Why Nokia Chose Stephen Elop

Nokia (s nok) today named Stephen Elop as the new President and CEO of the Finnish phone-maker, effective Sept. 21. Elop is leaving a senior role at Microsoft (s msft) to replace Olli-Pekka Kallasvuo, a 30-year member of Nokia who stepped into his leadership role in 2006. The announcement confirms the speculation a few months ago that Nokia was seeking a new leader from outside of Finland for the first time in the company’s history. Kallasvuo leaves Nokia, and its board of directors, with a severance approximately equal to € 4.6 million ($5.84 million).

I’ve previously argued that Nokia is a hardware maker that wants to be a software and services company. Naming Elop to the top spot continues Nokia’s desire to excel in software and services. Why? Elop recently led the Microsoft Business Division, which is responsible for products like Microsoft Office and Sharepoint. He was the COO of Juniper Networks prior to that, and was president and CEO of Macromedia when Adobe (s adbe) purchased his company. In other words: Elop is a software and services man, which is exactly what Nokia needs to have a chance at realizing its vision of providing hardware, software and services.

I’m still not sold that Nokia’s vision is the right one, however. It’s taking far too long for all the pieces to be put into place. Meanwhile, the high-end smartphone market — which often yields the highest profit margins — is racing along as Nokia’s strategy slowly takes shape. By the time a MeeGo device arrives later this year, for example, Nokia’s freshman effort will be competing against products that have been maturing over the past three to four years. In the world of smartphone, which is growing far faster than the feature phone space, that’s an eternity.

My take is that the Nokia board has a similar thought: Under Kallasvuo, it was taking too long for the software and services strategy to unfold. Yes, Nokia has been selling more handsets than anyone else in the world, but the average selling price (ASP) of those units is around $60. The ASP of Apple (s aapl) handsets is roughly 10 times that figure, which is why Apple can afford to sell fewer phones, and of those Apple does sell, it continues to reap rewards through a rich ecosystem and application store.

Nokia’s board understands this challenge. Heck, anyone that has looked at Nokia’s last quarterly financial statements can see it. Although you can’t turn a supertanker quickly, Nokia’s board gave Elop the helm to move the software and service strategies amidst the speedboats of Apple and Google (s goog). There’s still time to turn the ship, but no company in the smartphone space has yet proven it can return to success after falling behind. The lone exception is Motorola (s mot), which embraced Android: something I’ve suggested Nokia do.

Will Elop captain the next company to make a comeback? That’s hard to say, but if Nokia is set on the software and services path, Elop gives the company a good chance, at the very least.

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