The End of the (Nokia) Raj

A long time ago, when World War II ended, two things happened. Two brand-new superpowers emerged, the United States of America and the U.S.S.R., and the world very soon organized itself into two camps. As this power shift happened, Great Britain lost its preeminence as a world superpower.

Hobbled by the heavy expenses of the war, Great Britain couldn’t muster up the economic heft needed to hang on to its superpower status. Not long after, the dominoes started to fall. It had no option but to give India, once its crown jewel, independence. The British Raj came to an end. And soon after, the British Empire came to an end.

That little snippet from history is less a political comment, but more as my way of trying to give some context to the mobile industry. All great empires come to an end, and perhaps today, we are seeing the beginning of the final days of Nokia, world’s largest mobile phone maker and the company that, among other things, championed the very idea of a smartphone.

After Apple (s AAPL) and Google (s GOOG) changed the rules of engagement of the mobile industry, Nokia has found itself becoming less and less relevant. For nearly four years, it has been in denial when it comes to the software-centric mobile platforms (and ecosystems). Nokia has failed to respond to its rivals. All it did was talk and talk and deny that Apple was a problem.

Low End Low Blow

Every single time, I took Nokia to task, I was flamed in the comments, with many arguing that it was still a very big brand in Asia and Africa and it had the volume. And, yes, Nokia was big in India. It was making so much money in India and other emerging markets that it failed to realize that it was beginning to lose ground in Europe. Moreover, the Americans had shifted mobile’s center of gravity to Silicon Valley.

Almost two years ago we wrote about the emergence of MediaTek and low-cost Android smartphones, which were eventually going to kill everything on the low end of the handset business. Nokia, my rants not withstanding, failed to realize that it was a frog that was being slow-boiled at the low end by the MediaTek-based phones and by Apple’s heat lamp on the top.

Just this week, Strategy Analysis came out with a report that both Nokia and Samsung were getting a lot of competition at the low end of the market from Indian handset makers with exotic names like Lava, MicroMax and Spice. These companies are going after very cost-conscious buyers in rural India, which incidentally is a massive market.

“National pride is a factor, but when people spend almost 4 percent of their annual income on a mobile phone, they are going to make purchase decisions based on what will get them the most for their money,” said Tom Elliott, Director of EMCS in a news report. How much do you want to bet that India won’t be making that much money for Nokia!

Indian and Chinese manufacturers know that they have a massive market, and they can use their domestic strength to springboard to other markets. Indian phone companies are looking to expand to Africa and other parts of Asia, so why shouldn’t Indian phone makers harbor such ambitions? It also goes for the Chinese brands — Huawei and ZTE are already making a killing. Nokia, which has ruled the emerging (phone) markets for so long isn’t going to rule them — its raj is over.


Now let’s look at today’s deal: Microsoft and Nokia.

Earlier this week, I wrote a post about how companies have a tough time trying to reconcile with change. Make no mistake: Nokia is a great hardware company with awesome logistics capabilities. As a result, it makes perfect sense that it should focus on its core strengths, and it is doing so by teaming up with a partner who has the desire to spend billions to build an ecosystem. The problem is that it is picking the wrong partner.

There has been a lot of emotional outpouring on the Microsoft-Nokia partnership, so I won’t repeat much of it. Instead let me explain why picking Microsoft is the wrong strategy. Windows Phone 7 is a nice and interesting platform. Its difference has gotten it kudos. What it hasn’t been able to do is get a lot of developers. And despite all the public boasting, it doesn’t have that many users: only 2 million shipped sold. Those quibbles aside, Windows Phone 7 has a much bigger problem.

Four years ago when Apple launched the iPhone, it essentially defined the metaphor for a very touch-centric, smartphone world. Later when it added apps, it only reinforced usage behavior. The subsequent launch of Android OS and Android-based phones were a reflection of the user experience that had been popularized by Apple.

Today, from an average phone buyer’s perspective, Apple’s and Android’s UI is essentially the standard that consumers expect from a smartphone. Do Microsoft and Nokia truly expect that people will learn yet another new behavior? I think the two companies are being overly optimistic in their belief that their UI is going to catch fire with consumers just because Nokia is putting Windows Phone 7 on its smartphones. It is akin to buying a sports car today, hoping to pay for it with by winning the lottery on the weekend.

In a colorful note today titled “Ctrl+Alt+Del,” RBC Markets analyst Mark Sue asked the question: “This is a major reboot and it will take some time for Nokia to offset the decline of its Symbian devices with Win7 phones. Will this be a true partnership or will bickering stall the process before the first phones are shipped?” The bickering he is talking about is between happy friends today!

Mountbatten of mobile

So am I faulting Nokia for partnering with a third-party OS? No, I am not. In fact, if they were going to make the move away from their own proprietary operating systems, then they should have opted for not just Microsoft OS, but also for Google’s Android and whatever else is out there. Today Microsoft, Android in a few months, and whatever comes next — that would have been the right strategy. In other words, take a page out of Samsung’s playbook. It would have allowed them to have scale, have multiple market entry points and essentially leverage their core DNA: their ability to make good hardware and use their logistics to push it into the market.

Now imagine if the market gives Windows Phone 7 on Nokia a big thumbs down. What happens then? Curtains?

I can’t but feel that Stephen Elop, the Nokia CEO, is the Lord Mountbatten of mobile, essentially overseeing the slow and sure demise of this once proud company that ruled the mobile planet. In a few years, we will look back and see Nokia as yet another mobile brand, jostling for market share with the likes of Sony Ericsson, Samsung, LG, Motorola, the Chinese, the Indians and Apple. It will have the history, it will have the pomp and circumstance — it just won’t have the power.

The Raj is over!

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