The Burning Platform- Why Windows Phone 7 Makes Sense for Nokia

This appears to be the week of reckoning for Nokia. It’s Nokia’s Capital Markets Day in London on Friday. Next week is Mobile World Congress in Barcelona. Stephen Elop is now in charge. Nokia’s market share is in a free fall. Apple has eaten its lunch at the high end. BlackBerry has eaten its breakfast in enterprise, and the Android gang are eating its dinner in emerging markets while cheap Chinese brands are grabbing every snack in-between.

There has been so much speculation these last few weeks that Elop may take Nokia to another platform for smartphones- Android or Windows Phone 7. Abandon Symbian, which had a leadership position for years in smartphones, but at a time when people didn’t know what a smartphone was. Finnish pride has locked Nokia into a death embrace with an unscalable OS platform. One that would never find traction in the US. Symbian started to slow down as soon as Apple jumped out of the gate, followed a few years later by Android.

For years Nokia has never taken the advice of the industry analyst community. I’ve been to Espoo many, many times, and attended its Capital Markets Days but the hard questions were never answered. Or they were answered with more PowerPoints. There are a lot of great people still at Nokia, but things have to change, and they have to change fast. I’ve both seen and been through big company-changing cultural and platform shifts before. It’s a really crazy time. But it’s also an opportunity.

MeeGo, the venture with Intel will be a good platform for a whole host of devices and consumer electronics products. But it’s not ready yet to rescue Nokia. Nokia needs to put down the Symbian pipe and face reality. And the investment community as well.

It’s been widely reported today that Stephen Elop put out a memo internally on how Nokia must “burn the platform.” It’s been reported by TechCrunch Europe, TheStandard.com, Engadget and a host of other sites.

So Will Nokia Embrace Android or Windows Phone 7?

My bets are on Windows Phone 7. Why?

Nokia has worked close to the Microsoft development and application community for years. It’s spent a lot of time and resources on Exchange integration. It worked close on Microsoft app integration and access. It spent years trying to penetrate the enterprise where it found it easier to work with Microsoft than say RIM with BlackBerry. Elop is from Microsoft, ran the Office group among others, so it’s a natural fit based on the history working with Redmond outside of the physical hardware. Having Elop makes it easier. At Mobile Monday Boston last week there were several side discussions, among key Boston-area figures that this was all finally beginning to roll out internally and externally.

Nokia on Android Would Just Be Another Brand Lost in the Crowd

Yes, there are big brands supporting Android, but just about every conceivable Shenzen smokestack is churning out Androids as well. Nokia for the past three years has been trying to be Google. It launched marketplaces. It launched Ovi Store. And like Apple it even tried music. That’s another reason why I don’t think Nokia will embrace Android.

Nokia can’t flush Ovi, but yet Ovi is not profitable. The company has been seeking an executive-level person to turn Ovi profitable for over a year now. From Boston, London, or California. Nokia combined with Microsoft could pose a more formidable competitor to Google. Unite the two apps stores. Build off the enterprise experience. Combine internal developer resource teams.

It’s time for two enemies to become frenemies, or even kissing cousins.

The Migration

In the US over the past two years, Nokia has been moving groups of people west. From Burlington and White Plains to Silicon Valley and LA. To get closer to the center of technology. To get closer to the center of content. I’ve seen several people in key multimedia, design, and application development positions pack their bags and leave Boston since the summer of 2009. Since then Nokia has been steadily growing a base on the other coast. It originally moved its US corporate headquarters to White Plains (after vacating Texas) to be closer to the corporate headquarters and enterprise accounts in the New York metropolitan area. But Nokia hasn’t penetrated the US corporate market like it had planned.

It’s brand is in trouble. On January 18th I was on a call with David Martin, president of Interbrand, where he was previewing their latest “Best Global Brands” report. David stated that Nokia “will be out of the top 10 by the end of 2011.” He went on to say that Nokia’s “personality had been neutered.” Those were really harsh words coming from one of the most respected and most quoted brand measurement companies.

Outcome?

Friday should bring some answers. More answers and plans will be revealed in Barcelona next week at Mobile World Congress. But Nokia needs to turn the page, fast, and say goodbye to an OS platform that no longer holds value in the consumer’s or the business person’s eye.

MeeGo is too far away. Symbian can’t stretch them another year. And Balmer is giving the keynote in Barcelona. It’s Microsoft or nothing.

- Randy Giusto

@randygiusto

#newdigitalcafe

The Nokia and Microsoft video annoucing the agreement:

What follows is the reported Elop memo made today, reported on several websites.

—————

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform’s edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a “burning platform,” and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times – his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a “burning platform” caused a radical change in his behaviour.

We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.

Over the past few months, I’ve shared with you what I’ve heard from our shareholders, operators, developers, suppliers and from you. Today, I’m going to share what I’ve learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.

Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don’t have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.

On Tuesday, Standard & Poor’s informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody’s took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It’s also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally.

Nokia, our platform is burning.

We are working on a path forward — a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Stephen.