Nokia a trop écouté les réseaux télécoms

My thanks to Robert van Apeldoorn, journalist for Trends Tendances Magazine, for asking good questions. My responses are reproduced below. The article (in French) is titled “Nokia a trop écouté les réseaux télécoms” and can be found in the June 23rd edition of the magazine along with more details in the article “Comment Nokia peut-il renaître?”.

-About your post “Does the phone market forgive failure”, that puts forward the idea that all mobile device vendors experiencing losses never really recover… It seems that this possible “rule” is more severe than in the computer industry. If Digital Equipement, Compaq, WordPerfect did fail, IBM and, yes, Apple, did survive failure and rebound strongly. Do you think that there is a difference between the industries? What makes the failures more lethal in the mobile device market ?

The observation is unique to the mobile phone market and even there it’s only an observation not a rule. It could be that Nokia will be the first mobile phone company that will recover from severe crisis, but history shows it to be very unlikely. I try to shed some light on the reasons why it’s unlikely and what makes the mobile phone market so unforgiving. I think much of the problem rests with the fact that mobile phones are sold indirectly, through intermediaries who are amplifying both success and failure. A company like Apple was able to recover in the computer industry because it launched new products like iPod which could be sold directly to consumers. It had to convince the consumer and only the consumer. Having to convince a distributor, retailer, value added reseller, operator and consumer would be much more difficult. These intermediaries are “institutional” buyers who are risk averse and have low tolerance for untested ideas. Institutional buyers need to think about dealing with other people’s money not just their own so they are doing the right thing from their point of view.

Nokia needs to persuade first operators, then distributors and then consumers that its new products are great (even though maybe the old ones were not so great.) That’s tough. Apple works in the other direction. It creates consumer demand then “sells” that demand to the intermediaries as needed.

These intermediaries (which Steve Jobs famously called “orifices” to the market) amplify the success and failure of a company. For a long time after a product may lose favor with consumers, it will still be sold out of momentum of the channel. But it works the other way as well. If you’re out of the channel, getting in is much harder even if the product may have favor with consumers. This is Microsoft’s problem with Windows Phone. Surveys show that it’s well liked by users, but because Microsoft relies on a long chain of intermediaries, it’s still very hard to get started. Microsoft (and Nokia) rely on momentum to carry them once they get some traction and they plan to spend a lot of money ($ billions) to ensure they get some traction.

-You are absolutely not optimistic at all about the Microsoft partnership (see “in memoriam” post). What could be the best solution? To enhance Symbian platform? Go for Android?  To create a new market with a new kind of device (cf book “How new ideas can win fast”)? Or to go back in the tire business 😉 ?

I only observe and record data and then try to have a theory of why it happens that way. The empirical data shows that Microsoft has been very unsuccessful with mobile. Their partners seem to all have failed and the list is long. So the question is why. Is it just bad luck? Is there something wrong with management? Is it that perhaps there is a failure in strategy or business architecture?  All these are possible hypotheses but I believe the problem is that Microsoft has chosen not to integrate products and to rely on intermediaries at a time when that strategy leads to uncompetitive products. One can understand why they went with this strategy: They believe the scale of the market is so large that they cannot address it like they did with Xbox (building their own complete solution). However, that also means that they are likely to be uncompetitive during the time when integrated products/ecosystems are still not good enough and can iterate more quickly to capture the market. This was true for the iPod where Microsoft tried to license technology to device makers. It was true during the time of Windows Mobile when Microsoft’s OS could not compete with either Blackberry or Symbian and it may still be true today with iPad which redefined what a computer could be.

-What and when, precisely, Nokia did fail to understand how to be remain the market leader and innovator?

I think the answer goes beyond the failures in execution or software development. Being late or sloppy with Symbian evolution is a symptom not a cause of the failure. What Nokia failed to understand is that software and data-oriented products would be built and sold and valued differently than voice-oriented products. Nokia listened very carefully to its best customers, the operators. Operators saw data as a sustaining improvement to their core business and steered Nokia into building “voice-plus” products. Every technology that came out of the laboratories was used to enhance the phone *as a terminal* in a network. Nokia never framed the product as a computer using the network as an accessory the way modern smartphones are valued (or if they did as with Maemo, it was a half-hearted effort). Users today are glued to apps and local media storage and see network access as a necessary inconvenience. The network is only valued in terms of being available.

The re-framing of the device from being a terminal to being the center of user’s focus is the “disruption” which is sweeping aside all the incumbents in the phone space. They all did what was expected of the best managers: they listened very closely to their best customers. That also leads to blindness when the industry itself is being ripped apart by disruptive forces.

-In many aspects, Nokia developed many innovations (email on the phone, music store, smartphone with applications, tv on the phone,..). I remember visiting a Nokia exhibition four or five years ago, in Nice, with a broad and incredible new services range that I almost never see on the Belgian market. Many of the innovations were related (dependant) to a deal with telcos, as network device vendor. Blackberry (RIM) or Apple were more successful. Is it because they had nothing to sell as network device vendors ?

This is answered by the previous answer as well. All of Nokia’s services were designed to help operators improve their business. Operators were the best customers and they ensured Nokia would sell large volumes. But consumers did not see it that way. When a competitor came with an alternative, consumers defected en masse. By then it was too late to change the strategy. It takes years. Nokia still perseveres with this operator-first strategy. Elop continues to say they will do what operators need first. The first thing he did when on the job was visit every major operator. The decision on Windows Phone was based on whether operators saw it as a viable third alternative to the iOS/Android duopoly. Strategy is a matter of priorities not capabilities.

-How is the Nokia strategic problem perceived in Finland ?

The problem is very deeply felt in Finnish society. Nokia was a source of pride for the country and also a large employer both directly and indirectly. I think the impact is felt more psychologically than financially. There was a sense of betrayal when Symbian was publicly “terminated”. Many people criticize present and past management, but I think that anger is misplaced. The failure of a company rarely comes from the failure of character or intelligence. It’s usually a failure of being too rational, too reliant on best practices. What Finns need is a dose of independence in thought and a re-assertion of their willingness to take risks.

The Finnish character is one of independence and perseverance in face of adversity. If Nokia loses its independence then it will need to deal with a lot more adversity. I believe however that innovation will continue. Case in point: Rovio, the maker of Angry Birds is a Finnish company.

  • bossjet

    While WP7 hasn't seem traction thus far, it could simply be that they didn't have a product that they knew that they could push. With Mango the finally have a product that is polished enough to compete with current front runners. I think that Microsoft is just getting started.

    • vangrieg

      I guess the question is whether it will ever get traction, given the distribution inertia.

      I would also add the problem of horrible naming – people (including salesmen) assume that the product with the same name will have similar characteristics (and problems).

      Overcoming distribution and consumer inertia is an epic task, and one may have legitimate concerns whether MS will be capable to pull it off, especially given their poor marketing and PR skills.

    • FalKirk

      It's not about the quality of the product. Whether the Droid was or was not comparable to the iPhone was mostly irrelevant. What mattered was that Verizon spent 100 million dollars promoting the Droid and every one of their store pushed the device. ("As good as an iPhone.")

      When you sell directly to consumers, quality (value) matters. When you sell to Intermediaries, and entirely different set of priorities comes into play. In the 80's, Apple couldn't get the salespeople in the computer stores to sell their products. Potential customers were actively steered AWAY from the Mac. The same thing is happening to Windows Phone 7 today. For WP7 to make it, Microsoft needs to win over the Intermediaries, not the end user. And that's a tough task because iOS and Android are already filling up the channel with products that the Intermediaries perceive as winners.

      • vangrieg

        Actually, MS could win over the end users, and the intermediaries will follow. The problem here is that MS is very weak at this, and it takes a lot of time to build "pull". It definitely won't work with those "Really?" ads.

      • OpenMind

        Even Apple's iPhone suffers a little while selling through operators. Store employee gets a bigger commissions for a sale of Android phone than a sale of iPhone. Actually iPhone sale give employee no commissions at all.

      • asymco

        I would really love to see an expose on who pays retail store commissions. I assume they are mostly paid by the device vendor. This is one of the least understood or discussed market distortions that the phone business labors under.

      • Waveney

        Horace, I'm thinking with your contacts in the industry, that would be within your reach maybe? I guess that manufacturers will give better terms to the carriers who then pass it on to the retail outlets to promote sales 'by whatever means'.
        Somehow I don't think this is Apple's way.
        I used to sell photographic equipment in a big chain store during college breaks and the 'incentives' from the major manufacturers used to change on a weekly basis depending on big advertising pushes in the media. I remember there were stories where staff were encouraged to go easy on a particular brand until the incentives(commission) were raised. Then the order came to push certain products over a buyers preferences in order to confirm the 'right' level of incentivised subsidy. Pay slips then listed things such as 'supplements' or 'advances' without ever listing the rewards as sales bonuses. I think it had something to do with taxation rates.

    • asymco

      WebOS is fantastic and QNX may be pretty good at some point. The challenge of ecosystem critical mass is far bigger than making an OS that works.

    • bossjet

      What's with the down votes?

      Microsoft never had a product that was competitive with the current generation of app phones so there would be little reason to spend a lot of money generating awareness. When WP7 launches with Mango all that changes giving Microsoft to spend tons on marketing.

      Fast forward one year where users can choose between iOS, Android and WP7 where users can expect to have roughly the same hardware, user interface, and (for the most part) application availability. Why won't users who want tight integration with Microsoft products choose a WP7 phone?

      Horace himself notes how the The Post-PC era will be a multi-platform era, meaning that there will be a place for Microsoft, how big remains to be seen.

  • Richard

    You said: "I believe the problem is that Microsoft has chosen not to integrate products and to rely on intermediaries at a time when that strategy leads to uncompetitive products."

    Isn't this exactly what Google is successfully doing with Android?

    • vangrieg

      This was exactly my question when I was reading the article.

    • FalKirk

      Yes, but Google got there first. Now Microsoft has to go down each link in the chain and convince the intermediaries to promote Microsofts' products instead of Googles' products. As Horace said, the intermediaries and institutional and conservative. They only want to back winners. It's a vicious circle. The Intermediaries won't back Windows Phone 7 until it can prove it is a winner and it can't become a winner until the Intermediaries back it.

      Fortunately for Microsoft, they have a long standing history with the industry and LOTS of money. They may break into the market. But it's going to be a long, long slog.

    • asymco

      I wrote of the failure of Windows Mobile. The success that Android is enjoying is coming at a later stage in the evolution of the smartphone and they are benefiting from a rapid development cycle time due to their independence from "requirements" of vendors. Because they don't have "customers" they are far freer to do whatever they want on their own schedule. There is a downside in terms of platform fragmentation and we have to see whether that really means competitiveness on the upgrade cycle.

      • davel

        "All these are possible hypotheses but I believe the problem is that Microsoft has chosen not to integrate products and to rely on intermediaries at a time when that strategy leads to uncompetitive products. "

        But this is the same as Android. I understand that Android and iPhone have the smartphone market locked up with the telcos, but your criticism is the integrated vs modular approach of which you have written numerous posts to make your point about the two approaches.

        Android as a platform still has legs and Google relies on its partners ( HTC/Samsung ) to produce quality hardware to present its modular platform. Anecdotally there are many consumers who prefer Android over iPhone.

        Yet my understanding of this proposition is that the strategy is fundamentally flawed. I do not agree. Windows ( a modular approach ) has worked quite well as a platform as well as financially. It appears that in the mobile space the modular approach is working out as well.

    • addicted44

      The largest reason for Android's success is that the iPhone wasn't available to 90+% of the market, when Android was released. This gave the carriers (especially Verizon) a HUGE incentive to push Android phones. It also created a huge vacuum for Android to work through its growing pains.

      WP7 has no such push from the carriers, and no margin for error, because Android is everywhere. A customer asks why they should go for WP7 when they can get an iPhone, or an Android phone instead. For large majorities of the world, there was no alternative to Android if they wanted an iPhone like device (and there still isn't, because again, the iPhone addresses a very small market).

      • asymco

        Through the use of open source (and the re-use of Java) Android offered a new and viral way to distribute system software. The real question is why open source Linux worked in mobile and not in traditional personal computing. The answer seems to be that in the case of the PC market, open source needed to compete with an installed incumbent whereas in the mobile space it competed with computing non-consumption.

    • Hamranhansenhansen

      Not successfully. Giving away phones below cost in the phone market is not success. Anyone can give away phones below cost. Google makes more money from iPhone users than Android. AT&T/Verizon make more money from iPhone users than Android. Motorola and LG are about to exit the phone business. HTC pays Microsoft royalties on Android. Samsung is being sued by Apple for blatant copying. Google is in court with Oracle. Most users don't even know they have Android and use their phones for calls and texts almost exclusively. Where is the success?

      • davel

        Motorola is exiting the phone biz? They are closing shop? What other business are they in?

  • ChuckO

    "Strategy is a matter of priorities not capabilities" Not sure I fully understand that or it's relation to the rest of that answer. Could you elaborate?

  • vangrieg

    The list of companies that partnered with MS in mobile is long? Maybe. But there's the example of HTC which came out of nowhere on MS shoulders. That's the type of partnership Nokia may envision as well.

    Granted, HTC's success was moderate at the time, but the market was smaller as well. Microsoft hasn't always been unsuccessful in mobile. Neither have their partners.

    • Hamranhansenhansen

      Has Microsoft ever made a profit in mobile? I think the answer is no. How can that be success?

    • asymco

      The list I refer to is here:

      HTC did so well with Microsoft that they switched to Android as soon as they could.

  • oomu

    not "constructors", but "Manufacturers".

    • I take exception to calling Apple a "hardware company". Apple is, in truth, a systems company. RIM is as well but to a lesser extent with their primary system integration being BES. Nokia is a pure hardware company and they see software as an after-thought (the reason they went with a component based system in WP7).

      By systems company, I mean that Apple designs products that work together very very well. Have an Apple TV? you can stream from you mobile iOS device. Have iTunes? You can stream audio to your Airport Express. The list goes on and on. Apple designs hardware that is tight integrated through Apple software. Sometimes the protocols are proprietary and sometimes they are based on open protocols.

      At the end of the day, however, Apple is a systems company that handles both the software and the hardware. Thinking of Apple as simply a "hardware" company negates the effort put into making world class software and I feel that is what leads many competitors to do so poorly against Apple.

  • "The re-framing of the device from being a terminal to being the center of user’s focus is the “disruption” which is sweeping aside all the incumbents in the phone space. They all did what was expected of the best managers: they listened very closely to their best customers. That also leads to blindness when the industry itself is being ripped apart by disruptive forces.",

    I think this really points to another major disruptive source Apple had that no other competitor has in the mobile field. The Apple Retail Store (ARS). I am convinced Apple's decision to launch the ARS will go down as the biggest advantage Apple ever had. Prior to the iPhone (and it is still true for all other handsets even today) if you wanted a new phone, you went to a phone store. Be it AT&T, Verizon, Sprint or some kiosk type of specialty store. You did not go to the "Motorola" store or the "Nokia" store or the "Samsung" store. With the iPhone, you go to the "Apple Retail Store".

    For the first time, the relationship between the handset maker and the end user was 1 to 1. There are no intermediaries. Even with Android, HTC's and Motorola's #1 customer is the carier. Need a locked boot-loader? Sure. Need to add in "feature added software" (I am being nice) from Blockbuster? Sure. Even with Android, the customer to carrier relationship is in full force. Verizon was even smart enough to call their better handsets "Droids". They preempted the "Android" name and renamed it "Droid". A uniquely Verizon name. Think about it, when a customer walks into BestBuy and ask for a "Droid", they get Verizon. Brilliant.

    The ARS allowed Apple to break this link between the carrier and the consumer and I think this accounts to Apple's rather quick uptake compared to Android. The iPhone has seen steady and constant growth. Android saw almost nothing for a year and then explosive growth. Why? The carriers played a wait and see and then realized they needed to push it. The carriers could kill Android just as easily. The outcome of the fight between Android and WP7 is not in the hands of the consumer. The carriers will call all of the shots.

    The ARS makes this much harder for the carriers to control the destiny of iOS. Likewise, without the ARS, the iPhone would never have taken off since Apple would have had the carriers as "orifices" to block any real innovation.

    • Ste

      The retail stores are mostly US. In many countries there are none or just a few eg just two in Spain or five in Germany.

      • While ARS are mainly in the US (after all, they had a 2 year head start there), there is almost as many per square mile in Germany as there are, for example, in Arizona. We have smaller storesAll you have to do is look at the incredible lines for the iPhone 4 that formed in Pudong's Apple store to see the power of marketing the ARS give to the iPhone.

        Likewise, Australia is a hot bed of iOS as is the UK:

        It is no coincidence, IMO, that there are several ARS in each of these countries. Areas of weak adoption, like Brazil, have no ARS presence.

      • vangrieg

        I actually seriously distrust any statistics about Apple sales in countries such as Brazil or Russia, with no official ARS presence. Because what happens there is that prices in "official" channels are totally crazy, so anyone in their sane mind would simply buy their iPhone on eBay or any internet store abroad. Or from a local internet store where phones come through "parallel import" channels. We're talking about some 30% price difference or more sometimes.

      • Naton

        While it's true that Australia now has quite a few ARSs, my memory is that they are quite recent developments and the iPhone (and CERTAINLY the iPod) were huge over here well before Apple developed its own large retail presence.

        However there have been for many years specialist independent Apple stores (NextByte, Computers Now for example) that operate large networks and specialised in Macs, then later iPods, iPhones, iPads. Perhaps this ad hoc network is a factor?

      • unhinged

        I think you're seriously misrepresenting the situation by comparing stores per square mile. What's the population density in Arizona vs Germany?

      • But the average drive time from any point is very similar. Live in Flagstaff, you have a 3+ hour haul to get to an Apple Store. Live in the West Valley of Phoenix, you might have a 1.5 hours haul to get to a store. In many places in the US, you are 7+ hours away from an ARS. In many ways, getting to an ARS might even be more convenient in Germany with a great mass transit system in place.

        So yes, the population densities are way different but travel times in each case can be amazingly long for a great number of people. This also underscores just how large the geo-graphic area of the US is compared to Western nations of the EU. I think many in the EU loose site to just how geo-graphically large the US is as well also how sparsly populated huge expanses still are. So yes, there are more ARS in the US. The US is also really big and is Apple home playing field.

        This does not change my premiss, however, in areas where there is access to ARS, iOS adoption rates (based on IP traffic data) seems much higher.

    • Hamranhansenhansen

      Also iTunes, which provides the direct iPhone software updates and 3rd party apps from Apple to the consumer. Even if you buy your iPhone at AT&T, you can get everything you need later direct from Apple.

    • davel

      You make a good point about the Apple store. I am not sure I would make it as important as you are in the launch of the iPhone. As others point out most of the stores were in the USA.

      But Horace's point about Apple shifting the focus was a major difference in the market which I think is a continuation of Apple's brand influence from the iMac and the iPod. The stores certainly were an important component at launch and continues to be.

      I think a large part of its role is as the gold standard on how to present Apple products. If Best Buy and others do a poor job people can just go to the Apple Store to see how it is done. The Apple Store was a direct response to the poor job that CompUSA and the like did at selling Apple products in the past.

  • scryer

    One underlying implication to your argument is that there will be a time in the mobile industry where interconnected platforms will "win" due to platform innovations reaching a state of diminishing returns. That was true in the PC industry but I'm not sure it holds true in the mobile industry. The reason: the much closer connection in mobile between form and function.

    PCs were modularized/commoditized in part because the input mechanism (the keyboard and mouse) and output mechanisms (the monitor/screen) are relatively static and independent mechanisms. Changing these mechanisms generally hurt the user, as the changes would introduce a learning curve without a significant corresponding benefit in function.

    In mobile, however, there is much less commoditization of the input and output mechanisms. Because of the smaller form factor and the tasks that mobile users ask of their phones, there are real and significant differences in function provided by the choices a manufacturer makes, and the choices an OS provider makes, and those choices are highly interdependent.

    There may be structural characteristics of the mobile industry that prevent modularization. If that's the case, Windows and Nokia (and RIM, and maybe even Google) are doomed. Apple and maybe HP will win the day.

    I think there's evidence in the recent ComScore report that has not really been analyzed the right way by the mainstream tech press (or even the Apple blogosphere) that supports this argument. Look at the market share of iOS as a platform across its entire reach. There is not a country listed in that report other than Argentina (at an early stage on the smartphone adoption curve) where iOS does not hold at least a 50% share of all non-PC Internet traffic, and in many cases the number is much higher. This is the number that matters to Apple. They are winning by that measure.

    • vangrieg

      The modularity/integration is a beautiful theory but it has a flaw when applied to current mobile industry. And the flaw is that it ignores development costs, which are ever increasing, making it extremely difficult for anyone but large software companies to keep up. Nokia's debacle is a testament to this. RIM's current problems are another example. HP's wasted billions will be another one soon.

      Large software companies are better positioned for success because a) they have cost advantages, being able to use other divisions when needed b) have tons of IP and complementary products c) have infrastructure like datacenters etc. in place d) have a larger "customer" base through licensing (although yes, this is dangerous when "disruption" comes) and e) have other means of monetization like advertisement sometimes.

      Apple can pull it off because it is a software company, but, maybe even more importantly, because it sells phones at $600 a piece. Every other OEM makes commodity phones they sell probably at $300-350 a piece, and they are in a spec race, with shortening time-to-market and development cycles, and shortening product life cycles.

      They dug themselves a grave (as "integrated" vendors) when they started pushing Android because nothing has ever commoditized an industry faster than this platform. I warned them, but they didn't listen, becaused short term profits were more important.

      • pk de cville

        "And the flaw is that it ignores development costs, which are ever increasing, making it extremely difficult for anyone but large software companies to keep up."

        Another Apple advantage: Although they're very secretive and don't take any bows for it, their sw development teams are amazingly smaller, more efficient, and more focused. Maybe someone with real data (nokia vs msft vs apple employee counts, anyone?) will demonstrate.

        I believe Google's Android and HP's Web OS teams are competitive and ultimately, dev efficiency may win the day for them and Apple.

      • asymco

        It is a theory but like any theory it has "special cases" which cover exceptions or anomalies. For example we have a theory of how wings work based on Bernoulli's principle but you can make an object fly by many means including just strapping on a rocket.

      • vangrieg

        Well then it would be nice to hear how this theory covers this exception or anomaly if that's what it is.

        Going the "integrated" route is expensive in terms of producing things, distributing things and consuming them. And it requires very special skills and capabilities. Therefore, for every integrated vendor there are dozens of those who are happy to make and push out modular cheap crap. And they tend to always "win" collectively (even though each one of them may be not to well off). Sometimes those who enable this cheap crap can make a buck or two as well (Google and Microsoft are good examples).

        Sometimes those "modular" vendors get delusional and will try to pull an Apple. They'll fail though. For Nokia, the "integrated" path was never a realistic option. And it isn't now. Good for them they woke up. This may not save them but the other way would certainly kill them (it probably already did).

      • davel

        Apple is different because of its approach. It focuses on minimalism and simplicity. Few companies do that. Most tech companies are run by engineers who focus on getting the job done. The fact that it has a few rough edges is irrelevant.

        I read a rant about Nokia where the author laced into Nokia because they did not know how to produce software. There were competing groups and a lack of direction and focus. RIM is a one trick pony. They created a model to make desktop Microsoft mail work on a mobile device really well and sold it to business. They then branched into consumers with the same product. But when more nimble software oriented companies entered the picture they kept with their model and became irrelevant because they could not change.

        As Horace keeps pointing out Apple is a vertically integrated company that uses its wonderful software to sell its beautiful hardware.

  • Nokia did in fact position the N95 as more than a terminal at launch. The campaign tagline was: "It's what computers have become." That's not to say anything contrary to your excellent argument here that Nokia listened to its best customers and lost market-share whilst Apple listened to consumers and won market-share.

    The N95 campaign itself is an amusing vignette in the demise of the Finnish cellphone giant, it featured six specially built touchscreen billboards located at bus stops in central London. That's right, the N95 promoted with touchscreen billboards – you couldn't make this stuff up…

    • addicted44

      I think the N95 (and its tagline) do indicate the problem. Nokia foresaw a world where computers would be replaced by phones. Apple saw a world where phones would be replaced by computers (iOS is a computer OS). Its subtle, but I think in effect, the difference is huge.

      Unfortunately for Nokia, the evidence is strong that Apple's vision was the correct one.

    • asymco

      The man behind the "mobile computer" label was Anssi Vanjoki. He had the right idea. The problem was that saying it was a computer did not make it so. The product did not have the DNA of a computer. The DNA is the consistency of platform. It was asking consumers to believe it was a computer but no developer would agree with that statement.

      • davel

        A phone is a computer.

        The problem is the phone manufacturers see a phone as a phone.

  • With most of them closing up shop.

    Nokia is handy-capped by not having multiple products to demonstrate in their stores. They have phones and cases. Apple has printers, hard drives, iPads, iMacs, iPods, sound systems, Mac Pros…

    The Nokia Stores were done as an after thought. They tried to do some high-end copycat stores like Apple that failed. The normal stores fail to capitalize on even easy to be able to find. Go to the Nokia home page and try and find a retail outlet. I never succeeded. Even the Nokia Search option took me to a "Device Library" and not a list of Nokia retail outlets as I requested. NOTE: Finally found a store locator but I had to already know where I was to be able to find a store and then, it is a basic store that sells Nokia phones. A "Carphone Warehouse" and not a branded store location.

    Go to Apple:

    They have a link to a finder on their home page.
    If you search the Apple site for "store" or "retail" you find the link to find a store near you.
    Works easily in any country.

    This goes back to the customer relationship. With Nokia, their customer is still the carriers and the distributors and not the end user. With Apple, they try to capture as much of the customer experience and relationship as posible. I find this highly disruptive in the mobile space.

    • vangrieg

      Actually that depends a lot on what kind of market you are talking about. Since you mention Carphone Warehouse you're in UK, right? So that's an operator-controlled market. Where phones are sold unsubsidized it's often very different. Here in Moscow I can recall seeing at least four Nokia stores, standalone on prime shopping streets and on first floors of shopping malls. And they have tons of phones there actually, they are much more filled with products than Apple stores – dumbphones, smartphones, music phones, cameraphones, all kinds of phones, at all price points, accessories, batteries, you name it, hundreds of SKUs. I think they even have a Vertu store here.

      Maybe that's why they're doing better here – this is as direct to customer as it gets.

      • 100's of SKUs? With just phones, cases and accessories. Still sounds less fun than all that plus computers, printers, iPads, iPods and iOS based sound systems.

        Another reason Nokia is failing. And agin, it is hard to find references to any of Nokia's stores from their website. You have to know where you are to find one. Makes planning hard to do.

        But it does point to places where a company, either Nokia or Apple, have been able to maintain the customer relationship, they are doing better.

  • ron

    hi horace, love your site!
    i was wondering if you had any advice for the telecom companies in these shifting times? sure they're in the hole they've dug themselves but still. or is it only gonna be the hard- and software manufacturers who will stay relevant in the future?

    • asymco

      Theirs is a tough business, but I think it's always been tough. Network businesses are rarely profitable in the long term. They have huge barriers to entry and often to exit. They are capital intensive but often regulated. It's not a business where innovation is easily rewarded and hence there is a rigidity of business models.

      What the industry responds to is the 'generational' forklift upgrades. As we moved through the "G"s from 1 through 4, there's been healthy growth. The challenge comes when there are no more G's either because of physical limits or because consumers can't absorb the improvements.

      I don't have any specific advice but I have not thought about it too much.

  • addicted44

    Horace, this is a great article. I don't think the computer industry is as different from the mobile industry, in the sense that, as you point out, intermediaries matter.

    The only 2 computer makers that recovered were IBM and Apple. The former did it by EXITING the computer hardware market (and focusing on service). Apple's case, in fact, strengthens your point. I would suggest that a highly under-appreciated, and critical aspect to Apple's recovery in the computer market was the creation of their retail stores, so they were selling to customers directly, and not intermediaries (like Best Buy).

    Even the iPhone strengthens the intermediary theory. Lets not forget that the iPhone was rejected by Verizon. Apple had to go all the way down to Cingular (yes, Apple did not sign up with ATT, but rather, Cingular, which was a much smaller player) to find a carrier willing to give them a shot. It was a matter of great fortune for Apple (and ATT, for that matter), that Cingular was purchased by ATT, leading to a much larger addressable market.

    I think Nokia's fault was they did not see the shift in the cell phone market moving from cell-phones that could compute, to computers that could make calls. Its not a coincidence that 4 of the 5 biggest players, iOS, Android, WebOS, and WP7 all come from computer companies. The exception is RIM, and even they are trending severely downwards and hoping to stem their losses by buying a new OS (QNX).

  • H__H

    My view is that you will see a decline of Apple in future, likely through the same forces that sank Nokia. Overconfidence, lock-in to a paradigm too early, too deep vertical integration of the SW&HW stack. I would also caution against saying Apple succeeded without the operators, when even today the main thing that makes Apple mass-market in the price tag sensitive US market are the massive operator subsidies.

    One thing, though, where you are very wrong is your analysis of the Finnish experience. Nokia is not a source of pride, it's a source of deep envy. Most of the people are quite happy to see Nokia falling and better-off getting slapped. talk to people outside Laru.

    • eyez00

      >>Overconfidence, lock-in to a paradigm too early, too deep vertical integration of the SW&HW stack<<

      Yet Apple (& Jobs) are famous for "shooting their children".

      Jobs (Pixar & Apple) doesn't allow others to kill his children first, this is why he is seemly unique as a CEO, he is prepared to kill off the company's best products/entrenched market product and replace them with something else. The list of entrenched market products that Jobs just says "No more" to is longer than my arm.

      Wall Street/London/Frankfurt/Toyko stock markets don't "allow" other CEOs to operate like that apparently. Stick with what you know, cut costs when margins fall.

      Horace is saying exactly that – Nokia tried the Tried & Trusted "ask the Customer" but the disruption Apple had caused meant that Nokia's Customers were no longer the arbiters of the market, the Customers' end-user (Apple)Customer had become that.

      The Classic iPod needed replacing with the iPod Touch, before someonelse did. When Apple see the iPhone needs replacing – they will!

      • H__H

        "When Apple see the iPhone needs replacing – they will! "

        This is what I mean with overconfidence. You see, the assumption here is that Apple
        a) understands when a disruption is a disruption, ie., "sees…[when it] needs replacing"
        b) is something where lead times allow reaction

        My point is that law of big numbers says eventually there will be a disruption AAPL won't see or acknowledge, and in that environment a vertically integrated stack, eg., with chipset leadtimes of 3+ years, will be lethal. This time will come, but when?

    • I find the demise of Nokia sad, but inevitable.

      A great outcome would be if all the talent previously absorbed by Nokia could be re-utilized instead in a diversity of other businesses and indeed industries. That would be great for Finland.

    • asymco

      My assumption is that Apple will decline when they will stop innovating in ways that matter to consumers. This is a very simple preposition and one which applies universally.

      Finns may be envious of their neighbors but proud of their compatriots.

  • O.C

    Nokia will survive. No doubt whatsoever!!

    • eyez00

      Nokia can live on as "MS-Nokia" or perhaps "Facebook (Smartphones) Division" but it won't be based in Finland, it won't support it's own OS, it'll rent it from Microsoft (not Android) & it's CEO won't ever be a Finn.

      It's a dead-phonemaker-walking imo.

      • H__H

        Why do you couple being Finnish with surviving? It's a corporation whose task is to make money. Nokia couldn't compete in cables and TV's either, and that didn't end too badly.

        I'll expand this, because this is an important point. In 1990s, Qualcomm made base stations and mobile phones as their business. Considering they exited those businesses, would you consider them a failure in mobile business? Similarly, I am confident Nokia will find a new position in the value chain and 'survive'.

        I'm sorry if many of you consider that 'dead', but that's business. If your own SW asset and capabilities are not enough, you use somebody else's and move on.

      • eyez00

        I coupled Finnish with surviving becuase I thought only a Finn could make the statement >>Nokia will survive. No doubt whatsoever<<

        Nokia's future is to be bought up by a bigger corporation, it's shareholders paid off, it's assets, divided, re-bundled into new spin-offs and sold off, it's employees made redundant & turned into an Income-from-Patents division.

        It will "exist", but only as a paper entity.

        I do not call that success.

        Apparently you do.

  • davel


    This is a nice article. I am struck by the fact that these interviews reintroduce thoughts you post on your blog yet it seems the arguments you lay out in the interviews are more powerful and complete than your thoughts on the blog.

    Why is that?

    • berult

      Talking to someone makes for a great listening device. Listening to someone with one's French inner ears makes for a great talking device. All in all, a good formula for a dermal add-on to an essentially epidermal sensory experience.

  • asymco

    That's the whole point, flight is explained by multiple theories. But we know that the theory that you need wings with feathers is not quite right. If you only had birds to observe (i.e. before man-made flight) then you would likely conclude that the attributes of a bird were what you needed to make a flying machine.

    Point is that a theory like Bernoulli's is incomplete but is a better path to follow than gluing feathers to your arms and jumping off a cathedral.

  • O.C

    When I say survive, I mean survive in the mobile phone business. Sure they ditched their OS in favour of WP7, but HTC isn't doing too bad now are they. Having your own OS has its perks, but its not in it self a mark of success and it doesn't guarantee you future success.

    I would buy the new Nokia N9 using Meego because I liked what I saw. Even if they stop using it after the N9. I'm not hooked on any particular OS and I'm not the exception to the rule. The vast majority of people don't go out to buy a phone thinking about what OS has the biggest ecosystem and developers behind it. That's how people visiting these types sites/blogs think.

    Knowledge about what phoneOS is running on the phone they're using, hasn't trickled down to the average consumer yet like it has in regular PCs. And that's not because the average consumer is stupid, but because that's not the motivating factor when deciding what phone to buy. It's not rocket science. They like the look. They buy the phone.

    It's got absolutely nothing to do with ecosystems and developers support. Not with me. And I know more about this stuff than the average consumer. So go figer…

    • asymco

      HTC remained profitable. My observations are related to companies which reach a position of loss-making. Nokia may well continue making phones as does Motorola and Sony Ericsson and LG and Kyocera and Toshiba but the position in the market will not be the same. The consequence may be a reduction in size by about 75%.

      • O.C

        You could be right. Time will tell. The only constant in business is change!

    • chandra2

      O.C.: I was sympathetic to your point of view… but the smart phone buying process is not just by looks. If it is free, that is one thing. If the customer is paying $199.00, they research about what they can do with it. There, the mindshare of the public as to what the phone can do, its reputation, popularity, social circle feedback.. all that matters.

  • Bazz

    Failure anywhere is caused by a mindset! An Indian Doctor in Australia believed he was a good doctor his dead patients do not think so!
    All companies in a death spiral just need to know what actions to make. Apple actions under Jobs is to make the coolest technology! Some people just aren't cool so they fail — its ever been such.
    When Roosevelt in the 30's asked the "best business minds" what to do they had no advice!
    Who would Obama ask today?
    Nokia's problem is that Android and Apple OS changed the landscape of Mobile Phones — their brain storms were ineffectual. Nokia's demand for Apple's OS was all they could think of.

  • Apple is highly US centric. Apple gets about 45% of its revenue from the US and 55% from international sales. But given the US is only about 6% of the population, it makes sense to frame this discussion heavily toward the US.

    What is interesting here is how fast Apple's international sales are increasing. I think the MootlyFool pegged them at >250% YoY. That is impressive. This also shows why Apple is putting tons of effort into China/Asia as a growth area.

    So do you find the Nokia stores helping the Nokia brands in the places they are put?

  • addicted44

    True, but again, that is not what has allowed them to become competitive again. The mainframe business is largely a value add to the services business, and they are trying to wind that down too.

    As an example, DB2 is a complete afterthought within IBM at this point.

  • Kas

    Maybe you should do some posts where readers submit questions and you publish and answer the best one. Then new questions come in based on your answer and the cycle continues daily for the week – crowd interviewing!

  • xtarburst

    the more competition the better for the consumer, I'm not a mobile OS purist and would like them to see fight each other over technology and software in the future (patent wars in 2012?)