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My Reaction to Nokia and the ‘Burning Platform’ Memo

Radford C. Feb 8, 2011 5

Flames! Nokia is burning!If you’re not familiar with the company name Nokia or only knew of them, there’s a reason for it. Nokia was once a grand and popular brand – a brand I remember seeing often in college dorms and frat parties. But this is 2011. In just a few short years, the cellphone market has simply disappeared but Nokia stuck with the market they were comfortable with. Additionally, not only have they underestimated the growth of smartphones but they floundered on it by putting together an atrocious mobile OS that almost no developers built on (Symbian). Then they tried again with MeeGo and that was it. Game over.

Or at least, that’s what I thought.

Now Nokia has Stephen Elop — formerly of Microsoft — to get the rest of the company to wake up to present time. He left his employees with this tasty memo. Considering the type of work I’ve done (programming) and the many tech-based companies I used to work for, I found it inspiring. I’m sure that many can relate to employees of Nokia. Even though I don’t work for Nokia, this memo was not  just a letter or a morale booster. It was a gut check. It was the full brutal truth of where Nokia stands in the market minus the closed doors.

With the memo out, I’m hoping that Elop will do the right thing and partner with Microsoft to power their phones with WP7 or WP8.

This does several things:

  • It takes frees up Nokia’s resources from developing another internal OS – all which could cost millions in development
  • It can give Microsoft a flagship phone with a new version of WP7 (or maybe WP8)  the same way Android 2.0 debuted with Motorola’s Droid.
  • It allows Microsoft more wiggle room to test their OS on many different types of prototypes yet have the comfort of having to deal with a single large manufacturer.
  • A large manufacturer’s trust in Microsoft’s OS will allow smaller manufacturers to have more confidence in the OS.
  • Opportunity to be in other carriers – Nokia (although ‘burning’) still has their partnerships with their carriers. WP7’s current lineup of phones?  Try 5 phones split between 2 carriers. Ouch.
  • Synched Updates – This is opposed to Android that has been at the mercy of trying to get smaller manufacturers to cooperate with their OS guidelines when a new update comes out.
  • Create more competition and ultimately provide better value for customers.

On February 11, we’ll see what this memo translates into as Nokia does the fire walk of faith.

Out of all the notable quotes in the memo, I believed this one stuck out the most:

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.

Check out the memo in all its full glory.

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.

  • http://www.sjaensch.org/blog/ Anonymous

    Hi Radford,

    you hope that Mr. Elop would join an ecosystem (rather than building or catalyzing one), but you also write that you think it will be a partnership with Microsoft. Well, that would be catalyzing an ecosystem, since as you say yourself, currently there isn't much of it for WP7. Joining an ecosystem would mean using Android as OS. Better make up your mind. :)

  • http://www.facebook.com/radcastro Radford Castro

    @sjaensch – Doh! If Nokia can partner with Microsoft and make a real flagship phone, then yes. I meant catalyze. EDIT: Updated!

  • Freeman

    and now 5 months later, the Burning Platform memo is seen as one of the all dumbest action by a C.E.O, he destroys his current product without having a new product ready replicating the Osborne effect. Nokia brings out the N9 a phone raved about in the tech blogosphere and Elop destroys it. Analyst have come out now to say the Nokia Microsoft partnership is not sustainable and Nokia is not going to profit from it. So, Mr Ramford how do you feel now ?

    • http://www.lazytechguys.com Radford C.

      Osborne effect? Not exactly. It's no secret Elop wanted MeeGo dead. You can't create an app ecosystem with just one phone in the market no matter how good it is unless you're Apple. Just ask the Palm Pre guys. They too initially had a warm reception. Now ask them about their sales.

      I'm an owner of HTC Arrive that runs WP7 and it's phenomenal. The app support is nothing like iOS or Android but it's a good start – apps which are much farther along than RIM, WebOS and MeeGo…combined. Analysts will be analysts. Until Nokia announces that they have stopped development of a WP7 Mango phone, this partnership is still moving on. It's understandable that nokia fans are still sore about the whole MeeGo incident but I think WP7 Mango will change that.

  • Pingback: Nokia World 2011 Keynote Summary – Asha is Palm-like while Lumia ups one on WP7 | Lazy Tech Guys