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My Last Nokia

March 8th, 2011 |  Published in Wireless Connectivity  |  2 Comments

The recent partnership between Nokia and Microsoft has created a lot of comment, with the more upbeat view being that it combines Microsoft’s skill in software with Nokia’s expertise in hardware.  That reminded me of the quote from Bernard Shaw to a beautiful actress who suggested they should have a baby so that their child would have her beauty and his brains.  “But Madam,” Shaw retorted, “what if the child has my looks and your brains?”  We don’t yet know what this union will bear, but there are good reasons for asking whether many phone users have already bought their last Nokia?

The marketing world has always understood that if you want to catch a consumer, catch them young.  Tom Lehrer parodied it well with his song “The Old Dope Peddler” who “gave the kids free samples, because he knew full well, that today’s young innocent faces, will be tomorrow’s clientele”.  The consumer electronics industry is equally aware of that principle, as I was reminded today when I went past a window exhorting parents to start their children off on a life of electronic materialism with “My First Sony”.

Nokia must wish that they could be that confident.  When I upgraded my phone to a Nokia E72 this year I thought harder about that decision than I had for most of my previous upgrades.  What finally won me over and stopped me jumping to Android were two features – Ovi Maps and a battery life of four or more days.  But I bought it with the realisation that my next phone would probably not be Finnish.  With the announcement of the new relationship between Nokia and Microsoft, I wonder whether their marketing departments need to get together and make a final push for short term market share with the slogan “My Last Nokia”? 

It’s one of those questions that could enter the public consciousness, like “do you remember where you where when Kennedy was assassinated”, or “when Neil Armstrong took his first step on the moon”?  For today’s generation of phone users, they may look back and wonder “where was it that they bought their last Nokia”.

Back in 1996 I was part of a small start-up company that was developing a GSM data stack for Samsung.  This was before they’d made their first GSM phone.  The phone design team in Staines, where the development was taking place, had a visit from a Korean manager and I was invited down to attend a presentation outlining the corporate vision.  In it, we were told that Samsung’s goal was to become the number one global phone supplier by 2001.  This was audacious – they were still barely at the stage of getting a prototype working.  Back then Nokia were firmly number one, followed by Ericsson, Motorola, Siemens and Philips.  I remember looking around and seeing the European developers trying to suppress grins, thinking that the translator must have made a mistake.  Since 2001, those grins have seemed misplaced.  Back in 1996 Samsung were unknown in the GSM world.  For the last five years they have been the only credible challenger to Nokia, and probably the only company to scare them.

Nokia must be applauded for keeping their key position.  Over the fifteen years since Samsung decided to make that challenge the competition has changed.  Ericsson went into meltdown, merged with Sony and the schizophrenic union still seems unclear about its identity.  Philips disappeared, as did Siemens.  Motorola did its best to commit suicide, but recovered when it launched the RaZR, before faltering again and finding a third life when it discovered Android.  (There is an apocryphal story within the industry that the RaZR was designed by an independent company who first tried to sell it to Nokia.  The story goes that they turned it down, largely because of their dislike for the clamshell form factor, but Motorola’s late Geoffrey Frost, who was offered it next, recognised its potential and snapped it up.  Allegedly the Nokia executive who turned it down still has a job in Nokia, but it is unconfirmed whether they were involved in the recent Microsoft phone link-up. If anyone has any evidence to confirm this story, please let me know – it’s a rumour that deserves to be true.) 

RIM made a successful play to woo the business market and create a more popular smartphone niche.  More recently Apple came along, made a lot of noise, and changed the way the world saw Smartphones, despite the fact that it sold to a relatively small but fanatical style-obsessed demographic.  And the most recent entrant to upset the applecart has been Android.  Unlike every major player other than Microsoft, Google’s not a hardware manufacturer, despite a short foray in that direction.  But unlike its rival non-hardware player, it achieved something that Microsoft had constantly failed at – making a handset operating system attractive. Cynics will point out that it’s always easier when you give it away for free, but there was something in Google’s offering which caught the zeitgeist.

But despite the constant flux beneath the surface, Nokia has weathered every storm, continuing to dominate the market.  However much commentators and analysts have tried to disparage their continuing market share and lacklustre performance in the very smartphone sector they created, the fact cannot be denied that Nokia continue to ship more phones than its two closest rivals put together.  And you can’t argue with that sort of performance.

Except that it may not last.  Over the past year I’ve been comparing Nokia’s market share with what I call “Korea Inc.” – the combination of Samsung and LG.  As the graph below indicates, they’ve been narrowing the gap.  In the last quarter of 2010 Nokia had its usual Christmas spike.  If that relaxes back and Korea Inc. keep on growing I think they may overtake Nokia this quarter.  And that’s before the effect of the Microsoft announcement.

Korea catches up with Nokia

The Microsoft alliance provides some good reasons as to why Nokia’s share may fall even faster in the short term.   Today their smartphone offering is Symbian based.  They’re still trying hard to sell those handsets to the network operators, but that may be difficult.  Most operators have pushed their smartphone customers towards eighteen and twenty-four month contracts.  And the mindset of those operators is currently Apps, Apps and more Apps.  Every Symbian phone they sell is effectively an Apps cul-de-sac.  If they take more Symbian handsets, it’s with the knowledge that the customer may get so fed up with it, they’ll probably jump to another network before the end of the contract.  Or else they’ll have to upgrade them early to keep them on board, which is expensive.  Neither of which is good news for Nokia when the alternative for the operator is to sell them an Android or an iPhone.

That’s not to say that the networks don’t support a Nokia / Microsoft tie-up.  There’s plenty of evidence that Nokia looked seriously at Android as an alternative – it’s just that when they did the numbers, the Microsoft deal made more financial sense.  Many of the networks will have breathed a sigh of relief at this, because Google scares them.  Google probably has a better ability to trash voice revenue than anyone else, plus it’s a force that’s largely outside the control of the traditional network / handset hierarchy.  Apple scares them as well, but at Mobile World Congress the more cynical networks were already dreaming of a post-Steve decline in Apple’s fortunes.  They’re hoping that after the matt black memorial iPhone5 edition, Apple will lose its shine and fade away as Siemens and Philips did a decade ago.

But the effects of the new alliance will run deeper.  Inside handsets, there’s been a fierce battle for dominance amongst semiconductor companies.  Whilst Qualcomm has won design wins from many handset vendors, companies like TI have long been favoured within Nokia.  That may change, as Qualcomm chipsets are the preferred solutions to run the Windows platform.  In the past Nokia has achieved a lot of its excellence in hardware performance by being largely in control of what goes onto the chips.   If it moves to a Qualcomm platform it may lose that close relationship and design input.  Which means a new Nokia may not have the hardware edge it used to have.

The other effect it will have on the industry is on standards.  Nokia has supported many standards efforts by supplying experts to the working groups.  They had immense influence in creating the Bluetooth specification and contributed Wibree to the Bluetooth community.  They’ve been equally active in each iteration of the GSM standards.  As Nokia is disbanding their software teams, those experts and their funding are melting away.  Newer pretenders like Google and Apple are barely noticeable in the standards world.  It’s the start of a cold wind which will slow down standards development, as well as the qualification and testing work that leads to standards interoperability.  And it may make Nokia more inclined to use its IP as a commercial challenge, rather than contributing it to open standards.

Nokia and Microsoft as a combination may work, and it would be good if it does.  But it has the potential to crash in flames.  And if Nokia falls, the mobile ecosystem may need to reinvent itself.  As indeed may Finland.  Without Nokia’s tax receipts, by 2020, Finland might find it’s become East Sweden or Northern Estonia.  Which is something that should be far more worrying than the brand name on my next handset.

2 comments ↓

#1 Maresh Patel on 04.11.11 at 3:09 pm

Why no mention of HTC or Windows Phone 7 here?

#2 Nick on 04.14.11 at 10:41 pm

I’m guessing that if Nokia and Microsoft get it right, it will set the standard for Windows phones. If that’s the case then other companies who have placed thier faith in Windows Phone will have a difficult decision to take. Many, like HTC were courted by Microsoft to try and compete against Nokia, which was synonymous with Symbian. When Nokia is the front runner with Microsoft, it’s could take the rationale away for any other manufacurer to use Windows. It may not, but that is one of the risks of this alliance. In which case companies like HTC may become far more active with Android.

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About Creative Connectivity

Creative Connectivity is Nick Hunn's blog on aspects and applications of wireless connectivity. Having worked with wireless for over twenty years I've seen the best and worst of it and despair at how little of its potential is exploited.

I hope that's about to change, as the demands of healthcare, energy and transport apply pressure to use wireless more intelligently for consumer health devices, smart metering and telematics. These are my views on the subject - please let me know yours.

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