Last month, Nokia reduced expectations for net device sales and profit margins, citing continued strong competition in the smartphone segment. Since the introduction of Apple’s iPhone, the emergence of Google’s Android platform and Research In Motion’s continued — though stumbling — transformation from enterprise to consumer, Nokia’s smartphone market share has dropped from around 65 percent in 2007 to less than 45 percent in the first quarter of 2010.
While Nokia is the undisputed king of feature phones, it doesn’t take a fortune teller to read the handwriting on the wall — the eventual trend dictates that smartphones will replace feature phones. Even in emerging nations, where Nokia is a powerhouse, feature phone sales grew 20 percent, while smartphone sales jumped 68 percent, according to first quarter numbers from Gartner.
Nokia makes stellar hardware, so that’s not the reason for the sales drops. Which leaves software and services to blame, and it’s rather telling that Nokia’s market share losses coincide exactly with its indecisive and often stale smartphone strategy. Nokia is often halfway done with a strategy before realizing it’s not one that can be implemented in time to rival competitors. The company then changes gears, and therefore never catches up to the likes of Apple and Google. Or it delivers a new flagship device, such as the N95, that isn’t fully baked and ends up doing more harm than good to the Nokia brand’s reputation. Even one of the longest-running enthusiast sites, Symbian-Guru.com, has had enough — the site shut down last week after nearly four years of Nokia evangelism. Site owner, Ricky Cadden, meanwhile, is buying a brand-new Google Nexus One.
So maybe it’s time for Nokia to follow Cadden’s lead, think longer term and embrace Google’s Android platform.
Why Mess With Success?
When I look back at the last few years in the smartphone space, I see Apple and Google innovating at near light-speed, while Nokia has trod slowly down the Symbian S60 path. It was only late 2009 when Nokia began offering a smartphone with a fresh new operating system — the N900 running Maemo. But Maemo is now combined with Intel’s Moblin Project and will be MeeGo when the first smartphone to run it appears in the second half of 2010. That means it’s taken Nokia nearly three years to adjust for Apple’s entry into the market. Google, on the other hand, is on an annual run-rate of 58 million device activations. To say that Apple and Google are more successful in this space recently is an understatement at best. And sometimes the wisest strategy is the old “if you can’t beat ‘em, join ‘em” approach.
Nokia would do well to follow such wisdom, scrap plans to use Symbian S60, Symbian^3 or MeeGo, and instead leverage Google Android to unify all of its devices. Instead of creating or maturing other platforms in-house, those development resources could be used to customize Android for Nokia phones as needed. A move like that would reduce the support costs of tools developers use when creating apps for Nokia devices, to say nothing of the customer experience benefits and improved developer resources. And Nokia has lost much of the brand awareness it enjoyed a handful of years ago, while, meanwhile, more Android handsets were sold than those of even Apple in the first quarter of 2010. A shortcut to success would be for Nokia to stop fighting — and losing — the same battle over and over again by adopting a proven operating system like Android.
Attracting Developers to Market
Moving to Android would address another problem for Nokia — attracting developers. As it stands now, programmers for Nokia’s platform have to cater to hundreds of different feature phones and smartphones that are spread across several platforms. While hardware variances can potentially dictate changes to software, platform variances nearly always do as the result of code incompatibility. Nokia wisely plans to combat this with Qt, a cross-platform framework that provides more of a “write once, run on several devices” opportunity for developers. But while that might be a step in the right direction, Nokia is only just getting started with Qt, and there’s no guarantee that devs will embrace the tool.
While Google’s Android Market surely isn’t the most mature mobile software store out there — the Market is no iTunes and it certainly could use a cleanup — it already exists, is better than the stores of BlackBerry, Palm and others, plus it already has more than 65,000 titles available to it. Contrast that to Nokia’s Ovi Store, which can be buggy, isn’t as user-friendly and offers a variable experience depending on which device you use to access it. Why not reduce effort and resources by going with Google’s Android Market? Indeed, Nokia could market its own apps and Ovi services in Google’s storefront if it wants to continue down the service path.
Make Smarter Feature Phones
Embracing Android offers another benefit to Nokia, though one outside of the smartphone sector. Android runs quite well on limited hardware, so Nokia could transition its broad feature phone base from Symbian S40/S60 over to Android. Such a transition would reduce and eventually eliminate the costs of further Symbian development while also making feature phones “smarter” with advanced email, browsing and applications. Nokia could develop a custom Android interface to simplify the smartphone experience, but still position the devices to support its strategy of dominance in low-cost, emerging markets.
Perhaps the biggest challenge in this scenario is the required Internet connection needed to activate an Android phone with a Gmail account. Still, given Google’s open approach with Android, along with Nokia’s influence in the sector, it wouldn’t surprise me if the two companies could work out some alternative for areas where web connections are scarce. Perhaps an SMS activation might work. Such a strategy would allow for Nokia to still offer low-cost devices with an operating system that has room to grow as local telecom infrastructure matures.
Product Differentiation
Herein lies the biggest challenge if Nokia were to adopt Android: In a rising tide of Android phones from more than 20 handset makers now, how would Nokia differentiate itself? The answer lies in Nokia’s greatest strength today — hardware. No company in the world makes a wider range of quality handsets, and Nokia should leverage that attribute by designing unique and effective handsets to run Google Android. With a capable operating system that Nokia doesn’t have to pay for, it can focus on its core competency of hardware design. That concentration, along with reduced development and support costs for hardware, will surely raise overall profit margins.
What if?
Marrying top-notch hardware with a popular operating system would surely increase the number of Nokia smartphones sold and reverse the current trend of declining profits in Nokia’s smartphone segment. Internal development costs would be greatly eliminated while external development interest would increase as programmers are already building Android applications.
What would Nokia lose by taking such a drastic step? One could argue brand recognition from the drop of Symbian, but if Nokia wants to keep using the Symbian platform on lower-end devices, there’s nothing stopping the company from doing so. And with the company’s attention to design detail, Nokia wouldn’t be just a “me too” Android phone maker. Nokia may believe that Symbian — or now MeeGo — is its greatest strength, but for current shareholders, these perceived software strengths are glaring weaknesses and might be the biggest explanations to declining stock prices. With Android combined with Nokia’s hardware and global branding, those stockholders might vote in favor of breaking with the past and looking towards a Google future.
Kevin,
Your solution is only better than the status quo. Nokia cannot survive by offering second-rate, years-late mobile OSes that are notably inferior to the best-in-class. Adopting Android would be far better than this.
However, if you do look at who the big winners are, and you mention them, they are Apple and Google. The key to being powerful in this new ecosystem is NOT in hardware, but rather in owning the OS, the service layers, the application marketplace, and the user mindshare. Adopting Android is tantamount to “throwing in the towel”. For a boxer, this only makes sense if it avoids an inevitable beating, and so, too, for Nokia.
No, they had better bet the farm on owning an top notch integrated hardware/software experience, just as Apple does. And I agree that (given recent performance) this is anything but a slam-dunk, even at a 15% probability of success, it’s worth the chance.
And we don’t have to look far to see a similar industrial model: ^^^The PC industry is very informative to the current smartphone value chain. The hardware ALWAYS quickly becomes a commodity, while the OS, applications, and service layers retain value and profitability. Apple has shown that in PCs as well as phones, an integrated quality experience can command a high profit.^^^ Gateway, Compaq and a hundred dead PC companies shine a contrasting semaphore for H/W commoditization woes.
And the tragedy of this all is that Nokia was very early to spot the importance of owning and participating in the service layers above the OS. They have tried various strategic initiatives since year 2000 (Symbian, Maemo, Preminet, Club Nokia, Ovi, Navteq…) to be an important part of the software and apps sector, but have never had a slam-dunk. Perhaps it is because all their efforts have always been partial, disjointed, and they have never bet “all the marbles” and lined their formidable resources around a single effort at winning.
Either way, Android, for Nokia, is admission of defeat. And their shareholders would skewer them for throwing in the towel this early in the fight.
Derek Kerton
http://www.kertongroup.com
Great article Kevin and I have to say I agree. Nokia has tried incorporating different services over the last few years and with the exception of Ovi Maps all have pretty much failed. Most people don’t even know what Ovi services are available and even as a fan of Nokia products I don’t even use them.
I understand Nokia is a proud company, but they should seriously think about embracing Android for their high end stuff and leaving Symbian for the low to mid level range where thousands of apps and developers is not essential or really necessary. I think Nokia may have a tough time convincing developers to work on MeeGo after seeing the way they drop things (Maemo and multiple services).
Nokia is still the worldwide leader in market share, but that is slowly eroding as they stumble along while others focus and roll out products that are exciting and functional. They rule in RF reception, call quality, and even in most hardware so take advantage of that and put Android inside a Nokia device or three.
I have to agree with Kevin. Apple, HTC, and Moto are going to suffer supply chain problems for the next couple of quarters because they cannot get enough screens. Nokia’s strength is their hardware prowess and they could kick butt in both smart phones and feature phone markets.
One of Android’s promised features was it’s ability to run on more limited hardware. A Nokia/Android tie up would stop Qualcomm/Brew and Samsung/Bada dead in their tracks. Nokia might even be able to move into the US market.
Android makes little sense to any company who is concerned with service revenue that’s vertically attached to a mobile platform. Given your logic here, Apple and MS should also go Android, but, we know that neither are happening – at least not at the level of allowing anything more than the occaional service hook into the platform-service.
MeeGo is a Nokia-researched and designed opportunity to not just have control of the mobile platform, but the hooks into the services that platform enables. It started years ago when some enterprising folks at Nokia understood that Symbian was not as well positioned for a connected-platform and Memo was born, and that continued through Maemo’s development stages, developer and comment relations, and their larger internal change to be more open in regards to processes and strategies. ^^^The Moblin merge pretty much fell into their lap, as both Intel and Nokia see the same things regarding platform monetization around connectivity and services at the client-user level. And now all parties are positioned to be something like Android, minus Google (mostly) and Apple.
That’s about as win-win as Nokia needs now.^^^
Plus, to move to Android, and the resulting PR fallout will take more time to harness than they will be given time to do so by media and many markets. Essentially, this is a roll for all the marbles, as it should be.