Nokia’s death spiral accelerates with Microsoft’s deal
When I read Stephen Elop’s “Burning platform memo” to Nokia’s employees, I was impressed.
We too, are standing on a "burning platform," and we must decide how we are going to change our behavior.
Over the past few months, I’ve shared with you what I’ve heard from our shareholders, operators, developers, suppliers and from you. Today, I’m going to share what I’ve learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion – we have multiple points of scorching heat that are fuelling a blazing fire around us.
The memo is worth a read. Rarely has a CEO come across with so much honesty and courage to face the truth. Naturally I expected a very bold and imaginative strategy and I am disappointed.
Though there are multiple points of scorching, Nokia decided to focus on the operating system for the smartphone. Essentially it had 3 options after it decided to abandon Symbian phones; none of which were easy: Go with Android, pursue with its development of MeeGo or go with Microsoft Phone 7. It wasn’t an easy choice.
But the Microsoft deal and more specifically the terms of the deal seems to be a bigger disaster in the making.
The financial markets were quick to see this. Nokia’s shares tumbled 14% on Friday after the announcement as investors came to the conclusion that Nokia will be able to fight Apple or Google in the mobile marketplace.
Let me analyze the strategic arrangement:
Microsoft which just had 4% market share could see the Windows Phone 7 become a mass market.
Microsoft will be able to put Bing – Microsoft’s search engine on Nokia’s phones giving its advertising business a potential boost.
Microsoft will also be able to get royalty revenues for Windows phone which could be anything between $15-$20 per device.
This being a non-exclusive arrangement, Microsoft will continue it’s existing relationship with other smartphone manufacturers like Samsung, Dell, HTC and so on.
Rather than getting locked in with Windows Phone 7 (which hasn’t made any significant headway with the developer community), it could have made a safer bet with Android which could have given them interesting possibilities. The Windows Phone 7 will remain a closed system. With such a miniscule number of apps (less than 8000, compared to iPhone’s 350,000 apps or even Android’s 100,000 apps), there is no advantage for Nokia.
A fair case can be made that Nokia could risk commoditization with Android, but that would inevitably be the case as a number of manufacturers both in India and China are building devices to compete with Nokia.
Getting the Microsoft – Nokia partnership to work together will take time. There’s a huge coordination effort, learning curve costs and sorting out all kinds of conflicts and disagreements. No wonder, Stephen announced that 2011 and 2012 will be transition years; which means no new products from Nokia. The earliest the Windows 7 devices would ship is mid 2012 by which time Nokia would trail far behind Apple and Google. This is no way to respond to a platform which is burning.
HTC, Samsung abandoning the Windows 7 platform is not totally inconceivable; more so if the partnership gets some initial traction. That could make it more difficult for Nokia.
in my view, this is going to be accelerating the death spiral for Nokia The least that Nokia could have done was to maintain multiple platforms – Android, Windows and even continue with MeeGo. Now, it is going to be a slave to Microsoft.
In my view, this will accelerate the death spiral which I pointed out as early as Sept 2009.
I can’t help but ask the question: Whether Stephen Elop maybe having a bigger strategic agenda. He may have brought in not to sell Nokia’s phones, but to sell Nokia or engineer a merger.
I would be curious and watching the space.Share on Facebook
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