February 2011

Nokia - One Foot in the Grave?

Nokia - One Foot in the Grave

Or 'two turkeys don't make an eagle' which is the widely reported disparaging tweet from Vic Gundotra one of Google's senior executives referring to the tie up of Microsoft and Nokia announced at the Mobile World Congress (MWC) this week. Given that Google is creating the competing Android OS you might be forgiven for thinking he is biased but we think there is an alternative that has been overlooked and one that plays far better into Nokia's skill sets. Even a route to put Nokia back at the top of the ladder. However before looking at the solution let's make sure we understand the problem and the reason for the total lack of support for Nokia from industry analysts.

Without a doubt this has been one of the more memorable years for the Mobile World Congress now held in Barcelona after it outgrew its Cannes heritage some years ago. We have witnessed the shift in power from Nokia the Finnish company that had dominated mobile phones for so long to a range of companies (including HTC, Samsung, LG and Motorola) aligned under the Android banner. This has resulted in a complete change in the pecking order for smart phones in just a year. And to make matters worse for Nokia we have also seen the unbelievable rise of Chinese companies in Europe such as Huawei and ZTE. They are undoubtedly going to give some of the more traditional players a run for their money in all parts of the mobile business. And of course we shouldn't overlook the Blackberry and Apple smart phones which today have a significant slice of the market.

NFC World Congress 2011

The stir all started just a little before the conference when the new boss of Nokia Stephen Elop sent out an email to staff where he compared the position of the company to somebody standing on a burning platform in the North sea where the option is to get frazzled or jump into the icy water below. It is difficult to argue with such frankness and the logic is inescapable because Nokia has clearly lost the way with Symbian its traditional smart OS and MeeGo the new operating system which seemed unlikely to fare any better. We support Stephen Elop's analysis but reject the solution of adopting Microsoft's Mobile Phone Platform. Given that Stephen came from Microsoft to Nokia perhaps this was inevitable, I think we predicted as much in our previous article on the mobile wars (November 2010). Anyway this may provide the differentiation butas far as we can see the main gain would go to Microsoft, there are better ways as we will show.

Our analysis needs to start with the mobile phone itself, when is a phone smart or not so smart? The requirement is all about being able to run applications on the phone, in the early days that meant SIM Toolkit which allowed applications to be loaded into the SIM card and to gain access to the keyboard and screen data from the phone. It's still around but swamped by smart phone operating systems, originally Symbian from Nokia but then IOS from Apple, the Blackberry OS, Microsoft's mobile OS and of course Android from Google. This makes the mobile phone like a PC and SIM Toolkit like some old Austin 7 competing with the latest Ferrari.

Early morning readers will not have missed the significance in the passing of power from the network operators to the mobile phone manufacturers. Applications under SIM Toolkit were controlled by the operators, applications running on the mobile phone operating system are controlled by the phone manufacturer. What a trick the network operators have missed and one which in my view will be impossible to reverse. There was absolutely no reason why the SIM applications couldn't have been made very sophisticated, after all the network operators specify the mobile phone because they are the primary customer. They also had the advantage of controlling the security of the phone, but that has arguably gone as well except in terms of the underlying phone billing mechanism, more on SIMs and NFC to follow.

Anyway the first immediate observation here is that Nokia is struggling in the application world against Apple and the up and coming stores surrounding Android and possibly the Blackberry App World where RIM is now focussing considerable attention. I would go as far as to say they are a non starter, the Nokia Ovi app store has some 30,000 applications compared with the 350,000 from the Apple app store and some 150,000 from the Android market. The Blackberry App World is at about 18,000 apps but I think this is going to rapidly increase this year. I can't imagine any developers giving much time to Nokia while they are in this transition mode. And just to put it in perspective the Microsoft mobile apps market stands at about 8,000 applications.

The thing is that people have been saying that the market for non smart phones is huge and will carry on for years to come so even if Nokia lose out on smart phones they will still dominate non smart phones. This is blatantly wrong on 2 counts, first of all the Chinese are going to be the big player in mobile phones and who is going to compete with them at the bottom end? Certainly not Nokia, and then you have to challenge if there is a long term future for non smart phones. I don't know if turkeys bury their head in the sand but that's the only sort of thinking that would allow you to pass on the future that is clearly based in the world of smart phones. I remember only 5 years ago people telling me that having a camera in a mobile phone is a fad soon to die out whereas today we might more appropriately ask how many phones don't have a camera?

What is it that made the iPhone take off in 2007 to dominate (until recently) the smart phone world? Nokia had been making smart phones since 1996 starting with the Communicator 9000, I still have mine somewhere in the cupboard. The truth is that although Nokia has a long history of smart phones they were always a niche attraction, dare I say it, they were for nerds. The phones often crashed and had to be reset at the most inconvenient moments, but what fun to have a programmable phone. The iPhone just caught the consumer imagination, it was sexy to look at and feel, fun to use and it just worked in an intuitive fashion. This is what the competition is up against.

Up until this point Nokia had a reputation for magnificently engineered products, they were reliable and worked extremely well as mobile phones. The jump into operating systems for 3rd party developers was to become a battle in which the final outcome has been Nokia's withdrawal from phone operating systems with the loss of many jobs in R&D, critics have said as many as 6,000 heads from a total R&D size of 13,000. Nokia never managed to match that intuitive and sexy feel of the iPhone, the software was often buggy and even today the user interface can be obscure.

So what is the way out for Nokia? In actual fact we would propose that Nokia should go back to its routes, build upon its strengths and then add something a little new. So the first thing to do is to get back the reputation for the best engineering in the world of mobile phones, a reliable quality product, the competitors can be beaten here and even Apple has had its fair share of problems and not just the antenna that was easy to short out depending on how you hold the phone.

Now this might sound like heresy but the phone operating System (OS) just needs to do the job. It needs to let you easily add applications that from the users point of view can be engaged in some seamless fashion. The user wants a big choice of apps with an OS that doesn't constantly need to be reset. I personally have a high regard for the skill sets hidden away in Microsoft but somehow they haven't got their story right when it comes to mobile phones and you can tell that by the dismal following of phone manufacturers, users and developers. The customer is not going to be religious about whether the OS comes from Google, Apple, RIM or Microsoft it is only a means to an end, the application is everything. Can Microsoft catch up or is it all too late?

Google purchased Android Inc the original developer back in 2005 but things really started with the formation of the Open Handset Alliance back in 2007 when Android was effectively put forward as an open source OS. Is it conceivable that the major handset manufacturers are going to adopt Microsoft, no of course not, so Nokia is going to be on its own. Realistically it's also going to take at least 2 years to get everything into a shape adequate for a viable consumer product. Will the developers follow or will they concentrate on Apple and Android? I think it's a pretty safe bet that Nokia is about to move into the lull of the equatorial doldrums. I want to argue that there is no advantage to Nokia in the choice of OS, whether it is Android or Microsoft they are not going to make any money out of the OS. But they must have the applications without which they won't make the sales. Nokia you are still big enough, why don't you do both!

So how can Nokia get back to the top position? In addition to returning to the house of engineering excellence the other angle that I think they have missed is security. Android is going to lead into a world of free for alls. We are going to have buggy apps and security problems previously unimagined. Apple is keeping fairly good reigns on its apps and this is a big selling point to the consumer who really doesn't want the phone OS to keep falling over.

There are two things that Nokia can do, one is to closely control the apps that get loaded onto their phones and the other thing is to provide a trusted security end point in the phone that can be used by these apps. Simple enough to say, somewhat more difficult to do but for the company that gets this right, I think they will be in pole position in 3 years time. Just as aside when somebody gets this right then the network operators will have completely lost the security battle because the application providers won't need the SIM.

Dr David Everett, Smartcard & Identity News


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