Prescription for Nokia

I last owned a Nokia phone in April 2003. Prior to that I had owned only Nokia phones for at least the previous 10 years. What changed? I fell out of love with what, until then, had been the no brainer choice of buying Nokia every time. Nokia simply didn’t keep up with the market. The P800 came along with it’s tiny stick for writing, then the Treo came out with a slightly bigger stick and a keyboard and then the iPhone came along; and all around those phones were clamshells, phones with cameras, phones with more interesting interfaces and all kinds of other more exciting and more alluring devices. During all of that time Nokia seemed, to me, to be doing largely nothing.
In April 2004 I criticised Nokia for not keeping up – failing to provide good designs, making it hard to transfer data between phones (I even wrote to Nokia in February 2003 to explain the problem they were creating), not providing an integrated mail/calendar/task list capability and more.
In May 2007 I listed the features and capabilities that I wanted in a phone:
  • An initially stable phone that gets software updates regularly (to fix inevitable problems)
  • A battery that lasts at least a long weekend
  • A keyboard that registers your touch simply and effectively
  • Doesn’t crash more than once a week (and, if it does crash regularly, that the reboot time is minimal
  • Works consistently. If it has a back button, it should work the same way all the time. Copy and paste should work in every application
  • Adheres to standards (sending a business card by SMS for instance)
  • Allows me to synchronise text messages, ring tones, speed dials to the PC
  • Let’s me install software that replaces the default software
  • Threaded text
  • Single click access to create a text and select a recipient.
  • Contacts that let you phone or text someone right from the screen
  • Freecell, not solitaire
Some 4 years on not all of those are possible still – battery life beyond a day is still rare, being able to use non-standard applications (yes, even on the iPhone) is rarer still. But most of it is there – we have come quite some distance since 2007 with iPhone initially leading the way and competition from Android and others ensuring that the rate of innovation is high.
So given all that criticism that flowed Nokia’s way, I thought I’d have a go at what I would do if I were running Nokia. I’m assuming that the Windows decision is a done deal and can’t be reversed.
First, some observations:
  • In the year that Apple introduced both the iPhone 4 and the iPad, they spent $1.8bn on R&D and their revenue increased by over $22bn. Nokia, in the same year, spent $5.8bn and their revenue increased only $1.5bn (source: Bloomberg BusinessWeek). Nokia also spent more in 2010 than Samsung, RIMM, HTC and Sony Ericsson (source: Bernstein Estimates and Analysis). Nokia is outspent in R&D only by Microsoft, GM, Pfizer and Toyota (source: 2008 EU Indutrial R&D Investment Scoreboard. One third of that R&D goes on Symbian and MeeGo (source: Bloomberg BusinessWeek)
  • Peter Thiel, co-founder of PayPal and early investor in Facebook, recently noted that companies have a tendency to promote “extensive gains” over “intensive breakthroughs”; that is, they extend or replicate what they already know for incremental gain and think works rather than seek innovative new approaches that will drive long term growth
  • At the end of March 2010 Nokia had around 125,000 employees with 64,000 of those part of Nokia Siemens Networks. 17,200 staff are in R&D and more than 1/3rd of those are assigned to Symbian-related research
And now my prescription. Nokia is going to compete, in my view, on only three things:
  1. Incredible integration between its hardware and Microsoft’s operating system. Those who already have integration (Apple and HP/Palm) already have this; those licensing, like Nokia and including Motorola, are working it hard.
  2. Bundles of Nokia-only features that result either from its close arrangement with Microsoft or from assets that Nokia already own (such as NavTeq) or those that they might acquire.
  3. Stunning hardware capability coupled with awesome design that others will struggle to match, funded by Nokia’s cash flow from its declining dumb-phone business and funnelled through its (soon to be smaller) R&D unit. Battery life will be high on that list but fast processors, great screens, high quality camera lenses, speakers, GPS responsiveness and NFV will all matter. Nokia will be competing here with plenty of other companies who are already ahead of them – Samsung, HTC – and those who want to catch up – Motorola, Palm etc

If that is what Nokia is competing with (or against) then who is the competition:
  • First, themselves. The reaction to the decision to align with Windows has reportedly been strongly adverse. It’s said that whole teams downed tools and walked out for the day. The mood will doubtless worsen as Nokia makes radical cuts in its workforce, cuts costs and closes down pet projects.
  • Second, themselves. Nokia’s non-smartphone business is still a huge cashflow generator. Something like 80% of phones sold globally are still what we might call “feature phones” rather than smartphones. Nokia’s feature phones run Symbian and there will be a strong contingent in the company that fights to keep working on that operating system, enhancing it and getting it to a point where it can compete with other operating systems.
  • Third, the obvious competition

    – Google’s partners, such as Motorola, who have also hitched themselves to an operating system
    – Contract manufacturers such as HTC who have already proved that they can deliver good hardware running Windows devices
    – HP with its recent acquisition of Palm. HP’s last foray into the mobile market was on the back of the iPaq and Windows CE. Now they are aiming to control both the software and hardware but are coming from a low base with little consumer market penetration outside of printers
    – Research in Motion. Whereas Windows Mobile 7 seems to have focused on the consumer market, Microsoft’s obvious corporate presence could allow Nokia to deliver phones that are accepted by companies looking to avoid having their email shipped offshore or to reduce the costs of their mobile operations. This must be a key area for Nokia / Microsoft to move in on. Microsoft and Nokia need to own the corporate warrior market.

    I’m going to leave Apple off this list. Apple is patently making a ton of money from the iPhone off a relatively low market share. Nokia is unlikely to make a dent in the iPhone share (or get anywhere near the margins that Apple has) for some time, if ever (my vote is the latter).

Here’s what I’d set off doing:
  • Break the company up – first transparently through very clear and detailed reporting and then structurally, that is not through tracking stocks. Nokia’s carrier equipment business would be valuable to many other companies, including PE. Owning a division that makes GSM equipment may make for better ‘phones – perhaps in understanding signal strength and optimising battery life as a result – but I think its tenuous. The first spin-off then is Nokia-Siemens Networks (read its mission and vision statement); It floats separately, goes to a competitor or its bought by Private Equity. €12bn of sales including €2bn of R&D and a net loss of nearly €700m and involved in connecting something like a quarter of the world’s population on any given day (source: nokia). At a stroke that cuts the employee count, allows better management focus and reduces losses. A second spin-off would be Vertu. Searching on the Nokia site for information on Vertu gives this as the first result:

    How do I recycle my Nokia phone and accessories?Just drop off your old mobile phone and accessories at any Nokia Care point. Nokia will send the old products to closest Nokia approved recycling company

    That hardly seems like a core business – it is independently operated but wholly owned by Nokia. Brand association with Nokia is limited, revenues are unlikely to be enormous and whilst, arguably, they are great at design, the consumer isn’t pressing for diamond studded phones with perfectly lined up screws. Nokia can licence their technology to Vertu if they want to, but they need not own it.

    I wondered a lot about whether Nokia should actually create a separate smartphone business, leaving its huge cash cow feature phone business to work on Symbian, provide funding for the shift to Windows and to, eventually, dwindle. But I think the potential for flowdown (and perhaps flowback) is too great.

  • Exchange team members between Microsoft and Nokia at both a senior and a working level, but not at the top level. Learning how your own organisation works is already a challenge, learning a new one whilst remaining in touch with the old one even harder. Senior people in key teams should swap between the companies so that their joined up efforts have a better chance of succeeding. Microsoft and Nokia (Microkia? Ugh) should treat this as a joint venture. If either one fails, they both fail although Nokia has more to lose.
  • Massively cut internal R&D spend – you’re spending too much and, as a result, have built a bloated R&D organisation that is spending more than it generates in revenue; it’s trading on innovations that were hits 10 years ago. Nokia is no longer in the software business, it’s in the software integration business.

    Nokia’s R&D spend needs to be focused on only three areas:

    (i) Joining up with Microsoft to develop new operating system features. Microsoft outspend Nokia in total innovation (but only by about €500m). Together they could achieve some great things (at the risk of Microsoft alienating its other partners but, then again, they’re not selling much so it doesn’t matter)

    (ii) Developing new hardware capabilities around touch, battery life (an area where Nokia already excels albeit on feature phones), GPS integration and responsiveness, NFC integration and cool design. Nokia will need to partner widely to achieve innovation in these areas and use its famous reputation for supply chain management to ensure the right quantities are available

    (iii) Looking for, partnering and acquiring new software technology that can make Nokia phones stand out. Notwithstanding the need for Microsoft’s software to run perfectly, Nokia needs to seek out other companies to acquire. Ideal targets would be those that provide equivalent software to the top apps in Apple’s appstore, or even those very companies themselves. There’s no point in trying to start another Facebook or Twitter (although Nokia/Microsoft will need to work closely with those companies to make sure the client apps fly). There is, though, plenty of opportunity in task management, email, group text, contact management (so why not buy Hashable for contact management and introductions, after all Microsoft owns Xobni; RIMM owns Gist).

    I would start from a zero base and add R&D back to key future product areas rather than start at the current spend and strip away. Given that there are more than 17,000 R&D staff, this will result in large lay-offs that will have to be negotiated with various governments (2,000+ will go with the NSN spin-off)

  • Focus software efforts with Microsoft as follows:

    1. Stunningly fast transfer and synchronisation tools.

    – Transfer so that data from other phones running different operating systems can be moved simply (whether that’s Android as the first target or iPhone as the second target); – Synchronisation so that data from gmail, ical/mobileme, outlook and any other emerging cloud services as well as iTunes, Amazon music (and whoever else is managing media) can be imported and managed easily. Just a few screen taps to make any of those happen.

    2. Stunningly fast backup to a PC, Mac and Linux clients from day one. You’re in the mobile business, not the PC business and so you should be client agnostic. Better still, offer backup of all settings, applications (including all settings for games and apps), texts and logs to the cloud – for nothing. Sign up from the ‘phone and let it just happen, with incremental backups seamlessly happening in the background without the user needing to know.

    3. Regular operating system upgrades without a need to re-synchronise the entire media library. Wireless upgrades of what are doubtless 500MB files is perhaps a step too far for now, but I shouldn’t need to copy everything back to my phone after such an upgrade – with 32gb or 64gb of data that’s just become a chore. Release regular updates – every 2 months fixing bugs and adding incremental features to keep people interested in what’s coming.

    4. A series of in-house apps that compete brilliantly with what Google and Apple provide and then go beyond. Nokia already own Navteq and provide on-phone maps (that is, without the need for an Internet connection) – more needs to be made of that, especially in Europe where roaming is far more common. I’d like more capabilities in text messages – group texting for instance. Music, video and other media will need to work brilliantly (first with synchronisation of existing libraries and then with adding new ones) from the get go, audiobooks as well as e-Books too. Your store will be as good as Amazon and Genius put together. You will know what I like and you will recommend new things based on that. You’ll do it by acquiring companies or partnering with them, not through doing it yourself.

  • Develop a brilliant and obvious naming convention. Years ago when I started using Nokia I understood the convention … There was the 6210 which was replaced by the 6310; not long after came the 7210 which I understood to be better still. It all went wrong with the 8xxx series – the 8250 was small and sexy, the 8800 was shaped like a banana. Now, I couldn’t tell you how it works with C, E and N series. The picture above this section shows only part of the current range.

    Nokia is certainly going to release more than one phone a year unlike Apple of course, which makes the need for a naming convention essential, and all the astronomy-related (Galaxy, Nova, Star, etc), inspirational names (Desire, Optimus, Incredible, Inspire), dance/music names (Cha-Cha, Salsa, Aria, Salsa). That leaves a few areas that might work – elements, Greek or Roman gods, cities, big cats (Apple might claim they have those), birds, colours and so on. The trick is going to be providing some kind of unifying theme that ties to phone capability. It must be obvious whether the phone is touch only or touch & keyboard. Potential candidates include simple number T-1000 (for touch) and K-1000 (for keyboard) but more creative names would be welcome.

  • Bundle the cloud with your phones. Cloud based email (with your own domain name if you want it), calendars and contacts must be out of the box ready. Microsoft can give you this tomorrow with their Office 365 infrastructure. Your initial volume won’t be enough to threaten their margins and there will always be a chance to cross-sell more services in the future. You’ll also want to be sure that you have an equivalent of Dropbox (if you haven’t acquired a company like them). And Evernote should be pre-installed and work like a charm, ideally with Nokia only features. It goes without saying that you’ll want all of the big social networks and whoever follows them to work from day one.
I would also make the first phone you design the most amazing phone you can imagine. Develop it, prove you can produce it. Then throw it away and do another one that learns all the lessons from that one and is even better. When you’re halfway through that process, set off a competing team to build the phone that will come after that one and when you’re a third of the way through that cycle, set off the next team. Have them race against each other.
I have yet to get to what Nokia should do with tablets, Meego (or some other operating system that they might want to work on as an R&D project either to spur Microsoft to keep innovating or as a replacement operating system should things not work out with Microsoft), in-car systems and so on. 
Perhaps those are topics for another day.

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