Musings on Mobile Software
Nokia’s Downward Spiral

A few weeks after the fateful Feb ‘11 announcements I wrote about “What Happened to Nokia”, it got picked up by some fairly big tech news sites and 10s of thousands of people read (or at least visited, it was a pretty long blog) what I had to say.

Now that the Windows Phone strategy is not working out as well as planned and yet more cuts have killed off Nokia’s next generation platform for the low end (codenamed Meltemi, think bada competitor but much better), I’m writing some final thoughts on the topic and then moving on.  I say final because I really don’t expect Nokia to be very relevant for a whole lot longer, certainly not returning to their former glory.  The data collected by Asymco is pretty compelling in this instance.

Tomi Ahonen has recently posted an incredibly long public assault on Stephen Elop’s management.  I think he goes too far in blaming Elop for everything, Nokia was in a pretty bad shape before he arrived.  However, he has made a bad situation much worse and I think the conclusion is essentially correct, Elop and most of the board need sacking for almost completely destroying the company.

The “Burning Platforms”

So, my take on the famous “burning platforms” memo and February 11th announcements with another year or so of hindsight is fairly simple. First, Q1 2011 the whole industry, apart from Apple, saw a major drop in demand, or at least demand growth (see the graph here). Elop in his relatively new Nokia CEO role knew they needed to shift smartphone platforms to regain competitiveness. He had access to Nokia’s forward sales pipeline for the quarter but not the rest of the industry and he panicked, assuming the drop in demand for Nokia products against a strong industry growth trend was due to their inferior product range. He did a deal to get enough cash from Microsoft to keep the business running while they transitioned and made some fairly hefty concessions to get it (for example, he’d have to be as mad as Tomi makes out not to sell the N9 in advanced markets in competition with the Lumia 800 unless the Microsoft deal explicitly forbade it). This could make sense of the total lack of detail evident when the deal was announced and the very poor bargain Nokia appears to have achieved given Microsoft had already tried and failed partnerships with the other major OEMs.

And Strategy Announcements

Clearly, from the various sales projection charts that were shown on February 11th, the Nokia board had agreed a strategy that involved the phasing out of Symbian over several years as it gradually drifted down the value chain, while Windows Phone ramped up, was optimised for lower price points and localised for more countries.  Telling the world that this is what they expected wasn’t the most brilliant business strategy - simply committing to improve and support Symbian (as they were doing anyway) and making the updates available to every current buyer would have made much more sense, the phasing out would have happened naturally.  The plan most likely included continuing to build out the developer ecosystem around Qt and as Symbian was phased out it seamlessly transitioned over to Meltemi with lots of local content for the developing/emerging markets where that platform would primarily compete. Meltemi would not have run on cheaper hardware than Symbian but being Linux-based it would have increased their agility at the low-end - much shorter time to market (due to simpler development environment and pre-existing hardware adaptation layer) - and allowed them to ditch the immense cost of maintaining Symbian/S60 & also S40, which was shifting down into a market where Shanzhai was making it hard to make profit.

Original Plan Not Bad

The plan was not actually a bad one.  The disconnect in development environment between mid-low end and high end devices might have been an issue but with Symbian/Meltemi not selling at the high end, appealing to local developers to create solutions for the markets where devices were sold would probably create a more appealing long tail than attracting the 1000s of gold and glory hunting startups in Silicon Valley solving first world problems - they could pay the porting costs for the big name apps that didn’t care enough about reach to do it anyway.

So, what went wrong?  Management and comms.  When Elop started he’ll have wanted to do what most turnaround CEOs do, get as much future bad news out of the way early so everything bad is attributed to the previous management any recovery is all his doing.  How to go about that - same way most arse-covering CEOs do - hired some management consultants to assess the situation and tell him what to do.  Probably some US-based ones with their slightly warped view of the “smartphone market”.  I put that in quotes because it’s a pretty meaningless term now - I’ll have to explain that in a follow up post.  For these purposes it’s enough to say that Symbian was not really competing in the same “smartphone market” as the iPhone and high end Android devices.  As most Symbian developers would have been able to tell you, outside a relatively small core of early adopters who bought Symbian devices for their advanced feature set, the bulk of Symbian devices sold were not used as smartphones in the iPhone sense. Much as Nokia wanted it not to be true, the iPhone (at least by the 3GS) really launched a whole new product category for which they did not yet have a competitive response.  Your competitors are not who you think they are, they’re who your customers think they are*.

Viewed in the market for iPhones and flagship Android devices, Symbian was horribly uncompetitive.  Nokia clearly had a serious problem and could not sell Symbian devices in that market with the great margins they once enjoyed.  However, viewed against the competitors where the vast majority of Symbian devices were selling at the time - mid-low end Android devices, bada, teen-focussed BlackBerry and high end feature phones - Symbian was still fairly competitive.  With a decent UI overhaul (as it eventually got with Belle) it would have been extremely competitive in that space, particularly since every device came with free SatNav, complete with offline support and turn-by-turn voice guidance in countless countries (things Android is still catching up with).  Nokia’s profits would continue to take a beating without a credible high end offering as that’s where the bulk of the industry profits are, but they could have continued to run a profitable business with what they had and given themselves a few years to rebuild a credible offering at the high end.

Comms Catastrophe

So new partnership with Microsoft to rebuild at the high end and make the most of existing assets, unless… the CEO decides to tell the entire industry that the Symbian line of products is no good and will be killed off, before any replacements are in sight.  This simultaneously does massive damage to the operator and retail channels, the early adopter consumer interest and the developer community - all of which Nokia badly needed.  Did Stephen Elop really think that an internal written memo of that nature would not leak?  I doubt it, but if he did, he’s an idiot and should be fired.  Being generous and assuming there were a lot of safeguards and the memo really should never have leaked, or there were well-intentioned reasons for leaking it - what about it’s content?  With it’s slightly warped view of Nokia’s true situation at the time (which was pretty bad but not jump in the ocean or we’re all going to die bad) the only possible reason for such a message to the staff is to motivate them to change.

Psychologically Incompetent

The organisational change psychology involved here is to make the staff feel they’ve reached a crisis point and HAVE to change NOW.  This is flawed and outdated thinking in change psychology.  Indeed, shortly before Elop started in his new turnaround CEO role, a New York Times No.1 bestseller was released, “Switch - How to change things when change is hard”.  Wired called it “A Fantastic Book” and I think it must have come up on Mr. Elop’s radar - shame he didn’t pick up a copy.  Allow me to quote a few relevant sections here (from pages 119-123):

Speaking of the perceived need for crisis, let’s talk about the “burning platform,” a familiar phrase from the organizational change literature.  It refers to a horrific accident that happened in 1988 on the Piper Alpha oil platform in the North Sea.

Skipping the details of the accident…

Out of this human tragedy has emerged a rather ridiculous business cliche.  When executives talk about the need for a “burning platform,” they mean, basically, that they need a way to scare their employees into changing.  To create a burning platform is to paint such a gloomy picture of the current state of things that employees can’t help but jump into the fiery sea. (And by “jump into the fiery sea,” what we mean is that they change their organizational practices.  Which suggests that this use of “burning platform” might well be the dictionary definition of hyperbole.)

So this is an exaggeration designed to evoke strongly motivating negative emotions - slightly disappointing that dear Mr. Elop (or more likely his management consultants) couldn’t come up with something more imaginative than the canonical analogy to fit the situation but much more disappointing that he was eliciting entirely the wrong emotions:

There’s no question that negative emotions are motivating … But what, exactly, are these emotions motivating?

(buy the book if you want the psychological explanation)

Bottom line: If you need a quick and specific action, then negative emotions might help. But most of the time when change is needed, it’s not a stone-in-the-shoe situation. The quest to reduce greenhouse gases is not a stone-in-the-shoe situation, and neither is Target’s mission to become the “upscale retailer,” or someone’s desire to improve his or her marriage.

And neither is Nokia’s need to respond to the competitive threat posed by Apple and Google/Samsung…

These situations require creativity and flexibility and ingenuity.  And, unfortunately, a burning platform won’t get you that.

So what is the answer, in a nutshell:

To solve more ambiguous problems, we need to encourage open minds, creativity and hope.

Great Way To Kill Productivity

For the 1000s of staff reading that memo who would be continuing to work on Symbian, where execution of the new UI was absolutely critical to the company’s continued income in the short term, how does that do anything but anger and demotivate.  It seems the MeeGo leadership cleverly managed to turn the anger around into determination to show what they could do and prove the CEO wrong.  They executed a(nother) new UI from scratch in 6 months and beat the Lumia 800 to market**.  However a high end smartphone, declared a one off before launch and not sold in the most developed markets was always doomed - no apps and a lack of affluent customers (even so, it’s sold similar numbers to the Lumia devices despite a microscopic fraction of the marketing budget and near identical industrial design).

With the Symbian/S60 engineers demoralised and then transferred across to Accenture, Symbian UI updates were inevitably delayed further, and of course the networks had little incentive to approve updates quickly, since they were for the most part no longer stocking many Symbian devices anyway. That said, the update situation there is still significantly better than Android, where despite the updates being released for ages, most users are still running Gingerbread from back in 2010 and new devices are still sold running that version.

If Only The Windows Plan Was Working

All of this might have been swept under the carpet IF the Windows Phone devices had taken off as hoped.  Microsoft attempted to buy market share with an unprecedented marketing assault and some hefty sales incentives to channel partners.  This appears to have failed.  On the developer side it’s also becoming very clear that you can’t really buy a developer ecosystem either.  Once you start paying people to build apps for your platform, word soon gets out.  Even popular apps that might have been thinking about porting anyway will now wait until someone comes and offers them some money.  Vast numbers of Microsoft desktop developers not wanting to get left behind by the mobile revolution jump on Windows Phone bandwagon in order to avoid learning new languages and technologies, or because they’ve just been drinking the Microsoft kool-aid for too long.  Unfortunately, the real mobile entrepreneurs with the great ideas are market driven and looking for cash (iOS) or reach (Android, iOS or both).  For a late to market offer like WP7, they can wait to see if it ever gets decent sales.  Small startups will even turn down free porting cash for platforms they don’t see as generating a near term return as it’s small change in their big plans and a major distraction that costs management time.

Now one potential advantage that Windows Phone could have had was games (and games are the most important app category for consumers) - there’s the Xbox link up and potentially simpler porting for all those top titles from the console.  Unfortunately WP7.x doesn’t allow native code (because they were about to replace the underlying OS fundamentally) and thus it’s very expensive/impractical for many of those games to port over.  WP8 will fix this BUT… the current phones don’t get an upgrade***.  This is going to hurt the Lumia range further in the retail channels.  Most consumers may not have heard about this, but no-one in the sales channel wants their customers coming back in 6-9 months saying, “how come my Windows Phone doesn’t run all the latest games Microsoft is showing off on the TV”.  That leave’s Nokia with what now looks like a very last roll of the dice on WP8 success and already massive damage to their brand.

Now There Are No Alternatives

To add insult to injury, with the developer interest in Symbian/MeeGo mostly killed off by the memo and subsequent announcements Nokia had to fund a lot of application development.  That’s something they now can’t afford again with Meltemi, so that had to die too, to preserve enough cash to keep the Windows Phone effort running.  This leaves Nokia with no credible story at the low end, so revenues there will continue to decline.  This is a logical choice 10% of the high end market is potentially worth more than 30% of the low end.

How far the mighty have fallen, it looks most likely we’re heading towards this situation I speculated on in my previous post:

If Nokia is left with a sub-profitable smartphone business and Microsoft is doing well out of it they can either subsidise further, or buy Nokia and strip out the other parts of the business.

Except, now I’d replace “and Microsoft is doing well out of it” with “and Microsoft is out of other options”, plus there’s less and less of the rest of Nokia to strip out with each new announcement yet still little reason for Microsoft to buy them rather than subsidise unless it becomes worth it for the patents, manufacturing and distribution vs building out their own in a “no-one wants to use Windows Phone anymore” situation.

Is It All Elop’s Fault

Did Stephen Elop cause all of this, no.  Nokia were already in a lot of trouble.  Did he make it much worse, yes.  The aftershocks of February 11th are still playing out.  Some have been pointing out that Nokia was already losing market share rapidly before February 11th.  That’s true, but the were also still growing unit volumes - only losing market share because they were growing much slower than the market.  After February 11th their unit sales were in free-fall.  This is the difference between having time to make a turnaround while falling behind competitors and heading towards bankruptcy very fast.  However, having previously tried and failed to rebuild for a couple of years there’s far from any guarantee another couple of years would have helped.

Is he the worst CEO ever - I seriously doubt it.  However by deciding to take the easier way out, throwing everything away and counting on Microsoft to solve the software side, rather than fixing a broken software development organisation, then making a catastrophic comms error, he has given himself a really good chance of going down in history as one of the most value destructive CEOs ever.  Either that or he really is a Microsoft trojan and really brilliant strategist - one small comms misfire and lots of sincere looking effort to make things work turns the world’s largest device maker into a Microsoft captive OEM for the rest of its history.  However, in cases of potential conspiracy, 99 times out of 100, the truth is far more cock-up than conspiracy.

* I read wise words to that effect somewhere recently and can’t find them again to attribute the source.  If I stole your thought, please comment and I’ll link to the original.

** And some of this same team have formed a new company, Jolla, to continue making MeeGo-based smartphones.  I think there’s a market for geek/hacker phones that’s big enough to support a small company but their ambitions are bigger so I hope they’re going to support Android apps - if not I can’t see it working.

*** So Nokia moves from a platform (Symbian) with a new UI layer (Qt) that enables a transition to a real competitive OS solution (Linux/MeeGo) keeping some level of app compatibility, to a platform (Window CE) with a new UI layer (Metro/.NET) that enables a transition to a real competitive OS solution (Windows 8)… just a year behind on that plan… oh, the irony.

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