The Nokia and Microsoft Alliance is a Good Thing, Really!
I’m sure most of you have heard the news about the Nokia and Microsoft alliance. Nokia announced that it has decided to use the Windows Phone 7 as their primary Smartphone platform. Their existing platform Symbian, will be franchised and milked to the very end.
I was pretty excited and positive when I heard about this, but was quickly surprised to find out that I was actually in the minority. Even industry heavy weights like Intel’s CEO Paul Otellini and Google’s CEO Eric Schmidt both disagreed with the decision.
Schmidt regretted the decision but kept the Android door open for Nokia. Otellini bets that the future is open source rather than a closed ecosystem. I’ll take their comments with a pinch of salt as both are likely biased. With Schmidt the losing party to this alliance and the other, well, I’ll believe him only when I see him release his CPU reference designs to the open source community.
But I digress.
I believe this is indeed the right decision for one very simple reason, the bigger you are the harder it is to change the corporate culture and the way you do things.
Nokia always had it roots in developing mobile hardware. It built its fortune on exactly that. I can only imagine the extensive infrastructure put in place at Nokia to develop the most wild and wonderful handsets ever conceived.
Unfortunately, products have evolved into an experience and we all know experiences ask for a joint proposition of both hardware and software. Many companies understand this, including Nokia, but few have made the transition comfortably (most notably Apple).
Nokia, already struggling with waning handset sales, cannot financially afford to make this transition. This is probably why the Android platform was so attractive to traditional hardware manufacturers like Samsung, LG, Dell and Motorola etc. It allowed them an “in” without the hefty investments. This sounds great but it is really not that rosy, I’ll discuss this more later.
Now, lets go back to corporate culture.
Having worked for a number of hardware base companies, I can tell you it requires a huge change in mindset to develop a software solution that is not perceived as an afterthought or a slave to the hardware. I know Nokia has tried, but I belief it is just too big to make both hardware and software and equal part of its DNA.
Running a large corporate behemoth is not an easy task. You need to take the good and the bad together. A quick culture change is possible, but you have to fire everyone. Something most companies will not do. Going forward, the only way is for Nokia to leverage on its strengths and find help to cover its weaknesses.
The huge ship (Titanic?) analogy works here. Once it starts heading in one direction, it is going to be very difficult to change route quickly. Essentially, the mobile industry, lead by Apple, bypassed Nokia and headed in a different direction. Apple redefined the mobile phone industry by starting out with a niche premium phone that soon became the mainstream industry standard. If we consider how Android phones filled up the mid to bottom end nicely, you pretty much have the Smartphone market lock down tight.
So I ask you, if you were Nokia and wanted to survive what would you do?
One way is creating your own ecosystem and this is where Nokia needs Microsoft’s help. This sounds rather crazy, but not so when you consider this; companies, the size of Nokia, don’t play to get by, they play to win. If they can’t win or come in a credible second they are good as dead anyway. Their overheads will just flatten them.
At the other end of the alliance, Microsoft also suffers from similar issues. As mobility is seen as the future of computing, Microsoft has faced much criticism for not being able to create a credible mobile OS platform, hardware included. With notable failures such as the Kin behind them, Microsoft can now focus on their software platform. As it is, they are already having so much trouble keeping up with the competition. I’m sure Microsoft is probably not perfect for Nokia, but under the circumstances, they are the best option.
Don’t get me wrong I have nothing against Android. In fact I think it is a great platform. Android did not want to compete with the Apples and Blackberrys of the world, and instead cleverly crafted an open sourced strategy that has made them the second largest Smartphone operating system in the world. How they did it was by essentially “sleeping” with everyone. Call it promiscuous if you like. However, if you actually adjust the Android OS numbers with Smartphone Brands instead, you will get a far different picture.
This discussion here is really not about which platform, but about a brand.
If you take a step back and think about this objectively, there is actually very little differentiation between Android Smartphones. Furthermore, new features such as the recently announced Movie Studio will be made available to everyone.
Again ask yourself, if you were Nokia and you wanted to play to win, how are you going to beat the competition running an OS that is essentially the same as the rest of the market?
A smart friend, who is a tech analyst at a bank, pointed out that with Android it has all come back to the hardware. In other words product differentiation comes in the form of a bigger camera, longer battery life, nicer design, sexier brand etc.
Android as it is now, will likely not have revolutionary changes unless Google takes it in another direction. The smart hardware brands should be very concerned, because if Google does so (and they might), they could lose their entire product range (and millions of dollars in tooling investments) just like that. However as alluded to earlier, with all the software development risk borne by Google, the Android is still the perferred platform for the fast follower or me-too hardware makers who have a hard time developing their own software.
So here is the clincher that many might have missed.
The partnership between Nokia and Microsoft is not just any old handshake, but rather a strategic alliance. As Nokia shares on their blog:
Nokia wouldn’t be just be another Windows Phone OEM. Nokia plans to help drive and define the future of the platform. That could include contributing expertise on hardware optimization, language support, customization of the software and helping bring Windows Phone to a larger range of price points, market segments and geographies.
This is a huge breakthrough in negotiation, something I bet Google stood firm against. What you may not realize is that there are no favorites on the Android (or even OEM Windows 7 for that matter) platforms. Google releases their software versions to all brands at the same time, so that everyone has an equal chance in implementing the new OS platform.
If you think about it, if anyone wants to beat Apple’s closed ecosystem, Android is not going to be the choice to partner up with. Nokia’s agreement with Microsoft essentially allows Nokia to have a very important strategic competitive advantage against their competition. It will allow them to have mobile phone experiences no one else would have in the market. Android could have been an option 2 years ago when it first came out, but the ship has long since sailed with other brands whom are now enjoying the fruits of their labor.
Of course this alliance is fraught with its own perils. Rather than forcing a large ship to change it’s course, it is now as if two large ships are trying to travel side by side at the same pace. I immediately see challenges in aligning development cycles, business strategy and even go to market activities.
If not for catching wind of the strategic agreement between both brands, I would never bet good money on two big companies trying to work together as equal partners. However if they can work their issues out, I foresee a strong and credible competitor to Apple and their iOS. I wish them both all the best, with a big pat on their backs.
As an endnote to this article, do check out Nokia CEO Stephen Elop’s rumored internal email sent to all Nokia employees before the announcement of this alliance. I take my hat off to Stephen; the man has guts.
There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.
As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.
He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.
We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.
Over the past few months, I’ve shared with you what I’ve heard from our shareholders, operators, developers, suppliers and from you. Today, I’m going to share what I’ve learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.
For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.
In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.
And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.
Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.
While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.
The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.
We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.
At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.
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.
And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.
The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.
This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.
On Tuesday, Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.
Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It’s also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.
How did we get to this point? Why did we fall behind when the world around us evolved?
This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.
The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.
Memo via: Mashable.