Nokia Is The McDonald’s Of Phones

Nokia Is The McDonald’s Of Phones

Didn’t you notice? It was just Nokia World! But with sales plummeting and executives fleeing – both at alarming rates – maybe it should be a reckoning instead.

Let’s not confuse things: Nokia still sells more phones than anybody on the planet. One in three mobile devices sold around the world this year had Nokia stamped on the front. So why are their profits collapsing so precipitously, from $US9 billion in 2007 to $US312 million in 2009? And why can’t they get back in the conversation?

Nokia: Fast Phones

If you’re reading this site, there’s a very slim chance that there is a Nokia in your pocket. Just like you’re probably not cruising Chowhound looking for a Big Mac. And that’s what Nokia makes: Big Macs. They make affordable feature phones that are insanely popular in China and India and much, much less so anywhere else in the world:

Of the staggering 111 million mobile devices Nokia sold in the first half of 2010, 87 million were dumbphones. That’s a lot of burgers.

Of course, even though smartphones are a small percentage of Nokia’s business, the company deals on such a scale that they actually still manage to hold 41 per cent of the smartphone market. That’s a 10 per cent decline from last year, and it’s at least partially because their Symbian operating system has consistently been, for lack of a better word, nightmarish. And early indications say that Symbian^3 on the flagship Nokia N8 – the phone that outgoing chairman Olli-Pekka Kallasvuo recently said would “mark the beginning of our renewal” – doesn’t look much better. McDonald’s might move a lot of lattes, but that doesn’t make it Stumptown.

And like a fast-food chain, Nokia isn’t all that invested in user experience – which in smartphones increasingly equates to software experience. Software which incidentally Nokia could not care less about, according to an email from a former Nokia software engineer to Daring Fireball:

Hardware Rules at Nokia. The software is written by the software groups inside of Nokia, and it is then given to the hardware group, which gets to decide what software goes on the device, and the environment in which it runs. All schedules are driven by the hardware timelines. It was not uncommon for us to give them code that ran perfectly by their own test, only to have them do things like reduce the available memory for the software to 25% the specified allocation, and then point the finger back at software when things failed in the field.

But this comparison does have its limits: McDonald’s makes money all over the world, consistently and in great quantities. And McDonald’s also doesn’t waste untold time and resources trying to invent filet mignon whole cloth.

So Nokia makes its money more through ubiquity and price and cares more about hardware than software. It’s a strategy that used to work before iPhone and Android came along to attack on all fronts. But Nokia’s got to have a plan to get things back on track, right?

Strange Bedfellows

Well… sort of. There’s no question Nokia knows things aren’t peachy: OKP has described their situation as “very tough at the high end”. He’s talking about smartphones. Their plan for the immediate future is the N8, which as I said before doesn’t appear to be an anything-killer. So what’s saving Nokia in the long-term?

Here’s where it gets weird. If you’re a phone company like Nokia that makes pretty good hardware but hasn’t got the first clue on software, you’ve got some options. You could keep throwing money at the problem, staunchly going it alone, hoping one day you’ll get it right. You could embrace, at least on a trial basis, a proven operating system like Android or a promising one like Windows Phone 7. You could ditch or spin off your collapsing smartphone business altogether and focus on the profitable business of mass-producing cheap candybars for underserved markets.

Or you could do what Nokia did: Hitch your star to Intel’s wagon.

The Nokia-Intel love affair’s been blooming all year, starting with the intertwining of their respective Maemo and Moblin platforms to create MeeGo. That move gave Nokia not one but two mobile operating systems in its portfolio, perfect for confusing the hell out of consumers (no matter how nice MeeGo looks):

The two companies are also teaming up to bring 3D interfaces to MeeGo devices, pouring millions of dollars into a new research facility and what amounts to a huge gamble on three or more product cycles from now. They may also be working on a chip together, because in for a penny, in for a pound and all that.

The problem of course is that an Intel and Nokia partnership feels suspiciously like the blind leading the blind. Intel hasn’t come anywhere close to cracking the mobile market, to the point that they’re left trying to buy their way in with acquisitions like Infineon. The two companies are matching size with size, sure, but also weakness with weakness.

A Poor Reception

Where Nokia gets absolutely slaughtered is here in North America. It’s by far their weakest market in terms of volume, largely because of the superior home-grown competition. And it just keeps getting smaller:

Incoming CEO Stephen Elop – a Canadian transplant from Microsoft – knows exactly what the problem is and what’s at stake. As he recently explained to the Financial Times:

“There are new patterns of communication and innovation taking place first in North America… That’s a shift from years before when the development of the mobile industry tended to start in Asia and move through Europe and then to North America. Now there’s fresh innovation in North America and it’s critically important for Nokia to be participating in that market.”

The innovation race is one that Nokia’s losing badly. And the sad part is there’s no indication that they’re about to claw out of the hole they’ve dug themselves. Reading Nokia’s official statements these last few months about the N8, the company sounds like a degenerate gambler just waiting for this one big score to get him back in the game. Every financial release sites its imminent release as the light at the end of a very long tunnel. But – in a clumsy metaphorical extension – it’s just more tunnel.

Nokia still has a place in the mobile world. A huge one. But it’s more 7/11 than Whole Foods, more DSW than Saks. And there’s nothing wrong with that! Until they either embrace it or radically change course, though, this spiral downward only gets worse.