nothing but the cheapest phones. Nokia’s last quarter results provide some testimony to this fact – while sales were up 6% from the previous quarter to 12.6 billion Euros, profits were down by 23% to 884 million.

Nokia needs to change!!

There is no doubt that the current Nokia strategies will not work in the future. The good news is that all is not lost for Nokia. Let’s look at the decision in front of Nokia.

Now that Nokia has stopped the development of Symbian, it can continue working on Meego or switch to some other mobile OS. Meego (presumably) provides more control over the destiny of Nokia and possibility of great impact and revenues. However, this will require investments in developing Meego and the supporting ecosystem. If Nokia is able to pull this off, it will be great for Nokia as well as for all of us to have a credible alternative to Apple iOS and Android. If, however, Nokia is not able to succeed with Meego, it always has the option to switch to other Mobile OS (e.g., Android) at a later point in time. Thus, Nokia does not have to decide on switching to Android right now, that option is always open (given the open nature of Android).

If Nokia decides to switch to some other OS, the only valid alternatives are Android or Windows Mobile. I would not even consider Windows Mobile as a great option as it is facing similar challenges as those faced by Meego, so the only real option is Android. I have talked at lengths about the benefits of Nokia switching to Android. Given the success that handset manufacturers are having with Android, it is difficult to ignore this option. Samsung’s profits and revenues hit all time high, thanks to Android. I acknowledge that there are other manufacturers working on Android. The challenge for Nokia here is to meaningfully distinguish itself from other Android manufacturers. Given the skills and resources that Nokia has, I am extremely confident that Nokia can do better than any other Android manufacturer and this should be extremely easy for the company.

Nokia_Decision_tree

Final Thoughts

Although I have trashed some of the Nokia strategies in the past, Nokia is the still the largest handset manufacturer and it will be foolish to count them out. Nokia needs to act and act fast. Even though Nokia has the option to switch to Android, it must realize that they are paying a huge price for the delay. Firstly, they are weakening their financial position and hence their bargaining power relative to other manufacturers. Secondly, they are letting other manufacturers establish a foothold in the market and prosper at their expense.

I would love to hear your thoughts on this topic…so jump in!!

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