When Nokia Lost The Fight

Ten years ago today the first-generation iPhone went on sale in the USA, changing smartphones forever. However… As this post will end up being the 3,390th front page entry on these forums, the undying Nokia fanboy within me must insist on observing this auspicious number with an excerpt from a fantastic book about the Finnish phone-maker, and how it all went wrong for them.

Nokia had little to worry about in the summer of 2007; their N95 was a triumph, and their roster of Eseries and Nseries smartphones was deep. Anecdotally, yours truly imported an E61i in July of that year, and stuck with S60 until switching to Android in late 2010. That’s where we pick up the story, with Stephen Elop newly-installed as Nokia’s CEO, and the growing realization that Symbian, Nokia’s smartphone OS, is doomed. Something had to be done, and soon…

Elop knew his decision couldn’t be based solely upon trends in market share. Android devices were stealing huge chunks of the market, but they were not taking commensurate shares of profits. At the end of 2010 Apple had less than 4 per cent of the total market, but by one estimate the company claimed an astonishing 44 per cent of all mobile phone manufacturers’ operating profit. Samsung’s sales were increasing, but they had a relatively low 10 per cent gross operating margin. Here was the lesson: going to Android could potentially help sales, but there was no evidence it would help profit.

But there was an even more serious problem with Android, and that was Samsung. Executives carefully studied the dominant manufacturer in the Android ecosystem and didn’t like what they saw. Nokia had become swollen and lethargic while Samsung was lean and agile. Over the past several years Samsung had to compete in the Android market with speed, price and efficiency as Nokia’s similar qualities slowly decomposed. To compete in the Android ecosystem a manufacturer needed to be good. Now the South Koreans could take a product from an idea in a developer’s head to the hands of a consumer faster, cheaper and more efficiently than the Finns. That great efficiency advantage Nokia had created after the mid-1990s crisis had lasted almost exactly a decade as they had expected, but now it was gone.

“It was impossible for Nokia to choose Android,” one insider says. “Samsung led the Android market so Nokia would be a follower. We were still thinking big, like about regaining a 40 per cent market share.”

“We were scared of Samsung,” another former executive confirms. “We couldn’t compete directly against them in the Android ecosystem.”

The infamous Burning Platform Memo would be published a few months later.

Nokia’s fear of Samsung, however justified it may have been, demonstrates that they had already lost the fight. They ended 2010 with a 37.6% share of the worldwide smartphone market, but as we all know, that wouldn’t last long.

Source: The Decline and Fall of Nokia

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