Summary:
- Nokia agreed to develop smartphones with Microsoft software
- But Microsoft’s product is without users, developers or apps
- Apple and Google Android dominate developers, app base and users
- Apple and Google Android have extensive distribution, and customer acceptance
- Microsoft brings Nokia very little
- Nokia hopes it can succeed simply by ramming Microsoft product through distribution. This will be no more successful than its efforts with Symbian
- Apple is the winner, because Nokia didn’t select Google Android
“For First Time Ever, Smartphones Outsell PCs in Q4 of 2010” headlined BGR.com. This is a big deal, as it creates something of an inflection point – possibly what some would call a “tipping point” – in the digital technology market. For over 2 years some of us, using IDC data such as reported in ReadWriteWeb, have been predicting that PCs are on the way to extinction – much like mainframes and mini-computers went. Smartphone sales last quarter jumped 87.2% year-over-year to about 101M units. Meanwhile PC sales, a market manufacturers hoped would recover as “enterprises” resumed buying post-recession, grew only 5.5% in the like period, to 92.1M units. No doubt the installed base of the latter product is multiples of the former, but we can see that increasingly people are ready to use the newer, alternative technology.
This week Mediapost.com reported “Tablet Sales to Hit 242M by 2015.” Both NPD Group and iSuppli are projecting a 10-fold increase wtihin 5 years in the volume of these new devices, which is sure to devastate PC sales. Between smartphones and tablets, as well as the rapid development of cloud-based apps and data storage solutions, it’s becoming quite clear that the life-span of PC technology has its limits. Soon we’ll be able to do more, cheaper, better and faster with these new products than we ever could on a PC.
This is really bad news for Microsoft. Apple and Google dominate both these mobile markets. As Microsoft has fought to defend its PC business by re-investing in Vista, then Windows 7 and Office 2010, the market has been shifting away from the PC platform entirely. It’s common now to hear about corporations considering iPads and other tablets for field workers. And it’s impossible to walk through an airport, or sit in a meeting these days without seeing people use their smartphones and tablets, purchased individually at retail, while leaving their PCs at the office. Most corporate Blackberry users now have either an Apple or Android smartphone or tablet as they eschew their RIM product for anything other than required corporate uses.
Nokia has largely missed the smartphone market, choosing, like Microsoft, to continue investing in defending its traditional business. Long the largest cell phone supplier, Nokia did not develop the application base or developer network for Symbian (it’s proprietary smartphone technology) as it kept pumping out older devices. Nokia is reminiscent of the Ed Zander led Motorola disaster, where the company kept pumping out Razr phones until demand collapsed, nearly killing the company.
So the Board replaced the Nokia CEO. As discussed in Forbes on 5 October, 2010 in “HP and Nokia’s Bad CEO Selections” Nokia put in place a Microsoft executive. Given that Microsoft had missed the smartphone market entirely, as well as the tablet market, moving the Microsoft Defend & Extend way of thinking into Nokia didn’t look like it would bring much help for the equally locked-in Nokia. Exchanging one defensive management approach for another doesn’t create an offense – or new products.
It wasn’t much of a surprise last week when the 5-month tenured CEO, Stephen Elop, announced he thought Nokia’s business was in horrible shape via an internal email as reported in the Wall Street Journal, “Nokia, Microsoft Talk Cellphones.” Rather quickly, a deal was struck in which Nokia would not only pick up the Microsoft mobile operating system, but would use their products to promote other extremely poorly performing Microsoft products. “Nokia to Adopt Microsoft Bing, Adcenter” was another headline at MediaPost.com. Bing and adCenter were very late to market, and even with adoption by early market leader Yahoo! have been unable to make much inroad into the search and on-line ad placement markets dominated by Google.
Mr Elop went with what he knew, selecting Microsoft. I guess he’s the new “chief decider” at Nokia. His decision caused a break out of optimism amongst long-suffering Microsoft investors and customers who’ve gotten very little from the giant PC near-monopolist the last decade. Mediapost told us “Study: Surge of Support for Windows Phone 7” as developers who long ignored the product entirely were starting to consider writing apps for the device. After all this time, new hope beats within the breast of those still stuck on Microsoft.
But if ever there was a case of too little, and way, way too late, this has to be it. Two companies long known for weak product innovation, and success driven by market domination and distribution control strategies, are partnering to take on the two most innovative companies in digital technology as they create entirely new markets with new technologies.
RIM, the smartphone market originator, has seen its fortunes disintegrate as Blackberry sales fell below iPhones – even with over 10,000 apps. Today Microsoft has virtually NO apps, and NO developer base as it just now enters this market, “Google Searches for Mobile App Experts” (Wall Street Journal) as its effort continues to expand its 100,000+ apps base as it chases the 350,000+ apps already existing for the iPhone. Where Microsoft and Nokia hope to build an app base, and a user base, Apple and Google already have both, which theyt are aggressively growing.
Exactly what going to happen to slow Apple and Google’s growth in order to allow Microsoft + Nokia to catch up? In what fairy tale will the early hare take a nap so the awakened tortoise will be allowed to somehow, miraculously get back into the race?
Being late to market is never good. Look at how Sony, and everyone else, were late to digitally downloaded music. iPad and iTunes not only took off but continue to hold well over 50% of the market almost a decade later. Over the same decade Apple has held onto 2/3 of the download video market, while Microsoft’s Zune has struggled to capture less than 1/4 of Apple’s share (about 18% according to WinRumors.com).
Apple (and Google) aren’t going to slow down the pace of innovation to give Microsoft and Nokia a chance to catch up. Today (15 Feb., 2010) ITProPortal.com breaks news “Apple iPhone 5 to have 4 Inch Screen,” an upgrade designed to bring yet more users to its mobile device platform – away from PCs and competitive smarphones. The same article discusses how Google Android manufacturers are bringing out 4.3 inch screens in their effort to keep growing.
So, amidst the “big announcement” of Microsoft and Nokia agreeing to work together on a new platform, where’s the product announcement? Where’s the app base? And exactly what is the strategy to be competitive in 2012 and 2015? Does anyone really think throwing money at this will create the products (hardware and software) fast enough to let either catch up with existing leaders? Does anyone think Microsoft products dependent upon Nokia’s distribution can save either’s mobile business – while Apple has just expanded to Verizon for distribution? And Google is already on almost all networks? And where is Microsoft or Nokia in the tablet business, which is closely associated with smartphone market for obvious issues of mobility and use of cloud-based computing architectures?
The good news here is for Apple fans. Nokia clearly should have chosen Android. This would give the laggard a chance of leveraging the base of technology at Google – including advances being made to the Chrome operating system and its advantages for the cloud. No matter what the price, it’s the only chance Nokia has. With this decision the most likely outcome is big investments by both Microsoft and Nokia to play catch-up, but limited success. Results will not likely cover investment rates, leading Nokia to a Motorola-like outcome. And Microsoft will remain a bit player in the fastest growing digital markets. Both have billions of dollars to throw away in this desperate effort. But the outcome is almost certain. It’s doubtful between the two of them they can buy enough developers, network agreements and users to succeed against the 2 growth leaders and the desperately defensive RIM.
Like I said last month in this blog “Buy Apple, Sell Microsoft.” It’s still the easiest money-making trade of 2011. Now thankfully reinforced by the former Microsoft exec running Nokia.
I think you have completely overlooked the fact that Nokia will be contributing Maps, Navigation and associated local advertising opportunities (and hence gaining revenues) to the Microsoft ecosystem. Some other Ovi services will also make it into the ecosystem. Besides, in the US market, Nokia gains a very powerful and rich partner to muscle its way with HUGE advertising and marketing campaigns – something Nokia can never imagine of doing by itself.
Hi Telecomexpert, and thanks for commenting. It’s not that I’m overlooking what Nokia brings, so much as I’m saying that other competitors have the same capability, and likely more before any O/S Mobile 7 product makes it to market. As much as the linkage seems to make sense to outsiders, I further think that both organizations are so locked-in to old operating practices that neither is likely to cooperate well at developing new products, leading to outcomes being slow, and likely not very exciting. I really struggle to identify how Nokia will keep the Android machine, and the Apple innovation, at bay with this decision to go Microsoft. Thanks
I think it’s companies that have inherent dynamism (the evidence is sustained growth) who can forge rewarding alliances.
Otherwise the lack of morale (which is best not denied) in either or both will usually prevail.
Both Nokia and Microsoft are better off seeking new growth markets by way of disruption. The search is something that should have started long ago.
Since they haven’t until now, we could conclude that the flat or declining growth is evidence of a prevailing culture of defend and extend.
Nokia has disrupted itself once when it made the transition into phones. It needs to do so again learning deeply the lessons from then.
Apple disrupted itself once, when it moved into music players, phones and content. I think there it was Steve Jobs who had disrupted himself first.
The fruit of that was Pixar, an incredibly successful example of market disruption. Along the way he had lost, even more, the fear of failure, and the fear of trying new things. NeXT must have provided many lessons.
On his return, Apple re-started disrupting the market.
Microsoft disrupted itself once. That was when Bill Gates decided to abandon the partnership with IBM, go it alone and came out with Windows.
The successful alliance then, was not IBM and Microsoft, but Intel and Microsoft (two inherently dynamic companies at the time.) They outperformed the alliance of Motorola and Apple.
The verdict is still out about the alliance of Nokia and Microsoft, but the signs of the writing are on the wall.
Sadly, employees and investors will be hoping against hope for a return to old growth rates.
Don’t forget the customer lock in that comes with apps. If I have a lot of apps for Apple IOS (iPhone and iPad), am I going to jump to another platform like WP7 to have to re-buy all of those apps again?
The good thing Microsoft has over Android is updatability. I don’t know any Android phones that can be upgraded to a newer version of the O/S. It seems the phone companies just want to sell you another phone. 🙂
And Microsoft Office. That alone will might get the last remaining Blackberry users.
Good points about customer lock-in making user switching more difficult – and about use of MS Office possibly letting Mobile 7 further damage RIM’s Blackberry share. Given what I’ve seen amongst iPhone users Windows isn’t much of an issue for them – so it would appear at first blush as if Nokia’s Windows products are more of a threat to RIM (as you say) than Apple or Android
Good points Wrenj – I think we could consider Bill Gates’ actions to wake up Microsoft and launch IE was a disruption. But otherwise, especially under Steve Ballmer, Microsoft has been loath to launch disruptive products. Mr. Ballmer is a quintessential defend & extend leader!
Under Steve Ballmeer’s control MS has cumulated a number of strategic misses (windows phone, tablets, netbooks). He is simply unable to identify the strategic value of technological innovation.
I have a WP7 phone and I can tell that it is a half finished product, lacking many features which are commonplace in most smartphones for years (it is more limited than the former WP 6.5 with HTC’s Sense).
Let me just add an extra point – while Apple and Google are developing a consistent strategy to position their products as platforms for delivery of digital content (music, videos, but also newspapers), MS totally out of this game.
Just a little comment on Nokia’s deal – they announce that they will discontinue the current platform just after launching a set of new models, when there is not even a Nokia WP7 phone on sight. Who is going to buy these Nokia phones with the defunct Symbian without a big discount? Do they think that their customers are stupid?