When you think of Nokia, you probably think back to your first cellphone. Or perhaps you think of Europe, where Nokia traditionally enjoys strong market share. But do you think of smartphones? No? That’s not surprising, and the company is in the midst of a turnaround to ensure that it is top-of-mind for smartphone buyers worldwide.
Back in 2008, Nokia’s global smartphone market share was 39%. Today, that market share has dwindled to 14%. In the US, Nokia’s market share is practically nonexistent at 1.2%. And this is all during a time when the size of the market has grown tremendously! The company went wrong when it failed to properly execute its smartphone strategy, focusing too much on its legacy platforms and not enough on next generation products. When the smartphone boom hit, the company was ill prepared to capitalize on the opportunity and was left in the dust.
Nokia’s board finally acknowledged its predicament in September 2010 and hired a new CEO - Stephen Elop - to right the ship and refocus the company on the smartphone wars. When Elop took the reigns of Nokia, he took stock of the company’s position within the market, current product mix and development prospects. The picture was not pretty.
Nokia was known for making top-of the-line hardware. This was great – a competitive advantage - but Elop realized that Nokia had to make a crucial decision around software, which was becoming an increasingly important part of the smartphone ecosystem. At the time, Nokia was making smartphones, but it was using an old operating system that was originally designed to power feature phones and rudimentary smartphones. It had a next generation smartphone operating system in development called MeeGo, but it would be years before it was ready for prime time. In addition, the market was already crowded with competitors: Google’s Android, Apple’s iOS, RIM’s BlackBerry, and the recently re-introduced Microsoft Windows Phone platform were all vying for share. Elop had to decide if Nokia should go it alone, align with one platform, or become a generic OEM like HTC and Samsung and design phones for multiple platforms.
In the end, Elop chose to go all-in with Microsoft. While Windows Phone was just recently introduced and had a fledgling market share, Microsoft had the software chops to create and design a leading mobile operating system. Further, it had the financial strength to make the required investment. Nokia could bring the hardware, and Microsoft could bring the software. Sure, Nokia could have gone with Android, but with Samsung, HTC, LG and others deeply entrenched in the Android ecosystem, competing head-to-head with the multiple low-cost manufacturers was unappealing. And with RIM in a market share free-fall, a Nokia-Microsoft partnership had a fighting chance at third place behind Android and iOS.
It helped that Nokia got special treatment at Microsoft. While many details of the deal remain undisclosed, Microsoft is said to have committed $1bn in payments to Nokia to aid in the promotion and development of windows-based phones. In addition, Nokia was promised deep-level development access to the operating system, a perk not afforded to other OEMs. Other details, including Microsoft’s agreement to license Nokia patents, were icing on the cake.
So what now? The partnership is just starting to bear fruit. On October 26, 2011, Nokia announced its first windows phone devices: the beautiful and elegant Lumia 800 and the budget-minded Lumia 710. But for those of you expecting to see the new Nokia devices on shelves soon, don’t start lining up just yet. Nokia is planning a calculated and deliberate (read: slow) roll-out. They’re starting with 6 European markets in mid-November, a handful of Asian markets before year-end and additional markets, including the US, in “early 2012.”
Why so slow? Nokia is focusing first on the markets where it is already strong, launching in areas where it is most likely to be successful. Selling smartphones typically requires the baking of wireless carriers, and coordinating these relationships and agreements on a global scale takes time. Finally, a calculated roll-out will also allow it to ramp up its manufacturing and supply chain and dynamically tweak its marketing messages.
Despite the slow launch process, the largest bet Nokia has placed in recent history will play out over the next few quarters. Will Nokia be triumphant and become a serious player within the smartphone market? Will its devices capture the hearts, minds and wallets of US consumers? Will the Nokia / Microsoft partnership launch Windows Phone to mass popularity? Only time will tell. Game on.