Today it emerged that Samsung overtook Nokia to become the world’s number one phone maker in the first quarter of this year. This marks a major turning point, not just for Nokia, but for the phone industry as a whole.
This article will outline some of the key reasons why I believe that Nokia will slowly die out as one of the leading phone manufacturers worldwide. I don’t envisage that the company will cease to exist entirely, but that it will not be recognisable from the company we have known for the past decade.
I’ll lay my cards on the table first. I was a loyal Nokia user for many years, having owned a succession of Nokia’s flagship phones. When I entered the mobile phone world, Symbian was king it was arguably the best phone operating system around.
Eventually though, Symbian ran out of steam and became dated and unworthy in today’s touchscreen world. Apple and BlackBerry were only too ready to pick up where it left off, with Android entering a short while later. The rest is well documented, but like many people, I felt that Nokia’s user interface was becoming dated and I reluctantly jumped ship to a more modern OS.
Nokia’s slowness to fill the gaping hole that Symbian left was the start of a painful and introspective time for Nokia and while their fight back is well underway, with their Lumia series of phones, my prediction is that the once all-conquering phone maker is on a slow march to it’s eventually demise, and here is why:
1. Nokia phones now run Windows.
Let’s get this out of the way first. Nokia’s Windows Phone operating system is going to turn a significant amount of the population away simply because it’s associated with Microsoft and Windows. Microsoft has reputation for producing essential and useful, but bloated and cumbersome software which was once prone to crashing on a daily basis and still grinds to a halt from time to time. Add anti-competitive behaviour into the mix and Microsoft’s early forays into mobile, with Windows Mobile, and the brand has a somewhat shaky reputation. Admittedly, most consumers no longer despise Microsoft, and many positively love what Bill Gates is doing to improve the world, but the fact remains that some users will not even consider owning a phone running Microsoft software. Many will not even bother to visit the local phone shop to see what the Windows Phone OS has going for it. Similarly, the fact that the Nokia phones now come preinstalled with Microsoft Bing as the default search engine, is a major turn off. While this can be switched to Google, plenty of consumers will be oblivious to this, and their first impressions of using their Nokia Windows Phone will be of lower quality search results, to put it politely.
2. Nokia is not Android or Apple
The world buzzes with talk of Android vs Apple, Apple vs Samsung, Android this, Apple that. Your friends will discuss the pros and cons of switching from Android to Apple and vice versa. While Windows Phone has had a positive reception, it wasn’t the operating system that made Apple and Android quake in their boots. It is simply an alternative, should you want to try something different. I predict that it will always remain the third player, slowly gaining market share, but it will not dominate. To turn their fortunes around, Nokia needed Windows Phone to be a number 1 or number 2 operating system. They needed people to be buzzing about their chosen operating system, like Android and Apple users do to their friends and colleagues. This simply isn’t happening.
3. They struggle in North America
Europe and the emerging markets have traditionally been Nokia’s stomping ground, rather than North America. Apple, BlackBerry and a host of Android phones were the phones of choice for most Americans and Nokia never really gained a strong foothold in America. Customers in North America often miss out on Nokia models, including phones such as the Nokia N9 and the recently announced Noka 808 PureView 41 megapixel monster. As long as Nokia lacks strong relationships with the large American carriers, they will not gain significant market share in the important North American market.
4. Their emerging market strategy will not save them
As their market share in the western world has declined, Nokia has pinned its hopes on growth in emerging markets. They believe that not everyone can afford a top-end smartphone and aim to provide emerging markets with their traditional feature phones and low-end smartphones. While emerging markets do have lower spending power than the west, the price of high-powered smartphones is coming down rapidly. As Nokia try to cater to the lower-end of the market with their low-spec phones, the likes of China’s ZTE and Huawei will target those same customers with competitively priced top-end smartphones, further eroding their global market share.
5. They have no tablet strategy
The verdict is still out on whether tablets will take over the world, but when I saw Rupert Murdoch go off on a tangent yesterday at the UK’s Leveson Inquiry about how he expects to see billions of tablets in the world within 5 years, it made me think. Murdoch is a man who sees the bigger picture and he says such things about tablets because he sees newspaper sales declining massively. He sees newspapers shifting online and he knows that people won’t stop consuming news. What will change is the medium of the newspapers. Tablets will fill the void that newspapers will leave. Some newspaper-centric tablets will no-doubt be super-slimmed down versions of the relatively chunky tablets of today, but tablets will be here to stay and in massive numbers. Where does Nokia fit into this trend? There is talk of a Nokia Windows 8 tablet, but don’t expect it to set the world on fire, let alone any newspapers.
6. They don’t have an ecosystem
Smartphones, tablets, PCs and televisions are converging towards ecosystems where consumers with ‘matching’ devices will one day be able to seamlessly transfer, share and consume content between their devices. We have the Google ecosystem, the Apple ecosystem, the Microsoft ecosystem and some smaller ones like Amazon, with its tablet / e-book / film distribution ecosystem and even Samsung’s offering of phones, tablets and TVs. Nokia will exist as just a small subset of the Microsoft Windows ecosystem and while they might benefit in terms of handset sales, the company is not inherently gaining from the Windows ecosystem. This is a key strategic loss for Nokia.
7. Their marketing misses the point
To me, Nokia’s marketing efforts remind me of my time working in large organisations. Like many corporate budgets, if my marketing budget wasn’t spent in a given financial year, the finance department would take some of it back the following year. This led to some interesting last-minute spending sprees and when I look at Nokia’s sometimes gimmicky marketing, high concept / high budget TV ads and vague messages, I wonder whether they sometimes spend for the sake of spending. I also see their marketing efforts like a scatter gun, sending different messages in different directions; while other phone manufacturers seem to have a clear and simple message to communicate to consumers.
8. Their brand is declining
Nokia was once an aspiration brand at the top of their field. Their flagship phones were at the cutting edge and their vast product line catered for every demographic. Unless their Lumia range really picks up steam, their identity is that of a company that has seen its glory days. Their brand is like an aging pop start that you once looked up to and you still respect, but you’re feeling a bit sorry for now because they’ve fallen on hard times. You might point out that the kids playing football in African villages might still see their local store adorned with a giant Nokia logo, but as China grabs land, resources and phone buyers across Africa, don’t be surprised if the faded Nokia logo is replaced with the red and white of Huawei.
9. As they shed their excess fat, the rolls remain
Nokia was, and still is, a gigantic corporation. Stephen Elop is doing a good job of shedding significant fat from the company, but I can’t help but think that they will stubbornly hold on to departments and research divisions that just aren’t essential to the future of the company. Companies that they have acquired over the years will continue to feed off their parent like blood sucking feeder fish living off a whale. I have always admired Nokia for their achievements in the field of research and development and I’m sure they hold some important patents, but how often do we see the future technology press releases incorporated into smartphones?
10. Their share price will drag them down
I’m not a finance expert, but if investors see the signs above, then Nokia’s share price will embark on a downward trajectory that only an iPhone-like product miracle will prevent. Nokia has the chance to turn their company around with the hiring of Elop and the decision to go with Windows Phone. If consumers aren’t convinced and investors loose faith however, the share price will slide and the company will slowly enter into a vicious circle of negative growth and cost cutting lasting into the foreseeable future.
Now don’t get me wrong, I would love to be proven wrong and I’m partly playing the devil’s advocate here, but this is mostly how I see Nokia’s future. I still admire Nokia and still believe they make the best hardware, have the greatest innovations and as a giant multi-national born in a small Nordic country, they deserve respect for achieving what they have. But given the direction of travel in the smartphone world, the rise of tablets, the shift of spending power to Asia and the shift of manufacturing power to Asia, I can’t see Nokia surviving in anywhere near it’s current form in the medium to long term.