Nokia, can you please stop kicking yourself in the head?

Nokia has long been one of my favorite tech companies, but recently I started to lose faith in its future. When an enthusiast/fan says something like that, a company either has a serious public image crisis or serious problems. Both situations are about equally bad. I want to believe in Nokia, I really do, but recent events unravel my confidence.

Nokia's fundamental problem is retreat. The company has started to retreat before the great econolypse. Now should be the time for Nokia to make new investments -- in products and research -- not pull back on them. Retreat signals to competitors that there is vulnerability, which also can unravel customers' confidence about buying new products. In October, I switched from AT&T to T-Mobile, because of constantly annoying dropped calls and in preparation for the Nokia N900. T-Mobile service satisfies, but I still haven't bought the N900. I'm too unnerved about Nokia's future and its product and services strategy.

Nokia's Retreat Documented

My Nokia unnerving has been a process, but one accelerating over just a few months. I'll start with Friday's disturbing Nokia news and work backwards to explain.

Regent store closing. Mobility Today reported that Nokia would be closing its flagship store on Regent Street, London. World of Nokia's Dan Carter lamented that for "a Nokia fan it is a sad day." I agree with that. Over at Engadget, Chris Ziegler expressed my sentiments: "If Nokia can't generate sales in the heart of one of its strongholds -- Western Europe -- we can't imagine that this bodes well for the other flagships either."

Closing even one Nokia store might make sense for a company trying to cut costs. But for Nokia, which excels at lifestyle marketing, the store closure is a big mistake. The flagship store doesn't have to make loads of money. The store should promote the Nokia brand and the mobile digital lifestyle associated with using its products. Since Nokia has so few stores, the company should seek to make them fan customer and tourist destinations. No cost savings can recover what Nokia will lose by closing the London store, or, gasp, others.

Update: Day after I posted, Nokia announced the closure of its two flagship stores in Chicago and New York. Closing the New York store borders on the criminal, from a marketing perspective.

Cutting number of smartphones. On Thursday (December 3rd), Reuters reported that "Nokia will drastically cut back on the number of different smartphone models it rolls out next year." I could imagine Nokia cutting back the number of dumbphones, but smartphones? Does Nokia perhaps have a different definition of smartphones? Nokia doesn't produce that many. There are two major "E" series smartphones -- the E63 and new E72 -- and two "N" series smartphones, the N97 and N900.

If anything, Nokia needs to release better smartphones, combining features from other N Series handsets like the N85 and N86 into its smartphone line up. Related, Nokia needs to greatly improve its smartphone software and services and number of useful third-party applications.

Last week, Betanews' Tim Conneally reported that "Nokia expects 33 percent of its 2010 smartphone lineup to have both touchscreens and QWERTY keypads, another 33 percent to have QWERTY only, 25 percent to have all touch, and the remaining 9 percent to have an ITU-T keypad."

The handset growth market of the future is the smartphone. The global install base of handsets is about 4 billion units, with manufacturers shipping about 1 billion every year. The majority of people use dumbphones, most of which could eventually be upgraded to smartphones. Nokia is still the market share leader for smartphone devices and operating systems -- 39.3 percent and 44.6 percent, respectively, in third quarter, according to Gartner. Nokia should build from its strength, not retreat before long-term threats posed by iPhone or handsets running Google's Android OS.

Research cutbacks. In November, Nokia announced two separate research and development layoffs -- 330 employees in Denmark and Finland and another 220 in Japan. The layoffs represent only about 3 percent of Nokia's R&D workforce. But research is where Nokia needs to invest even more, particularly to bring its smartphones, software and services up to competitive pace with iPhone and Android handsets.

Research has been one of Nokia's differentiators and the outreach from its research staff, such as the team behind Nokia Labs. Then there is the Nokia Research Center, which does bleeding edge mobile technology development. Nokia does great research. The problem isn't the research but how Nokia brings some of the products and services to market. Too many are disjointed, rather than working well together.

U.S. market doldrums. Nokia is a truly global handset manufacturer, with leading market share in most geographies. But three markets have proved tough for Nokia, in part because of how carriers operate there: Japan, Korea and United States. Nokia simply pulled out of Japan, which is no solution. In the United States, Nokia is better known for low-cost (many times free) dumphones. The E71s is the only smartphone available subsidized from any carrier (AT&T). I'm still waiting for the N900 to pop up at T-Mobile, which 3G frequencies the device supports. Nokia needs America, but for its high-end handsets. Nokia offers unlocked phones for the U.S. market, but prices are high without carrier subsidies.

Will 2010 be Make or Break?

Last week, Nokia outlined its plans for next year. They're encouraging. Nokia plans include:

• Revamping Symbian OS (in first half 2010)
• Bringing multitouch and more capacitive handsets to market
• Releasing the first Maemo 6-powered device (in second half 2010)

But from where things stand today there is a huge disconnect between Nokia's lifestyle marketing, which is simply awesome, and the delivered experience. Nokia handsets simply don't deliver as good a connected and social Web experience as iPhone or Android-powered handsets. Nokia's "connecting people" slogan promises much, but Apple and Google connect better. If you disagree, that's what comments are for.

I've long loved Nokia marketing, which is sometimes oddball but entertaining and engaging. One example: "Offline as It Happens" campaign for N Series touchscreen smartphones. Another: The recent team up with singer Rihanna. More: The N79 and N79 Active marketing videos. Marketing and many other videos from Nokia Conversations wonderfully engage customers.

Last week, Michael Gartenberg, vice president of strategy and analysis for Interpret, expressed even more misgivings than I have here about Nokia in a blog post at Engadget:

Truth be told, Nokia now reminds me a lot of Apple back in 1996, losing relevance and market share in places that matter but with huge potential to leverage core assets and a terrific brand with millions of loyal fans. And as Apple did in its day, Nokia must now either try to decisively seize back its leadership position -- or lose it entirely.

I want to believe in Nokia, I really do. But I'm pragmatic as I survey the mobile landscape ahead. Android OS had 3.5 percent market share in third quarter, according to Gartner. That might seem small, but it was zero a year earlier. Apple's App Store has more than 100,000 applications and increasing. As the market share leader, Nokia has everything to lose. Will it? You tell me, please in comments.