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Nokia: We're standing on a burning platform

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  • User profile image
    Ray7

    Sorry for copying this out in full, but I don't remember ever seeing a memo like this before. It was sent to all Nokia employees from Stephen Elop, their recently installed CEO:

    Hello there,

    There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

    As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

    He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

    We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

    Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

    I have learned that we are standing on a burning platform.

    And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.

    For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

    In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

    And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

    Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

    While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

    The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

    We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

    At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

    At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

    And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

    The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

    This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

    On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

    Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

    How did we get to this point? Why did we fall behind when the world around us evolved?

    This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.

    Nokia, our platform is burning.

    We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

    The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

    Stephen.

    Wow. 

    Brutal and honest. Good luck to them.

  • User profile image
    CKurt

    Indeed wow!

    Lets just hope they don't jump onto the Andriod ship... WP7 could use this very hard!

     

  • User profile image
    Ray7

    @CKurt: I really don't see how jumping onto Android would help them, to be honest. What Nokia needs is a reason for folk to buy Nokia. With so many Android devices already available, they'll find it hard to stand out.

    WP7. Still not sure. Is the Windows Phone market big enough to support another player? 

  • User profile image
    AndyC

    , Ray7 wrote

    WP7. Still not sure. Is the Windows Phone market big enough to support another player? 

    Back in 'the good old days' when phones were mere phones, Nokia won out by building better hardware than everyone else. Partnering with Microsoft to do the software side could be a good move. Should it matter if the Windows Phone market is big enough? If Nokia can take the lions share of that sector with better handsets, it may not matter who falls by the wayside.

    It's a brave memo though, it'll be interesting to see what's coming and if Nokia truly can get themselves out of the decline they've been in recently.

  • User profile image
    elmer

    @Ray7:Dumping Symbian seems a no-brainer, but dumping MeeGo for Android? I also don't see it.

    Given the Nokia-Intel relationship behind MeeGo, and the much rumoured Atom-powered N9, it seems quite unlikely they would want to open yet another can of gasoline and have to compete purely on hardware/price.

    However, adding a WP7 option to accommodate consumers who might balk at MeeGo... maybe.

  • User profile image
    Ray7

    , AndyC wrote

    Back in 'the good old days' when phones were mere phones, Nokia won out by building better hardware than everyone else. Partnering with Microsoft to do the software side could be a good move. Should it matter if the Windows Phone market is big enough? If Nokia can take the lions share of that sector with better handsets, it may not matter who falls by the wayside.

    It's a brave memo though, it'll be interesting to see what's coming and if Nokia truly can get themselves out of the decline they've been in recently.

    I just don't think better hardware is enough to cut it anymore. You need an ecosystem and you need developers to rally around your ecosystem. This is why HP has decided to follow the Apple model and go their own way

  • User profile image
    Ray7

    What if it's not phones at all?

  • User profile image
    Turbodad

    Symbian is done for.

  • User profile image
    figuerres

    , Ray7 wrote

    What if it's not phones at all?

    very possible.... the market is so tight now with the ones that are out there....

    but then what would they do in place of phones ?

     

  • User profile image
    Sven Groot

    @figuerres: Toasters!

  • User profile image
    Dr Herbie

    @Sven Groot: No, it's going to be another tablet isn't it. Everyone else is doing it, so I expect we'll see the Symbian Tabled Edition. It will be rather dull and 'samey'.

    Herbie

  • User profile image
    Dr Herbie

    The boy stood on the burning deck,
    And couldn't think which was unluckier,
    The fact his feet were burning,
    Or the fact he'd dropped his Nokia.

     

    Herbie 

  • User profile image
    spivonious

    Interesting memo. On one hand, it means they're in trouble, but on the other hand it means they recognize it and are committed to "jumping into the icy water".

    It's refreshing to see a CEO of a major corporation be so honest with his employees.

  • User profile image
    Ray7

    , Dr Herbie wrote

    @Sven Groot: No, it's going to be another tablet isn't it. Everyone else is doing it, so I expect we'll see the Symbian Tabled Edition. It will be rather dull and 'samey'.

    Herbie

    Reality: Another tablet with accompanying phone based around two versions of Windows.

    Wishful thinking: Microsoft licenses everything they've learned from the failed Courier project and says, 'See what you can do with it.'

     

  • User profile image
    Bas

    Seeing how some Google executive apparently trashed both Nokia and WP7 in some tweet, I guess the possibility of Nokia announcing an Android device is out.

    Wouldn't it be horrible if they partnered with Microsoft to butcher WP7 into a new NGage?

  • User profile image
    Ray7

    , Bas wrote

    Wouldn't it be horrible if they partnered with Microsoft to butcher WP7 into a new NGage?

    You just had to say it, didn't you.

    Smiley

  • User profile image
    magicalclick

    Leap of faith? Because jumping into freezing pool is not reassuring at all.

    Leaving WM on 5/2018 if no apps, no dedicated billboards where I drive, no Store name.
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  • User profile image
    vesuvius

    @Ray7:If I am honest (despite other posts to the contrary), HP make pretty good machines, and their hardware is quite good. I think they may make it, but they are still tagged as a business brand, hardly wreaking of trendyness (from a consumer and branding aspect), but they make really nice machines

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