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Why OPK was fired

Under Kallasvuo Nokia embarked on the most dramatic shift in its business since entering the mobile phone business in the early 90s.

The shift was not into mobile software which began in 2001 under his predecessor. It was not into enterprise solutions which also preceded his tenure. OPK’s main contribution was the move into mobile services.

The concept of mobile services may be an unfamiliar one for casual observers because it has not become a visible business for operators and certainly not for handset vendors. It’s also a complicated business model that requires some deeper understanding of the way the telecom industry is structured.

What Nokia had in mind was to offer various value-added, billable services to operators which would be enabled by Nokia handsets. The types of services included music subscriptions (Comes With Music), email (several acquisitions), photo sharing, and navigation.

The idea was that since many operators would not be capable of rolling out own brand services and could not do the heavy back-end lifting or the integration with handsets, someone could step in and roll out white labeled solutions world-wide. Third parties would also find it impossible to integrate and would lack the relationships Nokia had with operators world-wide.

For example, Nokia could enable a South American operator to offer email services to all their customers (with or without smartphones) and that service could be offered at a certain incremental price over the basic voice plan. The client implementation could be device independent but Nokia devices would probably work better. This would lead to higher ARPU which could be shared with Nokia.

Anyone can see that this is a complicated business plan and is therefore unlikely to be successful. But what makes it a complete failure is the realization that most buyers will resist the idea of paying for individual services separately. $1/mo for email, $2/mo for music, $3/mo for maps, etc. is repulsive. Users stampeded instead to unlimited data plans and smartphones which offered all these services and hundreds more for free or at prices negotiated with third party providers, rather than the untrusted network operators.

And therein lies the entire cause of Nokia’s strategic failure: an operator centric point of view. It led to poisoned devices and irrational business plans.

Which leads to the question in the headline. Is this mistake recognized and is it big enough to cause such a disruptive CEO dismissal?

I argue yes. Strategic errors are forgivable, but the they become a capital offense when they turn into a derailment of the core business. Instead of being enhanced with value-added services, the core business collapsed under the disruptive attack of unlimited data.

But it gets worse. Like the capital offense that Robbie Bach was guilty of at Microsoft, there has to be some direct accountability. To add insult to injury, OPK single-handedly pushed through the biggest and stupidest acquisition in Nokia’s history. To support this flawed vision of mobile services OPK bought Navteq for $8.1 billion in October 2007.

Intended as a service that could be rolled out on all phones and monetized through operator billing, Nokia maps is a free service that will never return anything to shareholders.

Missing where the puck was going is one thing but burning precious capital is another. This, in my humble opinion, is why OPK was fired.

Speaking of pucks, here’s hoping fresh Canadian eyes will see where it’s going.

  • Vertti

    The new CEO is from Microsoft so it already went wrong ;)

    • http://www.asymco.com asymco

      Only since 2008. There is hope yet.

      • Vertti

        Nope :( Before that there is Macromedia and Adobe.
        All companies that have really bad karma ;)

  • poru

    The words "horse, barn, gate" come to mind.

    I've had a few Nokia phones and without exception they have been dreadful to use. (One of them had a nice form factor in the pre-smartphone era, I'll confess.)

    What are the actual options in terms of Nokia's OS?

    1) Continue as is on the sinking ship
    2) Use Android and join the rest of the queue and chaos
    3) Buy RIM (but that's what MS is going to do)
    4) Come up with their own new OS — presumably hopeless and thankless task

    Can someone more expert than I correct me here?

    Why do some people assume companies will just survive? Remember WordPerfect, or Lotus? (I'm old enough to remember Wang, sigh…)

    So long Nokia, it was fun while it lasted. You lost me with that crappy greyscale display and incomprehensible menus on that emergency replacement phone that time in Singapore.

    • Yuvamani

      you forget the other gorilla in the room.

      Nokia was fine (inspite of being a ship in the wrong direction) till the iPhone came along. Soon touch became IT. Android got on the train quickly enough burning the non touch os. (I dont know if anyone ever shipped a non touch android phone), But even Sammy and RIM delivered something with a touchscreen.

      Nokias inability to get a decent touchscreen os out means that it only plays in the dumbphone game. Consumers do not consider the E-Series anymore than a glorified feature phone – Apps or no Apps.

      Also Nokia missed the palm acquisition. Palm had enough problems, but atleast they had a product AND a decent touch OS.
      Now Nokia is screwed, It is too late into the Android/WindowsPhone game. Their OS – meego, symbian ^5 or whatever is so last gen its funny. Without software they are relegated to extracting whatever is left from the Series40/Series 60 markets.

      Farewell OPK. I do not know if your succesor can do any better …

      • Eric

        Lol.

        Android users:
        - Motorola is still pretty much dead, no services whatsoever. Only sells hardware. No future because ZTE, Huawei and all other asian companies will kill them.
        - HTC wouldn't exist without Android, once again: no services whatsoever. Only sells hardware. Is from Asia, still: might get killed by better/more efficient hardware manufacturers like ZTE.
        - SE is still pretty much dead. No services. No future unless manages to pull something sensible from relationship with Sony.
        - Samsung, without Android would still have about 0% market share when it comes to smartphones. No services. Already trying to get partly rid of Android with Bada. Perhaps too late? Sheer size will keep them on the game, at least with feature phones. Although this year has been successful in smart phones as well.

        Palm is still dead. It hasn't been alive outside US for ten years. HP just doesn't have what it takes to do any difference on mobiles. And frankly it was a stupid move to buy Palm. Web OS is okayish but Palm has nothing to offer for the world. Small player who could invent cure for AIDS and no one would give a damn because they're Palm. And HP is just as blend, it just exists.

        RIM, still doing okay but feeling the pressure by Nokia, Apple, Androids. Not going to do okay in the future. Might be in trouble already (Q3? Q4?).

        Apple does their own thing. Problem is that they are becoming niche player in the smart phone sector. Past three quarters their market share has been falling.

        Nokia, too big to go anywhere. Might be a little too slow to react but still not going anywhere. Only player besides Apple that actually has services (and RIM email). With MeeGo and Symbian^3 they will get more users to their services. Manufactures 13 phones per second, sells 13 phones per second. Has been growing their smart phone market share past 4 quarters.

        And there's nothing from with Nokia's platforms. Symbian is atm. using old UI but OS itself is probably best out of all candidates. What Nokia needs is developers and with Qt capable devices it will get developers.
        And MeeGo, well, MeeGo will probably kill anything that comes in the way. Intel & Nokia are so strong duo together that no one can fight against.
        Pretty much the whole automotive industry is backing MeeGo. Android was designed for smartphones and the fact that it is not traditional Linux stack is so hindering that it simply cannot compete with MeeGo when it comes to Tablets and other forms of devices. Atm. it may look sexy yes, but the change is already coming.

        And a little secret: Motorola and SE are already working on MeeGo products.

      • Niilo

        I was with you until you started bigging up Nokia

        SEMC and MOT doing MeeGo? ROTFL (as you might put it)

      • EricE

        "Apple does their own thing. Problem is that they are becoming niche player in the smart phone sector. Past three quarters their market share has been falling."

        I bet every other manufacturer you reference would love to have Apple's "problems". They probably won't maintain the largest market share – that was never their goal.

        Making the most profit by providing the best overall user experience was their goal. And just like with the iPod, they are executing brilliantly.

        Just like the "massive market share" of netbooks ended up counting for little in the face of the iPad, all the two for one specials and heavily subsidized $99 deals in the world won't equal follow on profits if people don't use the smart phones as smart phones but instead acquired them because there was no reason to not do so.

        I've yet to see another manufacturer or app store matching Apple's profits, and I don't expect to any time soon.

        If I'm a shareholder I want companies that make money, not large but negligibly profitable sales numbers.

        Companies like Microsoft, HP and Google might be able to subsidize their screwing around in the Mobile space with revenues from their other business, but for how long? None of them show anything but reactionary responses – so far no one is moving into any new territory in advanced of the iOS – they are scrambling to catch up or keep pace with Apple. Until that changes Apple has little to be really concerned about. Not that I'm implying Apple has their heads in the clouds. They obviously are paying attention to what others are doing. But I do give them credit for not reacting to each and every development out there – they ignore the vast majority of "advancements" and often for good reason – because they aren't "advancements" at all. Apple is so far ahead of their competitors, even with Schmidt obviously able to get a heads up on the iPhone with his being on the board (I agree with another commenter on another site calling it Jobs' biggest screw up ever) Google still hasn't caught up.

    • Stu

      Why can't Nokia take the Gilette route? Just sell lots and lots of cheap razorblades (basic phones).

      If they try not to look stupid until they have a good software platform for smartphones, they could survive just fine as a company. If they try to compete based on what they have now, it might kill the company.

      • Jonas R

        The reason Nokia cannot go the Gilette route is that the margins on low level feature phones is almost non-existent. Considering that Nokia has one of the largest R&D departments in the mobile industry, would mean that serious cut-backs would be needed in order to go in that direction.

      • http://www.asymco.com asymco

        Not to mention that most people will upgrade from basic phones to smart phones in the near future. The only value to being in the low end is if you can get people to upgrade to your platform for the long run. This was in fact the plan all along with Nokia's low end strategy.

        [WORDPRESS HASHCASH] The poster sent us '0 which is not a hashcash value.

      • Niilo

        Not sure how your point fits with the general idea of the razors and blades business model.

        Gillette sells lots of inexpensive handles with a couple of blades, but then makes their money on selling you expensive packs of replacement blades. Nespresso does the same thing with their affordable espresso machine but expensive little pods. Sony and Microsoft dont make much money on games consoles, but they make the model work by extracting royalties on the games themselves.

        I dont think that the razors and blades model makes sense yet in wireless, Not enough money in the blades. But it might in the future if app and service revenues and margins increase enough.

        But you might say that the problem with S40 phones (over 80% of Nokias volumes) is that they are essentially disposable razors.

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  • Xavier

    About Navteq. Funny, provider of maps to BWM OEM Nav products stateside.

    Until 2009, that is. BMW switched to Tele Atlas, for both new cars and cars going back all the way to 1997.

    And the switch was good, because I was able to buy an updated Tele Atlas disc for my VW which ^*#$*! Navteq never issued after 2005.

  • Andy Merrett

    "It lead to poisoned devices"

    Haha, great typo.

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  • desreveR

    Putting all of Nokia's mistakes in choice of strategy on OPK is wrong. Generally, the overall strategy is done with the explicit blessing of the Board. It is the job of the CEO to to implement the strategy, and if we are going to call OPK a failure, this is where it should be.

    I'd also like to see a shred of evidence that OPK "single-handedly pushed through the biggest and stupidest acquisition in Nokia’s history". I strongly doubt the board was against the deal and just let OPK push it through.

    • yowsers

      The CEO implements — yes — but he is far more the originator of the strategy.

      Board members who are not also working executives for the company are well paid, coddled part timers (they may be very busy in other industries, but part timers to the company whose board they sit on). They do add value, but they're not the front-line strategists or tacticians.

      The board appoints a CEO and can be decisive at times (e.g., Mark Hurd), but more often than not, the CEO appoints the board. There has been limited moves to correct this (allocating independent seats, for example), but hasn't lead to active and independent board management imho.

      From what I've seen, when a CEO comes in and is given the reins, they have to back him and his strategy (or else why was he/she hired?) And the CEO will absolutely set the agenda and build a case for major acquisitions. Should the board nix a major acquisition proposed by the CEO, it would be fatal to the CEO's continued existence at the company.

      I think it's fair to lay the blame at the CEO's feet. He certainly would accept the credit (and the bonuses, the options, the perks, and the public accolades) if it had all worked out.

      • Niilo

        I dont think it is true that the CEO appoints the board.What we saw this week was OPK getting fired by Jorma Olilla. But I agree with the rest of the post.

        Given that they've been discussing since at leat May, then I think that the broad strokes of the strategy will now be understood between Elop and the board. He'll have a mandate to go and execute on that, but he'll still have to bring his detailed plan to the board for approval. If he decides to change tack, then he'll have to sell that to the board too.

        I've been thinking a lot in the last day or so about how hands on the chairman is in this company. Must've been tough for OPK to have Jorma hanging around.

  • AA

    Good analysis, as usual.

    The irony is that Nokia had (mostly) right answers and intentions — going into mobile services, targeting consumers in emerging markets with more capable devices, and all that — but hubris combined with too much kool aid led them to intensely slow action.

    * Mobile services — great idea, but poor understanding of consumer pain points; consumers aren't willing to pay $1, $2, $3/mo for services they can get for free elsewhere.
    * Solutions for the Operators, not consumers. Loss of focus from their core "connecting people" principle
    * Relying on their market dominance (aka hubris, in other words) to believe that other players in the ecosystem will buy into their vision
    * Spending the cash arsenal wildly: Navteq was just one piece. Others include shuttered services (e.g Mosh), NGage (2003 and later)
    * Multiplatform strategy (Symbian / S40/ S60 / Maemo / Meego / etc)
    * and many more

    The key question is will simply a top leadership change make a difference? In the short/mid term ( 2 years)?

    This will make a great business school case study some day. ;-)

    • Niilo

      Agree.

      Nokia needed to get into services and realised that very early on.

      However, execution has been so poor that they are not really any further on than they were in 2005.

      I dont know why. An absolute ton of smart people working at Nokia. No shortage of talent.

      I am not sure if I agree on the operator-centric strategy as being the root cause of the decline. I more put it down to Symbian being flawed idea that has prevented Nokia from improving the UX as quickly as they needed to.

      Also that although they realised they needed different kinds of skills for the Software & Services/Ovi push, they actually put Nokia Mobile Phones veterans in charge of designing and building the whole thing.

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  • Rob Scott

    I think the analysis is spot on.

    For them to get back into the game I think they should switch completely to Windows Phone 7. Nokia still has great relationship with carriers and they price aggressively. I think they can do real damage if they were to partner with Microsoft.

    A suggestion:

    Eric suggested that Apple has been losing share for three quarters in a row. I think he might be correct if he is referring to the American market, but I think he is wrong if he is talking about the entire smartphone market.
    My suggestion therefore is that when people refer to the American market they must say so.

    If I am wrong on both counts please provide the link supporting your assertions.

    • Niilo

      Wow. That windows idea is pretty radical!

      But Nokia is still shooting for having its own OS I think. Value is shifting into th SW in the long term, so they really feel they need to try for a position there.

      Licensing windows or even android will be their "hail mary" option, if they ever get into the kind of trouble SonyEricsson and Motorola got into.

  • berult

    Papermaster cost Apple dearly. Great innovative idea for a wrap around antenna that left Apple scrambling for a credible explanation to a problem …that simply came with the territory. Apple cannot afford to break new grounds, and to look dumb in the process. Jobs took it where it hurts the most: Apple's credibility that feeds mindshare and future prospects. Papermaster's ego got the better of him and his involvement into Apple's grand scheme of things. He went against Apple's creed and flow, and imperiled both in doing so. But as fate has it, Apple could bank on a ''letter of credit'' from past glories.

    Quite the opposite with Kallasvuo. He did his best in dealing with Nokia's traditional market with Nokia's traditional monopolistic outlook on it. But the market has mutated dramatically and no CEO, by definition, could have gone along smoothly for the ride. Conservatism is a mainstay of corporate success, revolutionary they are not. He panicked and went for the customer's throat instead of rocking Nokia's boat, and at a moment in time when decision making was of critical importance. Nokia's capacity to adapt to a newly unforgiving competitive environment was at stake back then, as it is now more than ever. 

    Apple has to innovate in an Apple way to have any chance of carry through success. Consequently, Papermaster had to go the… ''unApple'' way.

    Nokia needs serious soul searching before going forward with a plan. It should have been done on Kallasvuo's watch long ago. Solid first move to engage the future is to break the conformist mould of the past. Nokia still has a lot going for it, but is it the right stuff for what's surging on the mobile horizon? It is getting awful late…   

    What Google can do that no other, including Apple, can match is to dwarf their numerous mistakes and misdeeds to a gullible size in the blink of a Google black eye. It's called political gravitas, and it works. 
      

    • Vertti

      @berult

      Apple is a very strange company. They eat their own dog food… they "live and die" with it. There are no yes or no man nor a woman in the company. There are just thinking people. You have to have your own mind and tell what you think about everything and you have to look forward. You have to have the stamina for it, because 99,999% of your ideas will be eliminated.
      You have to have a steady focus ;)

      OPK and mostly the Jorma Ollila are no visionaries. The person who had the vision for the Nokia comitted suicide in 1988 (Kari Kairamo).

    • EricE

      "Papermaster cost Apple dearly. Great innovative idea for a wrap around antenna that left Apple scrambling for a credible explanation to a problem …that simply came with the territory. Apple cannot afford to break new grounds, and to look dumb in the process."

      Yup, that whole antenna thing (that's not clear that Papermaster had a hand in either way – just more Internet gossip and speculation) is hurting Apple so much that they can't make iPhone 4's fast enough.

      Still.

      Yup – that was a fatal blow indeed :p

    • EricE

      "What Google can do that no other, including Apple, can match is to dwarf their numerous mistakes and misdeeds to a gullible size in the blink of a Google black eye. It’s called political gravitas, and it works. "

      Ouch – was that English? If there is a thought in there it certainly got lost in translation. Can you restate?

  • Roman

    Well, I think they at least have a fighting chance as an incumbent due to scale, pre-existing relationships with carriers worldwide, and — to some extent — the brand (though it will certainly need to be refreshed to match the smartphone era).

    I mostly think of it as integrated solution (with which Apple is currently winning) vs. software/hardware divide (with which Android currently *seems* to be winning, but we all know it's not much of a win when there's no profit involved).

    If Google's Fragmandroid model fails (for any one of a multitude of reasons) then, theoretically, Nokia has the chance in the next several years to capture those remaining customers that choose not to buy iOS. To do that, they will need to do a lot of work, primarily on the software side. Certainly, the offering needs to be more compelling than RIM or Windows Mobile.

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  • http://twitter.com/tulioleal Túlio Leal

    Who would imagine that Nokia would replace Kallasvuo with a even worse CEO? Elop huge mistakes makes Kallasvuo’s ones look like amateurish…