Why Nokia is toast

Nokia is losing because it has a losing strategy. It's as simple as that.

It's hard to remember now, but there was a time when Finland was at the center of the cell phone universe. As cell phones overtook pagers, then smartphones overtook cell phones, Nokia was the hottest company in the industry.

No more. Nokia now finds itself standing on a "burning platform," according to CEO Stephen Elop. Other clichés might apply. "Sinking ship" comes to mind.

The new center of the cell phone industry is Silicon Valley, where Apple and Google are headquartered. (Silicon Valley is also the home of HP, which suddenly finds itself a player again with its new Pre3 and Veer phones.)

Apple and Google are winning because they have winning strategies. Nokia is losing because it has a losing strategy. It's as simple as that.

Nokia and Microsoft this week announced a new partnership that would replace the Symbian operating system with Microsoft's Windows Phone 7 as the software for Nokia's smartphones, which accounts for some 30% of their handset revenue.

The company will continue to support Symbian and MeeGo platforms in very limited ways.

The deal also involves adding Nokia Maps into Microsoft's maps, and Nokia's app store, called Ovi, will be folded into Microsoft Store. The companies will work together on marketing.

The deal involves all kinds of other agreements that essentially bring Microsoft goodies to Nokia in exchange for the widespread distribution of Windows Phone 7 on Nokia's phone.

Nokia's stock price tanked, and hundreds of employees stormed out Friday in protest of the Microsoft deal. They no doubt suspect, rightly, that the deal will involve sweeping layoffs.

After the news, a huge fight broke out online over whether the deal was good or bad for Nokia. The good-for-Nokia camp says Microsoft software and developer tools are just what the company needs to break it away from the stale, unappealing and outdated Symbian platform.

The bad-for-Nokia crowd says that hitching its wagon to another loser in the smartphone wars isn't going to save the company. Google VP Vic Gundotra tweeted ungenerously that "Two turkeys do not make an Eagle." Ouch!

My view is that Microsoft doesn't matter. Although Windows Phone 7 is a way better operating system than Symbian, Nokia's problem isn't Symbian, and the solution isn't Windows Phone 7.

So what's the problem?

Nokia is being clobbered by Apple and Google, each of which has a winning strategy.

Apple's winning strategy is extreme simplicity via its "closed" or "integrated" approach to hardware and software, as well as incredibly good industrial design.

Google's winning strategy is extreme flexibility via its "open" or "fragmented" approach to hardware and software.

Both these strategies have attracted millions of users and hundreds of thousands of apps.

Nokia's problem is that it follows the losing strategies of the other losers in the market, and rejects the only two known winning strategies.

Nokia has a few really nice phones. But many Nokia phones are ugly like cheap generic Chinese no-name phones. When people think of a Nokia phone, which they usually don't, they think of some silver, bland, generic phone that nobody wants. Nokia's pretty phones are overshadowed by the ugly ones.

There are way too many Nokia phones. This causes either choice paralysis, sending buyers screaming to Apple for relief, or buyer's remorse.

Nokia should take the advice Steve Jobs gave to Nike CEO Mark Parker: "Just get rid of the crappy stuff and focus on the good stuff."

And Nokia branding is cold and soulless like the branding of Korean giants Samsung and LG. Phones are sold like commodities. Most phones are differentiated only by numbers, for example.

In a nutshell, Nokia fails on design, branding and simplicity. Microsoft's Windows Phone 7 will solve none of these problems.

To demonstrate my point, I'd like to submit Exhibit A: The Nokia Web site.

Like so many European consumer electronics companies, the Nokia site looks like it was built by a government agency. Instead of seducing you with design like Apple's site does, the company forces you to pick a region. When you do that, the second step is to pick your country. Wow, Nokia. Way to hook 'em!

Right off the bat I know that, as an American, I'm going to get screwed. The U.S. carrier standards mess means Nokia is going to make its best phones for other countries. Sigh! OK, let's soldier on.

A couple more steps and, if I'm lucky, I can start looking at an infinite range of tiny, generic-looking phone thumbnail pictures.

Hmmm. Let's see. Do I want the Nokia E72, or the 3710? The 7020 or the 2730? The 7020 is a bigger number. Is that better? What's the difference between these phones. Ugh! I have to go in and read huge lists of features to see the differences? What if I get the wrong one? I see the C6, but a friend of mine said the C7 is awesome. Where's the C7? Wait, do they even sell that in the U.S.? Is there a C4 and, if so, will it explode?

This is the Nokia experience. I'm already confused, frustrated, angry and insulted and I haven't even picked a phone yet.

When you go to the Apple site, there is only one phone -- Apple's best. You can't buy the wrong phone. You can't live in the wrong country.

Get it, Nokia? No, you don't.

Allow me to introduce Exhibit B: Japan.

For years, Nokia invested a fortune trying to break into the Japanese cell phone market, the fourth largest in the world. The company never broke the 2% market share barrier before pulling out in 2008.

Nokia decided the problem was the oversaturated Japanese market, and consumers' preference for Japanese brands.

Yet just a year and a half after Nokia's pullout, Apple was capturing an incredible 72% of Japan's smartphone market.

Apple succeeded in Japan where Nokia failed because Apple offered Japanese consumers better design, better branding and more simplicity -- not the opposite.

The right strategy for Nokia

Nokia's strategy has always been that more is better. That worked in the 1990s. But now that information and choice overload are killing everybody, that's the Mother of All Losing Strategies.

Nokia should have embraced Google, not Microsoft, for one simple reason: Android has apps.

However, now that Microsoft has been embraced, the winning strategy for Nokia is clear: Sell only two phones.

There is huge, unmet demand in the world for a phone that does nothing but make calls. Nokia can and should design and build the ultimate minimalist, tiny, super-reliable cell phone that does not connect to the Internet. It should have the best-possible call quality, have the best antenna possible and should measure battery life in days or even weeks. Nobody cares what the operating system is.

Second, Nokia should design and build the ultimate smartphone based on Windows Phone 7. It should provide a much better call quality than the iPhone (not hard to do), have a better camera, better screen, better everything than existing smartphones.

The company should ban Symbian, MeeGo, all product forking, ugly design and the use of numbers in model names. It should embrace radical minimalism and beauty in all hardware and marketing.

In other words, Nokia should embrace the winning Apple strategy. Getting in bed with Microsoft means the Google strategy is off the table. That leaves only one winning strategy left.

Of course, Nokia executives would laugh at this strategy. And that's why they fail.

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Tags AppleGooglesymbianconsumer electronicsMicrosoftPhonesNokiasmartphonesintel

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Mike Elgan

Computerworld (US)

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