NOKIA's Strategic Blunder

Nokia CEO Stephen Elop said last week in a dramatic internal memo that the Nokia platform was like a ship on fire.

Trying to pass on the blame for a lackluster year on the previous team, many of whom have quit or are in the process of quitting, he took a plunge that could sink the embattled ship. Elop stunned Nokia employees and investors alike as he junked its giant but slow moving Symbian OS in favor of a non-starter, the Window Phone 7 Operating System from the Microsoft stable. The largest cellphone maker had been seeing a steady erosion of marketshare ever since Apple's iPhone hit the market and took the high-end smartphone segment by storm. Now with many low cost phone makers tapping Google's free Android OS and rapidly nibbling away its Asian growth markets the company finds itself squeezed between the rock and a hard place.

Elop is a Microsoft import and a U.S. based software product guy chosen by the board to replace its longstanding Finnish CEO Olli-Pekka Kallasuvo last winter. He has seemingly thrown in the towel without a fight. When he took over charge last September the Symbian OS sold a quarter million pieces a day, three times as much as second placed Apple, and had over a 40% market share, down but not out. The truly globally networked mobile company with an extensive dealer network besides a 42.4 billion euro ($ 57.5 billion) turnover that was once a producer of computers and digital devices in the nineties had invested $8.1 billion in mapping services giant NAVTEQ, crucial to the smart phone world. It had also tied up with Sony, WMI and BMG music and even produced its first 3G Notebook realising that computers and mobile phones would be a merging in the marketplace.

True, Nokia had lost a lot of ground especially in the US to Apple, Blackberry and Android, but in the rest of the world including the two biggest markets China and India it was still a giant. Elop need not have really panicked. Nokia's inability to make a dent in the highly competative US market with 296 million connections for its 307 million people was worrying but not really devastating. Emerging economies today account for 4 out of 5 mobile connections with China having 812 million mobile phones for a population of 1331 million and India having 693 million units for its 1155 million people, and Nokia was still growing in those markets.

Though Symbian was loosing ground, the Windows is not a winner either. As a matter of fact the graph above shows a steeper decline for Windows OS. Nokia should have approached Google, Blackberry as well as Apple for their OS retaining the Symbian as a multi pronged strategy, and concentrated on selling more handsets. It is quite possible that at least two of the three succesful Operating System companies would have agreed considering that Nokia still sold 461 million handsets and 111 million smartphones globally in 2010 which was more than its next three competitors combined. Instead Elop chose a Microsoft OS which to say the least has over the years lost ground in the highly pro-active and competative industry.

There are 3 reasons why Nokia and Windows collaboration would fail though their combined strength in the Ecosystem may theoritically improve. Windows is woefully behind Apple, Android and Blackberry in the Apps business and may never catch up. The smartphone world needs 4 to 5 operating system versions a year as provided by the lead players as against 1 to 2 as provided in the Microsoft culture. The time to market in the fast moving mobile market is 2 weeks but Elop is talking of shipping a variety of WP7 phones by early next year. By then the mobile world would have changed on the head and Nokia could be really struggling for breath despite having the courage to jump from a burning ship.