Nokia phones
From Invertopedia, the encyclopedia of how things fail
Nokia was the world's largest maker of mobile phones from 1998 to 2011[2]. After the iPhone and Android, its smartphone share fell from 38 percent to 28 percent in 2010 alone[1], and in early 2012 Samsung took the top spot[2]. In 2013 Nokia agreed to sell its phone business to Microsoft for €3.79 billion, plus €1.65 billion to license its patents[3]. In July 2015 Microsoft wrote down $7.6 billion on the business and announced 7,800 job cuts, mostly in phones[6].
Contents
The bet
Nokia believed its lead in making and selling phones would carry it through the shift to smartphones. It ran its own operating system, Symbian, on most of its phones, and was working on another, MeeGo, for the future[1].
When that stopped working, the second bet was Microsoft. In February 2011 chief executive Stephen Elop moved Nokia's smartphones to Windows Phone, saying "the game has changed from a battle of devices to a war of ecosystems"[1]. Nokia had looked at Android but felt it "would have difficulty differentiating" there[1].
What happened
| 1998 | Nokia becomes the world's largest handset vendor.[2] |
|---|---|
| Jan 9, 2007 | Apple announces the iPhone.[7] |
| 2010 | Nokia's share of the smartphone market falls from 38 percent to 28 percent, according to IDC.[1] |
| Feb 2011 | Elop sends staff a memo saying Nokia is standing on a "burning platform."[1] |
| Feb 11, 2011 | Nokia and Microsoft announce that Windows Phone will replace Symbian as Nokia's main smartphone platform. Elop warns of "substantial" job losses.[1] |
| Q1 2012 | Samsung ships 93.5 million handsets to Nokia's 82.7 million and ends Nokia's 14-year run at the top. Nokia's shipments are down 24 percent from a year earlier.[2] |
| Sep 3, 2013 | Microsoft agrees to buy Nokia's Devices & Services business for €3.79 billion and license its patents for €1.65 billion, €5.44 billion in all. About 32,000 people are expected to move to Microsoft.[3][4] |
| Apr 25, 2014 | The deal closes. Elop becomes head of Microsoft's Devices Group.[5] |
| 2014 | Microsoft cuts 18,000 jobs, 12,500 of them former Nokia employees.[6] |
| Jul 8, 2015 | Microsoft writes down $7.6 billion on the phone business, more than the deal price, and announces 7,800 job cuts.[6] |
The kill shot
Nokia's lead was in hardware and distribution, and that stopped mattering once software and apps became the phone. Every way back meant running someone else's software.
Nokia made more phones than anyone, but the iPhone and Android changed what people were buying. By February 2011 Elop was telling staff the company stood on a "burning platform"[1], and the move to Windows Phone was, in the words of CCS Insight analyst Ben Wood, "a clear admission that Nokia's own-platform strategy has faltered"[1].
The switch left Nokia caught between two systems. In the first quarter of 2012 new Lumia phones could not make up for the fast decline of Symbian, and Nokia shipped 11.9 million smartphones against Samsung's 44.5 million and Apple's 35.1 million[2][8]. When Microsoft bought the business in 2013, The Verge wrote that the deal's emphasis on Nokia's low-end Asha phones lent "some credibility to the notion that Nokia's high-end strategy isn't working"[4].
Red flags ignored
- Its own platform was falling behind. Smartphone share fell ten points in a single year, 2010.[1]
- Two operating systems, then three. Symbian, MeeGo and Windows Phone all had to be carried at once during the switch.[1]
- Talks that began only in November. The Microsoft partnership that set the company's future was put together in about three months.[1]
- Volume at both ends gone. In early 2012 cheap feature phones stalled in emerging markets while Lumia could not replace Symbian.[2]
The cost
Nokia's phone business sold for €3.79 billion, with another €1.65 billion paid for a patent license, about $7.2 billion in all[3][4]. Microsoft wrote down $7.6 billion on it, more than the original price, and took a restructuring charge of about $800 million[6].
The jobs went in two waves: 18,000 cuts at Microsoft in 2014, 12,500 of them from Nokia, then 7,800 more in 2015, mainly in phones[6]. Satya Nadella told staff Microsoft was "moving from a strategy to grow a standalone phone business"[6].
The inversion
Know which part of your product customers will care about next, not which part they care about now. When the value moves from the box to the software, own the software or be ready to stop making boxes.
What survived
Nokia itself. It kept its patent portfolio, licensing it to Microsoft for 10 years, kept ownership of the Nokia brand, and kept its HERE maps business, which it licensed to Microsoft[3]. Microsoft honored existing Nokia phone warranties after the deal closed[5].
References
- ^ “Nokia and Microsoft form partnership”. BBC News, February 11, 2011. The Windows Phone partnership, Elop's "war of ecosystems" and Android quotes, Symbian and MeeGo sidelined, the 38 to 28 percent share fall in 2010 (IDC), the "burning platform" memo, Ben Wood's quote, talks starting in November.
- ^ “Samsung overtakes Nokia as the world's largest mobile phone maker”. MalaysianWireless, April 30, 2012, quoting Strategy Analytics. Q1 2012: Samsung 93.5 million, Nokia 82.7 million, down 24 percent; Neil Mawston's statement that Nokia led from 1998 to 2011, for 14 years; Lumia unable to offset Symbian.
- ^ “Microsoft to acquire Nokia's devices & services business, license Nokia's patents and mapping services”. Microsoft press release, September 3, 2013. €3.79 billion for the business, €1.65 billion for the patent license, €5.44 billion total, 32,000 employees, Nokia keeps its patents, brand and HERE.
- ^ “Microsoft buying Nokia's phone business in a $7.2 billion bid for its mobile future”. The Verge (David Pierce), September 3, 2013. The $7.2 billion deal, euro split, 32,000 staff, Nokia's high-end strategy not working.
- ^ “Microsoft completes acquisition of Nokia's Devices and Services business, price 'slightly higher' than $7.2B”. The Next Web (Emil Protalinski), April 25, 2014. The deal closes April 25, 2014; Elop heads Microsoft's Devices Group; warranties honored.
- ^ “Microsoft writes down $7.6B of its Nokia acquisition, announces 7,800 layoffs”. TechCrunch (Alex Wilhelm), July 8, 2015. The $7.6 billion write-down, about $800 million restructuring charge, 7,800 job cuts, 18,000 cuts in 2014 with 12,500 from Nokia, Nadella's quote.
- ^ “Microsoft says no more Zunes, it's all about the phone now”. PCWorld (Peter Sayer), October 4, 2011. Apple announced the iPhone on January 9, 2007.
- ^ “Samsung overtakes Nokia, Apple in mobile handset race”. The Register (Bill Ray), April 27, 2012. Q1 2012 smartphone shipments: Samsung 44.5 million, Apple 35.1 million, Nokia 11.9 million.