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2011-02-15 09:19:16
Feb 11th 2011, 9:57 by The Economist online
IT LOOKS, in a way, like a stealth takeover. In September Stephen Elop, one of Microsoft's leading lights, becomes boss of Nokia, a troubled Finnish handset-maker. Five months later, Mr Elop will make Windows Phone, Microsoft's operating system for smartphones, its "primary platform" for such devices. Yet this is only one of the radical decisions Nokia's new boss announced on February 11th, shortly after sending his staff an apocalyptic memo warning them that they were standing on a burning oil platform and risked being consumed by the flames. The firm will also get a new operational structure and leadership team, more of whom will come from outside Finland. And Nokia will henceforth have just two distinct businesses: smartphones and mass-market mobiles.
This is an astonishing upheaval for what was once one of Europe s hottest firms. But behind Nokia s woes lurks a dismal reversal of fortunes, not just for the Finnish company but also for much of Europe s mobile-phone industry. In the 1990s Europe appeared to have beaten even Silicon Valley in mobile technology. European telecoms firms had settled on a single standard for mobile phones. Handsets became affordable, Europe was the biggest market for them and the old continent s standard took over the world. Europe was the cradle for innovation and scale in mobile , says Ameet Shah of PRTM, a management consultancy.
This changed with the emergence of smartphones, in particular Apple s iPhone, which appeared in 2007. Nokia still ships a third of all handsets, but Apple pulls in more than half of the profits, despite having a market share of barely 4% (see charts, below). More Americans now have smartphones than Europeans. As for standards, Verizon, America s biggest mobile operator, is leading the world in implementing the next wireless technology, called LTE.
Nokia, along with the rest of Europe s mobile industry, is also being squeezed in both simple handsets and networking equipment. Cheap mobile phones based on chips from MediaTek, a company based in Taiwan, are increasingly popular in developing countries. By some accounts this system and its users now account for more than one-third of the phones sold globally, Mr Elop wrote in his memo. And at $28 billion in 2010, the revenues of China s Huawei almost equal those of Sweden s Ericsson, the world s leading maker of gear for wireless networks.
At its most fundamental, this shift is the result of Moore s Law, which holds that microprocessors double in computing power every 18 months. The first generations of modern mobile phones were purely devices for conversation and text messages. The money lay in designing desirable handsets, manufacturing them cheaply and distributing them widely. This played to European strengths. The necessary skills overlapped most of all in Finland, which explains why Nokia, a company that grew up producing rubber boots and paper, could become the world leader in handsets.
As microprocessors become more powerful, mobile phones are changing into hand-held computers. As a result, most of their value is now in software and data services. This is where America, in particular Silicon Valley, is hard to beat. Companies like Apple and Google know how to build overarching technology platforms. And the Valley boasts an unparalleled ecosystem of entrepreneurs, venture capitalists and software developers who regularly spawn innovative services.
The perils of dallying
Nokia had some additional problems to deal with. The firm realised its world was changing and was working on a touch-screen phone much like the iPhone as early as 2004. Realising the importance of mobile services, it launched Ovi, an online storefront for such things in 2007, a year before Apple opened its highly successful App Store.
But turning a Finnish hardware-maker into a provider of software and services is no easy undertaking. Nokia dallied and lost the initiative. Historically, Nokia has been a highly efficient manufacturing and logistics machine capable of churning out a dozen handsets a second and selling them all over the world. Planning was long-term and new devices were developed by separate teams, sometimes competing with each other the opposite of what is needed in software, where there is a premium on collaborating and doing things quickly.
Olli-Pekka Kallasvuo, Nokia s boss from 2006 until last September, was keenly aware of the difficulty. To get an infusion of fresh blood Nokia bought several start-ups and was reorganised to strengthen its software and services. And it tried to turn Symbian, its own operating system for smartphones, into a platform in the mould of the iPhone and Android. But just like Sony, Nokia has not found a way to shift from hardware to software, says St phane T ral of Infonetics Research.
To allow Nokia finally to shed its hardware skin, Mr Elop, formerly in charge of Microsoft's Office software products, was brought in and apparently given what Mr Kallasvuo never had: carte blanche. This is why most observers expected the thorough changes that have now been announced, especially as concerns the operating system on which Nokia intends to bet its future. The firm has to move fast if it wants to have a chance to create a third platform for mobile software and services next to Android and the iPhone hence the decision to ally with Microsoft rather than going it alone with MeeGo, a technically sophisticated but still incomplete operating system it has been developing jointly with Intel. MeeGo, having hitherto been seen as the firm's platform of the future, is being downgraded to a mere "research project", while Symbian, Nokia's current operating platform, is being relegated: it will henceforth only be used on low-end smartphones.
Teaming up with Microsoft has its benefits, says Ben Wood of CCS Insight, another market-research firm. Given his background, Mr Elop could surely make such a partnership work. And it could help Nokia make a comeback in America, where its market share is in the low single digits. On the other hand, argues Mr Wood, Windows Phone 7 has not been a huge success so far. It would also take at least six months before the first Windokia phones hit the shelves that's a long time in a fast-moving industry.
Still, the partnership is good news for Microsoft, which has struggled to create momentum behind Windows Phone 7 despite a huge investment in development and marketing. Both firms will now focus on establishing the platform as an alternative to Android and the iPhone in North America, Steve Ballmer, Microsoft's boss, said at the event in London.
Profits going west
The deal is good and bad news for Europe's mobile-phone industry. It is likely to help Nokia to get back on its feet. But it probably also means that all three main platforms for smartphones and, by extension, computing tablets, will be American a situation European mobile operators would have liked to avoid because it means more of the industry's profits will flow across the Atlantic.
Yet the agreement does not mean that Europe's mobile-phone industry is doomed. The revenues of ARM, a British firm, may only be in the hundreds of millions, but most microprocessors found in handsets and other mobile devices are based on its designs. Ericsson now generates 40% of its revenues from services, for instance by managing wireless networks around the world. And on February 7th Alcatel-Lucent unveiled technology that will shrink wireless base stations from a filing cabinet s dimensions to the size of a Rubik s cube.
Nevertheless, for a full comeback, Europe will have to wait for an entrepreneurial culture like Silicon Valley s. This may not be as hopeless as it sounds. The beginnings of such a culture have taken root in recent years, and some successful start-ups have sprouted. One of the most popular games for smartphones, for instance, does not hail from the Valley but from Finland. Angry Birds has been downloaded more than 50m times since its release in December 2009. It is so addictive that compulsive players have been asking their doctors for help in kicking the habit.
Ravi wrote:
Feb 11th 2011 2:10 GMT
What Nokia and Microsoft are hoping is that two turkeys will make an eagle. It is very likely that the two turkeys will simply end up as two dead birds!
European mobile technology is simply stuck in the middle between innovation in the US and low cost production in Asia.
Europe cannot hope to create an entrepreneurial culture like Silicon Valley in the near future. There are many factors for the creation of world-leading companies in Silicon Valley and elsewhere in the US. These include:
Risk Taking Culture - The secret to Silicon Valley success is failure. It reinvents itself after each failure.
Immigration many of the start-ups are created by new immigrants.
Less Bureacracy It is easier to start businesses in the US than in most European countries.
Entrepreneurship Entrepreneurs have better respect in the US than in Europe.
There is a belief among many European politicians that the governments should try to create the next Google or Apple. Politicians have no hope of creating anything (other than just talking). They should get out of the way and let the entrepreneurs create the next Google.
cm79 wrote:
Feb 11th 2011 2:19 GMT
Ah, the old trojan tactic. Good to see the old strategies still have a place in modern business. Well played Microsoft. They are the definite winners in this deal.
todorov wrote:
Feb 11th 2011 3:17 GMT
One thing fascinates me here the tablet market and what Nokia imagines the future to be.
Let s look at this deal in the best light for Nokia possible they are getting a phone OS that provides a good user experience, better than anything they could have produced in-house in a few months time (they ve had years of utter failure in that regard now, what could possibly change internally?)
The problem though, is that leading edge of the phone OS game is quickly shifting to tablets. And there, WIndows 7 Phone gets Nokia nothing, because Microsoft and Steve Ballmer have adamantly refused to use it as a tablet OS, preferring to push the completely unsuitable desktop version of Windows.
This does two things to Nokia it leaves them without a tablet OS, which is bad. But it also leaves them without a full fledged mobile ecosystem which is worse. How do you keep developers interested if they have a choice between an ecosystem where they can leverage there smartphone work to tablets as well, like Apple's iOS, Android, even HP s WebOS and possibly even RIM with QNX if they move it to their phones fast enough? I don t think you can keep the developers without such a phone/tablet ecosystem.
Nokia missing out on buying Palm or even QNX will go down as their last great blunder.
@ChrisFrance: "All iPhone's have problems with hardware. Nokia's weakness is in software."
Clearly you've never had an iPhone. I'd say that iPhone hardware is just about perfect.
kwpreston wrote:
Feb 11th 2011 10:46 GMT
Nokia today has formed an exclusive agreement with Microsoft to install Windows 7 on its phones.
What is clear is that for the last few years Nokia has been a step or two behind the competition. I sensed something was wrong a few years ago when Nokia was incredibly slow to respond to the demand to make clamshell phones. For the longest time they continued to only make candybar phones despite the huge success of the clamshell design. Their Symbian contines to be a less polished experince than iphone or Adroid, their icons are cruder, the black look of their screen is ugly, Maemo which has been promising. is left to languish. In sun Nokia has become a company which has lost its edge, its focus, its drive. It has become complacent, slow and mediocre, in a very demanding changing smart phone environment against Apple and Google which are two very sharp competitors. A few years ago it was a dynamic and leading company, and had the market dominance and money to compete head on. But it frittered its advantage away.
Now it has jumped into the arms of Microsoft. I think that this is unfortunate because it probably means the death of Meego in Nokia phones. Nokia is now going from a company which could stand on its own and innvate on its own to basically a subdivision of Microsoft. It may be good for Nokia or not. Hopefully it will give Nokia a ready platform to work on in the form of Windows Mobile. However they are mostly giving up on what made Nokia unique. A lot of people, I believe, were attracted to Nokia because it was different. It was quirky, it was European and Finnish, it was not American or Asian, Symbian and Maemo were popular with Geeks, etc. With this new agreement Nokia has lost most of that appeal and has become much more generic. Personally I think that it is sad that they are abandonding Meego in favor of the close Microsoft platform.
However, whether it is good for Nokia or not, it certainly is very good for Microsoft. They are the ones who undoubtably have made out like bandits in this deal. It almost seems like Elop is a MS plant send it to take over Nokia and turn it into a MS vassal. Wait, that is just what has happened. If I were a Nokia employee or Finnish I would feel very betrayed right now.
I think that it would have been better for Nokia to agree to sell Windows Mobile phones, but also go ahead with Meego. That way if the MS move did not work out they would have a fall back option. At the moment Nokia is throwing all of its eggs into the MS basket and hoping for the best.
What really needs to happen is to find out why Nokia has lost its focus and figure out a way to get it back. If Nokia can get competent in executing again, they don t need Microsoft.
Major Plonquer wrote:
Feb 12th 2011 12:03 GMT
As anyone who works inside the software industry will tell you, the Microsoft platform is simply light years ahead of either Apple or Google. In fact, neither Apple nor Google have any history of developing operating systems themnselves. Interestingly both have drawn from Microsoft for their computer OS.
Apple's OS-X was not developed by Apple. The kernel (the hard bit that does the work) was developed by Rick Rashid at Carnegie Melon as part of the Mach OS. Mach was picked up by Steve Jobs and became the OS for his Next computer. When he returned to Apple, Next OS became Apple's OS-X. The architect, Rick Rashid has been head of Microsoft Research for over a decade.
Google's Android is nothing more than Linux wrapped in a shiny new shell. It's a 30 year old OS developed by Linus Torvald and given away free. Linux itself is based on Berkeley Unix which itself was combined with Santa Cruz Organization's Xenix - developed by Gordon Letwin at Microsoft.
So the truth is that of the 3 major mobile phone systems it's Microsoft's that is the most modern and has the most future potential. Neither Apple nor Google have the technical ability to compete over the long term....
linuxs wrote:
Feb 12th 2011 1:15 GMT
@Major Plonquer
You said, "In fact, neither Apple nor Google have any history of developing operating systems themnselves. Interestingly both have drawn from Microsoft for their computer OS" FYI Microsoft developed Windows NT by hiring a group of developers from Digital Equipment Corporation. It appears to me that Microsoft's OS is also based on someone else's idea.
You said, "Apple's OS-X was not developed by Apple... Google's Android is nothing more than Linux wrapped in a shiny new shell. It's a 30 year old OS developed by Linus Torvald and given away free. Linux itself is based on Berkeley Unix which itself was combined with Santa Cruz Organization's Xenix - developed by Gordon Letwin at Microsoft." Tell me what is the business case for re-inventing the wheel?! In my opinion, Microsoft made a huge mistake to putting money and effort in developing its "own" OS. This will prove soon to be fatal to Microsoft. Moreover, your post is inaccurate; first Linux release was in 1991. Basic math (1991 - 2011) makes Linux 20-year old...
No Mist wrote:
Feb 12th 2011 6:07 GMT
i was looking forward to a MeeGo phone ... alas !!
why is it that none of the smartphone makers manufactures pure hardware just like Dell does with PC/Laptops ? leave the user to decide on what software they choose ...
No Mist wrote:
Feb 12th 2011 11:28 GMT
@Major Plonquer
Whoa whoa !! one claim at a time .. you have made several wild ones
> "Google's Android is nothing more than Linux wrapped in a shiny new shell. It's a 30 year old OS developed by Linus Torvald and given away free."
as linuxs pointed out, it is not 30 years old. all linux (the Intel running ones) versions are compatible with each other, they share the same kernal ... much of the user interface is same whether it is debain, redhat, suse, ubuntu, pclos, mint, gentoo or any of the hundereds of distros ... they all allow you to choose among KDE/Gnome/blah ... so if Android is a linux with a new user interface, it should allow all the linux applications to run ... have you tried it ? moreover almost all the linux runs on Intel platforms ... Android runs on a watered down 'god-knows-what' platform and less said about Apple iPhone (or iOS), the better. but android is NOT linux, it is inspired from it the way some Shakespeare plays inspired some hollywood movies.
> "Linux itself is based on Berkeley Unix which itself was combined with Santa Cruz Organization's Xenix - developed by Gordon Letwin at Microsoft."
Linux was based on Unix, but certainly not Xenix. and Microsoft played no role in development of Linux either directly or indirectly.
> "Microsoft's that is the most modern and has the most future potential. Neither Apple nor Google have the technical ability to compete"
I agree that Microsoft may well trump all the others but to say that Apple and Google have no technical capability ... well ... let me not say anything.
No Mist wrote:
Feb 12th 2011 11:34 GMT
@Major
maybe before writing anything, you should spend 10 minutes on Wikipedia
linuxs wrote:
Feb 12th 2011 2:52 GMT
@Major
From a business perspective, OSs are becoming commodities. That is why smart executives from companies like Apple and Google did not spend money & time in developing their own OSs. On the other hand, there are companies like Microsoft and (now defunct) Sun Microsystems that put all their eggs in one basket (OS basket that is). Chinese and Russian governments decided to develop their own OSs (based on Linux) and to move away from Windows.
ENAsBetter wrote:
Feb 12th 2011 7:43 GMT
Good Analysis. It seems TE is performing well as long as they A) don't write about banking and B) don't write about the comparative qualities of anglosaxon and other governments.
Nokia can indeed reinvent itself and innovation might come not from WinPhone 7 or the S60/Symbian platform. Nokia's "secret" S40 platform is hugely successful in the feature phone business (example: 6300 feature phone). For technical (security) reasons, one can only program the S40 using a limited and defective technology called J2ME. J2ME applications are slow and look ugly, despite the S40 platform having some nice and quick Nokia applications "built-in".
A crisis forces many people to excel, and Nokia could "bear out of desperation" an S40 platform with a proper Application Programming Interface (API). Modern programming languages like Cyclone, Modula-3 or Sappeur do not require a "full" operating system like Unix or Windows, as they either run correctly or stop running gracefully. Actually, these programming languages do away with the need to have a power-hungry Memory Management Unit and Task Switching from program to Operating System.
Here is a presentation on the Sappeur programming language I developed:
http://www.sappeur.eu/SAPPEUR.pdf
(The focus of this presentation is not on "remove the traditional operating system", but subject experts will certainly see it is indeed possible)
Other posters who claim Europe does not innovate apparently do not know much about this continent. For starters
+ Europe leads in ERP Software (SAP)
+ ARM Ltd. dominates phone microprocessors and slowly encroaches on Intel's territory
+ Dassault Systemes dominates mechanical design software (CAD)
+ The L4 operating system from the University of Dresden is one of the few to be completely mathematicall verified for correctness, not a small feat to those "in the know".
+ the most-used cryptologic software tool, GPG, has been initially developed by the German ministry of the economy.
+ Linus Torvalds was born Finnish/Swedish and created the initial Linux version in Sweden. Linux now dominates the datacenter and is the basis of Google's Android Operating System.
+ All the tool machines, space lauchers, large aircraft, fighter jets, main battle tanks and ballistic missiles we develop and build here on the continent are controlled by software we developed ourselves. Mostly with great success, small abberations nonwithstanding. France is leading in proving correctness of these systems mathematically.
+ The Qt toolkit, which leads its segment, was developed in Norway.
+ MySQL, which is the leading open-source database has been developed in Finland.
+ Ubuntu (the leading Linux version) maker Canonical is heaquarterd in London.
+ TeamViewer is a small company in Swabia, but they lead the "collaboration" sector with their sleek and efficient product.
If Nokia went belly-up this would provide a carcass from which hundreds of nice flowers would bloom. Think of hundreds of new Trolltechs, MySQL ABs or TeamViewers. No need to look to America for inspiration - we stand on our own feet very solidly.
notthefly wrote:
Feb 13th 2011 12:52 GMT
Sounds like a a devastating move for Nokia. (See also share price, investors also do not think it is a good move, stocks down) Microsoft (MS) and Nokia are old time mobile OS rivals. MS has not had any success in the mobile biz. Now Nokia adopts MS via an old MS faithful at the helm.
MY PROGNOSIS: Customers do not like it, no real success, lot's of time lost in this 'innovation'. Nokia will be reduced to third or fourth rate market player and the US/ASIA will step in to dominate the market.
Again a very valuable company un terms of spirit and R&D lost for the EU. How stupid can one be? Great move by MS, and perfectly playing into the hands of all Nokia competitors.
mobilytee.blogspot.com wrote:
Feb 13th 2011 1:43 GMT
So yes, Nokia is jumping from a blazing platform. But in going to Windows Phone 7, its jumping to another blazing platform.
Great for Microsoft. A complete strategic cop-out by Nokia.
The hard truth is, Nokia has been complacent. Its product development engineers are in nice plush Scandinavian offices in the Finnish suburb of Espoo, while most of the mobile internet action is happening in Seoul, Tokyo, Shanghai, and Silicon Valley (and Taipei, if you include mobile phone hardware manufacturers). It's no wonder then that Nokia's engineers are behind the curve, because the curve is elsewhere.
A more strategic response would be first to figure out first, what is Nokia's true capability? Then, is there value be earned from this capability?
I would say that Nokia's true capability was once user-interface design for mobile phones and its integration with stylish hardware. Unfortunately, when internet came to the mobile phone, Nokia failed to leverage this strength to come up with a great user interface for the new world of mobile internet, including downloading/accessing all the digital content that came with it.
But beyond just mobile phone operating systems, Nokia forgot the lesson of ubiquity taught to us by Windows in the personal computer world. The world does not need series 30, 40, 60, Symbian. The world needs just one ubiquitous operating system, so that developers can produce one version of anything, and that would be sufficient.
Instead, developers had to develop at least 20-30 different versions of the same app, about 6-10 for Nokia alone for all its series versions, and then the likes of Samsung, Sony Ericsson, Motorial, Windows Mobile, Blackberry, Treo (circa 2005).
Is there still value in Nokis's ex-capability of great user interfaces combimed with great looking phones? Is there value in ubiquity?
Easy one this. Just ask Apple and Google/Samsun.g
And what's Nokia's strategic response? Well, we have the answer today. Delegate this capability to a company that does not have a good track record in mobile user interfaces. Sure, Microsoft has developed ubiquity in personal computers, but it never figured out how to create the best user interface for mobile, and hence, it could not even begin to replicate the Windows ubiquity in personal computers for the mobile sphere.
So yes, Nokia is jumping from a blazing platform. But to another blazing platform.
What's the alternative strategic response? Here's a suggestion.
Tread water with Android. Do what Samsung does. Licence the mobile OS from Google (it's free, if you're willing to accede mobile search apps and revenues to them). For now, get your engineers, who already have hardware and Symbian software expertise, to familarise themselves with Android's software and apps ecosystem.
But do not stop there. Avoid becoming just another Taiwanese-like hardware company and learn how to improve on Android. Learn the mobile browser thing, learn the screen swiping thing. learn the third party application ecosystem. And show them how to integrate it with hardware design.
One result maybe that you can come up with the best Android phone on the market, with Android features tightly integrated with your hardware design. So that you can brag, like those brazen Oracle server ads that you see on the back page of Tne Economist, "Your Android works 5 times better with Nokia phones than Samsung phones".
Another result might be that you learn enough about how to cope with mobile internet and the new apps ecosystem, that you come up with your own category-killing mobile operating system.
But tread water with the number 2 mobile operating system, not number 5.
Your engineers will be more excited to be working on Android, and maybe, just maybe, you might rekindle their passion for you.
kwpreston wrote:
Feb 13th 2011 3:52 GMT
The more I think about the Nokia- Microsoft deal the more it smells of a maneuver by MS to implant their guy into Nokia who then turns the company over to MS. The agreement seems highly profitable for MS but highly risky for Nokia. Olap has a lot of MS stock and apparently no stock in Nokia, so one wonders where his loyalties lie and if he is more interested in serving the interests of MS or Nokia. In this agreement MS is getting the world s largest phone maker to exclusively sell its Windows OS. There is a large potential upside and almost no downside for MS. If it does not work out and Nokia crashes and burns then, they can find another hardware manufacturer to work with. No skin of their back.
For Nokia however, despite the potential to do well with Windows, there is also a lot of risk in this agreement. Yes maybe Nokia will form a beautiful relationship with MS and their business will flourish once again on the back of Windows Mobile. Or, maybe they will run into a lot of problems. I foresee difficulties in sales this year because, who will be motivated to buy a Nokia smartphone with Symbian which has no future? And yes Nokia will gain new customers with their MS alliance, but they will also alienate a lot of existing customers who will find their beloved Nokia turned into a vassal of the hated monopolistic American closed source MS, and they will buy Andriod phones instead. Olap s comments about Nokia s business burning up is also not reassuring. Another problem is that Nokia is burning all of its bridges and giving up its independence by betting everything on Windows Mobile, which so far has failed to make much market penetration. What if Windows Mobile does not prosper with Nokia? What is the
fall back plan? It sounds like Nokia is giving up most of its intellectual property in software and turning itself into a subdivision of MS concentrating on hardware. I believe that hardware is a commodity and the Asians are very agressive now so the future of Nokia in that areas may not be bright.
I think that it would have been better first to concentrate on how Nokia s management lost its edge and how Nokia became a complacent slow unfocused company with difficulty executing. A lot of leaders believe that companies need to completely change their business model, when often the solution is simply for the company to go back to doing whatever it was that it did in the first place to be successful. Nokia was once innovative, nimble and slick. It needs to get that back. If it could get its act together, it would not need MS. Or Nokia could still make Windows phones, but not exclusively. They should not turn over their intellectual capital in software to MS. That way they could get the potential of using Windows without having to mortgage themselves to MS and betting everything on Windows Mobile.
The whole deal seems odd because Olap agreed to something that will highly benefit MS, but is very very risky for Nokia and risks ending the company as we know it. Can t wait for my new Microkia/Mokia? phone
atgupta wrote:
Feb 14th 2011 1:31 GMT
Any business change is not simple , not blissful always...... it takes time for dust to settle.
It only depends on consumers and customers how well they receive WN7-Nokia phones , given the track record of microsoft & nokia it seems this phone will be hit
and enriched user experience in terms of performance,scalability,context driven and a feeling to own one.
Time is money, so now its how soon WN7-nokia phone can be debuted into global market can answer the million questions which now arise into human brain....
Distinguishing feature will also be how much WN7-Nokia phone cost ?