Reposted from a series on smart phone market disruptions on www.innovationpov.com
The smart phone market has changed substantially over the years, with a new leader crowned just about every three to four years ─ Microsoft, Nokia, RIM, and now Apple and Samsung trade places every few quarters. Between 2010 and 2001 Samsung’s smart phone market share grew from 8% to 20% (source: Strategy Analytics), while Apple gained only three points from 16% to 19%. During the same time, Nokia lost its leadership position dropping from 33% to 16%.
Ipsos InnoQuest has set out to identify the possible disruptions that could put the category leaders’ positions in jeopardy over the next two years, or at least impact their share. As pointed out in one of our posts from late 2011, it’s not just an iOS and Android world.
In a series of three posts we’ll identify three potential disruptions that could impact Samsung and Apple’s leadership positions in smart phones.
Nokia: Off the Ropes, Can It Survive Round 1?
Nokia has had a very difficult time over the past four years; especially the last two. Like an aging fighter in the ring, it took a series of hard body blows and uppercuts from competitors like Apple and Google since 2009, and has been on the ropes:
- Loss of its global leadership position in mobile phones to Samsung due to a lack of design innovation and its aging Symbian OS.
- Several reorganizations, the largest of which separated the corporate smart phone, consumer smart phone, regular mobile phone and services businesses, resulting in internal competition and lack of knowledge sharing, that ultimately slowed down Nokia’s R&D efforts.
- A $1.5 billion loss in 2011 and continued quarterly losses in 2012, and significant global workforce reductions in 2012.
- A stock that has lost more than 50% of its value.
- A decade long struggle in the U.S. mobile phone as market share fell to near zero. This was primarily fueled by Nokia’s unwillingness to change its products and applications for mobile operators that heavily influence every device that went to market in the US for many, many years.
- A change of leadership, with the first non-Finnish native to lead Finland’s largest company, in Stephen Elop
Elop was brought in to salvage the company and plot a new strategy, as the brand had been in decline for several years regarding innovation and market perception, though share declines rapidly accelerated once he arrived. Nokia has historically made great designs and devices and was super efficient at manufacturing. However, it grossly underestimated the competitive threat from Apple and Google, failed to bring innovative features, applications, and service to market, and got tangled in its own culture of stubbornness and feelings of invincibility.
Nokia’s Tipping Point
Nokia’s existing mobile phone business could not compensate for its continued failures in smart phones, especially as the latter was rapidly climbing towards 50% of the U.S. and European markets. Clinging to European-centric designs, an aging Symbian OS, and a Swiss army knife design approach, Nokia couldn’t hold its share. Consumers wanted simplicity and ease of use, which Apple so eloquently delivered.
Over the last seven years Nokia’s gone through several reorganizations. It’s most critical was when it separated itself into an enterprise device group (E Series), a multimedia group for consumer smart phones (N Series), a mobile phone group (for basic phones), and a developer and service-oriented group (including Forum Nokia). It was the outcome of this reorganization that sealed its fate, resulted in a leadership change and a new direction.
Instead of the BUs acting together to exploit new R&D advancements in device capabilities, services, applications, and designs the BUs competed against each other. They were so close, yet so far.
The U.S. market always remained elusive. Nokia built up a reputation among U.S. operators as being incredibly stubborn and a bad negotiator, in a market where operators exercised great control. It’s unwillingness to change its products and applications for many years while going through Verizon Wireless and AT&T qualifications hurt its U.S. presence. To this day, the U.S. still remains elusive to Nokia.
Embracing Windows Phone
While pundits have been hard on Nokia, expecting its total demise, that hasn’t happened yet. Nokia, through Elop, is now joined at the hip with Microsoft, in a last gasp effort to survive. That survival squarely sits on the shoulders of Windows 8’s success and Nokia’s Lumia line.
On Elop’s watch, Nokia has jettisoned its outdated and confusing strategy of Series 40, 60, and 80 versions of Symbian, its MeeGo efforts with Intel on tablets, and has placed it all in the hands of Windows Phone. But Nokia didn’t have a choice; it was either Windows Phone or Android. And the latter increasingly became a very difficult platform with which to differentiate on. Nokia also had to move to a new platform if it had any chance of improving its relationship with U.S. operators, who have increasingly wanted a third alternative to Apple and Google, as BlackBerry continued to fall from grace.
Nokia’s first Windows Phone-based devices received moderate reviews, but shipped just over 2 million units in their first six months. Its new Lumia 920 and 820 Windows 8-based smart phones were announced this week with operator deals expected to follow. Equity analysts at Credit Suisse expect that Nokia will receive a share in the low teens in 2013 as more models debut, sporting Windows 8.
A Strong Footing, If W8 Takes Off
The Microsoft-Nokia relationship is complex – a five-year contract pledging marketing commitments and billions in cash to Nokia to convert its smartphones to Windows Phone. While Lumias with Windows Phone 7.5 brought a new look and feel for the brand, Microsoft’s Windows 8 efforts expand on those styles and functions in a synergistic relationship. However, W8 must capture public attention and increase adoption fast for some of the pressure to come off Nokia. With W8 Nokia also has a legitimate entry into tablets, after failing in the past in this area.
Windows 8 is clearly now a bigger dynamic, as the one OS to unite them all ─ PCs, tablets, smart phones and hybrid devices, making it much easier for developers to write apps across all the platforms. Mobile operators still want a strong third choice to iPhone and Android, as BlackBerry has weakened significantly. Consumers haven’t noticed any of the platform dynamics, so the door remains open for Microsoft and Nokia with Lumia-based W8 devices.
Right now, Microsoft’s Windows Phone group is influencing most of the development work within Nokia. The success of W8 on smart phones will be critical for Nokia. W8 is also supporting NFC technology for mobile payments, essentially a mobile wallet to compete with Apple and Google. Microsoft is partnering with Isis, its backend provider with consumer trials this summer. Nokia has always been a leader in mobile payment solutions in Europe. With W8 expected to launch from major smartphone brands such as Samsung, HT, and Huawei across 180 countries, Nokia is expected to ride the W8 and mobile wallet waves. Nokia could emerge as a strong brand if W8 takes off. But that’s a big “if” and the pressure is on at Microsoft to make that happen.
Looking at Apple, Google, and Amazon, it is clear that their success in many ways is tied to their abilities to make content more accessible to consumers. Not only must Windows 8 be successful for both Microsoft and Nokia after launch, but both brands must also deliver an environment for easy content consumption of the content that Microsoft customers have come to expect, e.g. games, search, productivity apps, etc. in order to go up against the three other platform titans who have emerged over the last five years.
– Randy Giusto and Supriya Chabria
FACTS, STATS, AND INSIGHTS TO TWEET
- Nokia off the ropes- can it survive round 1? >> Tweet <<
- Nokia has historically made great designs and devices and was super efficient at mfg >> Tweet <<
- While pundits have been hard on Nokia, expecting its total demise, that hasn’t happened yet >> Tweet <<
- Survival squarely sits on the shoulders of W8’s success and Nokia’s Lumia line >> Tweet <<
- Nokia didn’t have much of a choice, it was either Windows Phone or Android >> Tweet <<
- Nokia had to move to a new platform to improving its relationship with U.S. operators >> Tweet <<
- Nokia’s 1st Windows Phones shipped just over 2M units in 1st 6 mos >> Tweet <<
- W8 must capture public attention, increase adoption fast for pressure to come off Nokia >> Tweet <<
- With Windows 8 Nokia now has a legitimate entry into tablets >> Tweet <<
- Windows 8 is a bigger dynamic- one OS to unite them all- PCs, tablets, smart phones, hybrids >> Tweet <<
- Mobile operators still want a strong third choice to iPhone and Android >> Tweet <<
- The door remains open for Microsoft and Nokia with Lumia-based W8 devices >> Tweet <<
- Right now, Microsoft’s Windows Phone group is influencing most of the dev work within Nokia >> Tweet <<