Yesterday Dee Dutta, CMO of Sony Ericsson was let go. The company had recently given a profit warning indicating a serious missing of targets in Europe. The CMO was busy spending money on a womens’ tennis tournament when the competition took strategic initiatives in a game where Sony should have had a lot of cards to play (music, video and game content). What went wrong? Well, part of it was certainly their ignoring of the low-end product portfolio. Nokia understood early on that Series 60 will prevail over time (as the game is fundamentally about software) but that that urgent battle for marketshare was about creating brand loyalty in entry level phones (youth, developing markets). Sony Ericsson which still seems to be run by the Swedes rather than the Japanse (I am hearing) has traditionally had a culture which favor innovation but also over-engineering. The phones were made to last longer than a German car and the early pioneering products like the R520 in 2000 had features which were only introduced seven years later in the iPhone. How to make money with all that has traditionally been a problem at Ericsson.

To seek clarity of analysis let me turn to my Nordic Oracle again, someone who really understands what is going on:

The SE strategy, as far as I could observe, was to reuse Cybershot and Walkman brands to close the gap for buyers unaware or unsure of the value of multimedia phones, especially in the more brand conscious southern countries. The problem is that once the buyers were educated on the value of media on a phone, the recycled brands held no special value. Once the buyers “get it” they will seek out phones that are positioned on their specific needs which might not be so narrow as camera, music. That’s where the more broad “converged” position comes into play.

In the US, RIM and Palm educated the market on what a smartphone is. As the market matured, unless these early movers improved rapidly on the new basis of competition (i.e. converged data communications) late entrants have a good chance to take the mass market. I see this causality of possible failure not just in Palm, but in RIM and SE as well.

Nokia’s volatility is due directly to the mention by SE of softness in Europe and the amplification of TI’s earlier warning. I have no specific knowledge of Nokia’s performance, but Nokia is far less exposed to European markets than SE. Having said that, there might be margin pressure globally for NOK.

The deeper question is why are high end phones slowing in Europe? Have the current devices run their course with early adopters and failed to cross the chasm? Is the iPhone freezing the market? iPhone did not freeze out RIM in the US, which had a very good value prop, but Palm took a hit. Is SE just the Palm analogue in Europe?

So it seems like Sony Ericsson has been unable to exploit strategic assets to fuel innovation. Too bad for a company which seemingly succeeded in pulling off a formidable task: integrating Japanese and Swedish corporate cultures to collaborate effectively. But add the American culture of Sony Music and Sony Pictures - and things started to look a lot murkier. Is Sony Ericsson going to be another Motorola or does having a brain or two matter after all…?