Nokia is probably going to announce yet another stellar quarter on April 17 – unique in the industry where their traditional competition seems to fail – most notably Motorola. Their 40% market share, a well-oiled product design and manufacturing machine and a $3.6 billion marketing budget will keep them executing well in the direction they pretty much get to choose. Still two years ago they did not get to choose that direction but were instead penalized by large global carriers such as Vodafone and Orange who felt Nokia was invading their turf. Hence, Nokia took a step back and positioned themselves as a serf to the mighty carriers. Now it seems the time has come for Nokia to stop being ‘almost pregnant’ and to fire on all cylinders: the launch of service portal Ovi and the pending acquisition of NAVTEQ are preludes to a bigger plan in the works. Or is there one?
(Knowing the Finnish mentality, the Nokia attitude was probably earlier rather counter-productive to their US success – they were highly arrogant and insensitive towards US carriers, at least based on some anecdotal evidence. In later years when the Nokia market share in the US dropped to ten percent they became more ignorant than arrogant. At the same time they saw an opportunity to launch the US direct-to-consumer phone retail operations but mysteriously they did not take that challenge very seriously – maybe the hopes of large AT&T phone orders were still holding them back.)
My industry analyst friends who focus solely on Nokia and their competition have spent a lot of time on better understanding how the disruptive innovation strategies of Apple and RIM are carving them a strategic base to launch an offensive. They talk about a classical ‘David-Goliath’ setting where Nokia is unable to respond due to their size and cultural and business model asymmetries.
So this is where we have come to: Nokia has in my view practically exhausted their traditional competition, including Samsung and LG – the relevant threat is coming from Apple and RIM. Who would have guess still two years ago? And who knows now what goes on in the head of the Goliath? Do they really see David and understand what weapons he is preparing to launch? Did we understand what went on in the head of Motorola when it was basking in the success of the RAZR? Did we anticipate it to be able to look into its brain two years later and find nothing but emptiness?
My friends say Nokia is selling beer, Apple and RIM are running a night club. In a night club business entire experiences are the added value and they are monetized through selling beer. Can Budweiser beat Hard Rock Cafe by launching better beer? Would night club patrons associate themselves with Budweiser Clubs? Would Anheuser-Busch know how to run clubs?
My friends claim an incumbent like Nokia cannot change their business model fast enough and comprehensively enough to block and deter the invaders. In a few years Apple and RIM will have eaten into its position and have a much stronger fighting position. According to the theory, Nokia will fail based on three scenarios that will all result in being either outright failures or ineffective:
1) A s a first response, Nokia can try to insert its existing products into a new value chain that resembles that of the entrant – but the result will not be seamless enough to optimize end-user value
2) As a secondary response, Nokia can acquire companies that represent a viable new business model matching that of the entrant – but company internal ‘antibodies’ in the form of processes, incentives and priorities will kill it. Nokia is indeed one of the best-run companies in the world to execute on what it is doing right now.
3) As a tertiary response, Nokia can try arms-length management of a new corporate entity, ending up in poor execution.
This is a classical challenge we faced at Ericsson some ten years ago. Now ten years have passed and some companies have succeeded, others failed. Nokia’s success is very much due to great execution on emerging markets, in conquering virgin ground. It has much less merits in changing mature industries and/or taking dominant positions in industries that have their global power base in the US (software industry, music industry). It seems like the reorganization of mature industries requires more what Apple has: a strong charismatic leadership and a ‘change instrument’ in the form of a win-win business model that results is fast buy-in from relevant partners in the ecosystem. The ultimate goal of Apple is to marginalize the traditional music companies and dominate them. In the telecom industry their goal is to dominate the carriers (without buying expensive spectrum) but the market situation and the size of the carriers suggests they should eat the elephant carrier-by-carrier and country-by-country. Ultimately, my friends predict that the success of iPhone will be so fundamental that in ten years 90% of the AT&T Wireless profits will originate from channels using/pushing Apple products. That’s called a strategy.
What is the Nokia media industry strategy? Will they have the smarts of the likes of Jobs/Murdoch/Malone/Diller to defend their turf and to create sustainable competitive advantage? Is Nokia now pregnant or almost pregnant in becoming a truly consumer-facing 360 degrees experience? What will they do if Ovi fails to gain traction – kill and replace with large acquisition? Are American media companies blind to Nokia’s global power position? After all, in the telecom industry there are no American global success stories when Motorola’s star stops shining… Do they understand the relevance of this? Do they understand the velocity of frictionless mobile market (not America) where platforms are homogeneous and innovation is better benefiting the consumer?
We are living in interesting times – this is what we in the mobile industry had to wait for more than ten years. So much more to write and looking forward to your comments.
