Summary
While the iPhone has captured all of the buzz, Nokia still has great strengths in terms of scale, design, and operations within the confines of more traditional and lower cost handsets. Nokia has invested significantly both internally and through acquisitions in the high end of the smart phone market. For many years this yielded "brick sized" phones that appealed to only a few. Nokia's execs talk about avoiding a "me too" strategy, but that has proven difficult in practice.
Analysis
I have great respect for Nokia as a company. I worked with them during the launch of the 6160 and the original AT&T flat rate plan in the US. The product was far easier to use than the Motorola phones which dominated at the time and the flat rate plan was a true innovation in the marketplace. They also had grown an internal software development capability which was the best in the business. It is also notable that they continued to show operating strengths as many others completely outsourced all production.
Unfortunately, Nokia seemed to loose their way as they pursued smart phones. Their alliance and then acquisition of Symbian yielded only unwieldy brick phones for many years. I was very impressed with Symbian in the mid-90s. Nokia struggled to integrate this world class capability with its own software and hardware teams. These products had great interfaces but in form factors which were completely unacceptable to most customers for use as a phone. It took many years for this market feedback to sink in at Nokia.
At their core, Nokia is a hardware company. This point was raised in the article reviewed, but probably even more emphasis needs to be placed on this. I believe that they can innovate in terms of the hardware platform and individual products. Where they fall short of Apple is in creating an ecosystem fueled by software and services. Apple has built a huge barrier to entry in the top end of the market via their iTunes music and applications breadth. It would take very deep pockets to try and replicate this, a move that seems unwise. This is also the chief reason that I am not bullish on the prospects of the Palm Pre, which attempts to take on Apple in the strongest suits. The Pre really exceeds what most people thought was possible, and it is still likely to fail.
Nokia will be best served with focus on innovation in the mass market and for global audiences. The article cites several examples of payment innovation in global markets. This looks promising. The article also points out the global distribution network. This is also a great strength and can provide customer feedback where Apple does not have direct access. While Apple is dominant in their market, it is not perfectly clear how much of the total market this will be. RIM has continued to innovate within their core email intensive segment. Then there is the youth market of super-texters and a bunch of others. There seem to be plenty of areas where Nokia can both innovate and dominate with their scale. Trying to take on Apple at their strengths just risks diluting management attention toward me too products that are sure to carry far lower margins than any Apple product.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
