The Smartphone Wars: Nokia&#8217;s Suicide Note
<p>Stephen Elop has jumped his company off the burning platform, all right.  And, I judge, straight into the fire. </p>
<p>No, the choice that seals Nokia&#8217;s doom isn&#8217;t the tie-up with Microsoft (though that&#8217;s problematic enough, and I&#8217;ll get back to it).  It&#8217;s the way Elop has failed to resolve Nokia&#8217;s drift and lack of a strategic focus.  Instead of addressing this problem, Elop plans to institutionalize it by splitting the company into two business units that will pursue <em>different</em> &#8211; and, in fact, mutually opposing &#8211; strategies.</p>
<p>After the brutal clarity of the &#8220;burning platform&#8221; memorandum, this is deeply disappointing.  And <em>not</em> viable.  One of my commenters voiced my very thought: the death spiral begins now.</p>
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<p>The plan Elop has pulled out from under wraps effectively splits Nokia in two.  The &#8220;Smart Devices&#8221; piece own MeeGo and Symbian Smartphones, and is expected to work with Microsoft on developing a portfolio of WP7 phones.  The &#8220;Mobile Phones&#8221; part is expected to &#8220;leverage its innovation and strength in growth markets to connect the next billion people and bring them affordable access to the Internet and applications.&#8221;  The vagueness of this remit is telling.  Clearly &#8220;Mobile Phones&#8221; is expected to milk the Third-World market for Symbian dumb-phones as long as it can, but  &#8220;affordable access to the Internet and applications&#8221; implies low-cost smartphones as well.  </p>
<p>So not only does the new plan bless Nokia&#8217;s internal confusion by breaking the company in half, one of the daughter units (&#8220;Mobile Phones&#8221;) has two incompatible missions, one of which (the smartphone end) is at cross-purposes with the other daughter unit (&#8220;Smart Devices&#8221;).  Another indicator of the those cross-purposes that both units have missions involving Symbian. So, which unit is going to own the Symbian codebase? Are they going to fork it?</p>
<p>Actually, the &#8220;Smart Devices&#8221; unit has confusions of its own.  It&#8217;s expected to manage no fewer than three platforms &#8211; MeeGo, high-end Symbian, and WP7.  Nothing has been resolved here! We&#8217;re looking at a plan that will scatter Nokia&#8217;s management bandwidth and engineering talent in four different directions, formalizing the existence of product-line and line-of-business silos when what the company needed to do was exactly the opposite &#8211; shoot the weak horses through the head, end the internal infighting, and <em>focus</em>.</p>
<p>Unspoken, but left on the table, is a strong likelihood that &#8220;Mobile Devices&#8221; is going to have to add a <em>fifth</em> platform to the mix (that is, after MeeGo, WP7, and two flavors of Symbian).  They&#8217;re supposed to &#8220;bring affordable access to the Internet and applications&#8221;, and one of the pressures behind this reorg is that Symbian simply can&#8217;t carry that load.  With MeeGo assigned to the other business unit, what alternative are they going to have other than to become an Android OEM?</p>
<p>In fact, the only level on which this dog&#8217;s breakfast of trying to do everything at once makes any sense is if Elop wants to preserve that possibility.  Could we be looking at a clever scheme to collect transfer payments from Microsoft with one hand (&#8220;Smart Devices&#8221;) while the other hand makes the real running with low-cost Android smartphones?  I don&#8217;t know &#8211; but one thing to keep an eye on will be relative staffing levels.  If most of the talent and the bodies go to Mobile Phones, might be the actual goal is for Microsoft to be taken for a subsidy-sucking ride by Smart Devices, buying time and capital for the other business unit.</p>
<p>All the old reasons a WP7 commitment was a bad idea remain problems under the new order.  WP7 has bombed in its first quarter; there&#8217;s actual evidence that it&#8217;s not competitive. This means that the alliance does nothing to address Nokia&#8217;s  historic weakness in the North American market.  Then, too, it&#8217;s going to take time to get WP7 to market on Nokia hardware; one of their press releases describes 2011 and 2012 as &#8220;transition years&#8221;, a pretty strong hint that Nokia thinks both business units will have to struggle through a valley of death and shrinking Symbian sales before the new plan starts to bear fruit.</p>
<p>(Would an Android port take less time?  Yes.  Judging by current product cycle times for Android handsets, port time for the handset makers has to be bounded above by 90 days.  My bet is that Android port time is  actually down to two weeks and change. History matters; the Android codebase is designed to be ported in ways Microsoft is probably culturally incapable of even imagining.)</p>
<p>And none of the problems with having someone else own the core software of your product have gone away.  Elop is an ex-Microsoftie and can therefore be presumed to know all of Microsoft&#8217;s tricks for skimming the profit off that kind of relationship while laying the risks off on the hapless partner. If Nokia actually profited from the alliance it would be unprecedented.</p>
<p>Is Elop devious enough to think that &#8220;Smart Devices&#8221; can head-fake Microsoft into supplying the capital for &#8220;Mobile Phones&#8221; to make an Android play?  That&#8217;s the only reading of this crazy plan that makes any sense to me; the alternative is that Elop simply capitulated to Nokia&#8217;s internal confusion rather than even trying to fix it.  </p>
<p>But if that&#8217;s what Elop thinks he&#8217;s doing, he&#8217;s taking a hell of a risk.  The reorg may dissipate Nokia&#8217;s people and energies into so many officially-sanctioned missions that it can&#8217;t execute on <em>any</em> of them &#8211; in fact I think that&#8217;s the outcome to bet on.  It&#8217;s the company that&#8217;s burning now, not the platform;  I would no longer bet on Nokia surviving another 24 months.</p>
<p>UPDATE: Nokia takes a <a href="http://www.hs.fi/english/article/Announcement+of+strategic+partnership+with+Microsoft+leads+to+sharp+falls+in+Nokia+stock+in+Helsinki/1135263731421">hammering</a> on the Helsinki stock exchange as investors react to lack of focus and failure to cut bloated R&#038;D expenses.</p>
