Nokia needs plastic surgery not a brain transplant

Stephen Elop is wrong to call Nokia's platform "burning." It's this attitude that has sent the world's largest handset maker on a path to ruin. The former Microsoft executive and six-month Nokia CEO expresses a misguided perspective about the company he runs. Nokia's house isn't on fire. The only thing burning is the fire Elop set to the Symbian platform with last week's Microsoft deal for Windows Phone.

Perhaps Elop believes too much of the negative hype about Nokia. Personally, I'm tired of reading commentaries and punditries calling the Finnish phone maker a goner; they're wrong. Sure, Nokia is bleeding market share, but on rising shipments, and its share and sales still hugely eclipse competitors. During 2010, Nokia sold more handsets globally (461 million) than the next three manufacturers combined, according to Gartner. Last year, Nokia sold 30.6 million more smartphones than 2009 for a total 111.6 million -- or nearly two-and-a-half times overhyped iPhone sales (46.6 million).

Nokia by the Numbers

There's no denying that Android handsets and iPhone have made huge market strides in just a couple of years. But for all the hype, Nokia stands head and torso above these and other competitors, based on sales and market share. There, Elop is focusing on the wrong competitor. Samsung poses the greatest immediate threat, with sales about 60 percent of Nokia's (281 million units) in 2010, according to Gartner. Apple's sales were a mere 10 percent of Nokia's, but you'd think they were bigger for all the hype.

Let's look at the numbers differently. Smartphones accounted for 19.2 percent of global handsets last year, according to Gartner -- or a little more than 300 million out of 1.6 billion handsets sold. Sure smartphone sales increased 72.1 percent year over year but the majority of sales -- 52.3 percent -- went to two markets, North America and Western Europe. By that reckoning smartphone sales to the rest of the planet amounted to about 140 million units, or less than 10 percent of all handset sales. Most people are still buying dumb phones and feature phones and live in markets like India, where Nokia is the overwhelming market share leader (last I checked around 70 percent in India).

In its core and also emerging markets, Nokia adopted a smart strategy in 2010, of bringing smartphone capabilities down market to affordable feature phones. That's a platform burning with purpose not one consumed by flames. Those are existing customers Nokia can convert to better handsets. Incumbency is a powerful advantage in any market, particularly those where most everyone knows somebody using the brand.

Turning Strength to Weakness

The point: Nokia isn't competing from a position of weakness, but one of strength -- something the Microsoft deal will squander. But Elop's "burning platform" memo to Nokia employees and the Microsoft deal suggest he sees mostly weakness, not strength, and that he is focusing on the wrong competitors.

Sure Nokia software, services and synchronization need lots of work, and I'll be first to admit they've fallen behind Apple and Google. I said as much last month in post: "Confessions of a former Nokia enthusiast." But the platform isn't just software, but hardware, software and services. Nokia has a strategic platform position, like Apple, by offering all three, something the Microsoft deal will diminish. Nokia will control the hardware, manufacturing and distribution but cede the all-important software and services development to Microsoft.

The deal is akin to IBM choosing to license rather than to buy MS-DOS from Microsoft in 1980-81. The arrangement allowed Microsoft to license MS-DOS to IBM competitors. So Microsoft and not IBM came to dominate the PC -- through software licensing and not IBM personal computing hardware. Nokia's deal with Microsoft is non-exclusive. Microsoft can take what it learns from the Nokia deal and improve Windows Phone for licensing to any handset manufacturers. Meanwhile, Nokia will lose its developers, who will develop for Windows Phone and/or other mobile operating systems and cloud services. To those people saying Nokia feels more like only a hardware vendor today, how much more will it be when Microsoft controls the software, services and developers? The biggest benefits from all the research and development will go to Microsoft.

Selling the Crown Jewels

When Microsoft announced Elop's departure I bogged:

No disrespect intended, but Elop wouldn't be my first choice to run Nokia, nor would he make my list of top-100 candidates. If someone handed me a list of people not to choose, Elop would be among the top five. I love Nokia. I lauded its handsets for years. But this great company has pissed away market share and bungled the most basic innovations since Apple launched iPhone in June 2007. Elop may be the greatest mistake of all and sure sign Nokia won't effectively execute against Google's rising Android Army or Apple's iOS cultists.

I feel all the more strongly now than September 2010 that Elop will lead Nokia to ruin.

What Nokia needs is leadership. Selling the company's crown jewels to Microsoft shows no leadership at all. It's acquiescence. Elop chose the easy path, of passing off responsibility to Microsoft while handing huge risk to Nokia's 120,00-plus employees (well, until the inevitable layoffs are announced) and to investors.

A real leader would seek to fix the problems. Symbian isn't a bad operating system, it just needs a makeover. Definitely the user interface is dated, but the performance is there. The core is solid. Nokia's software and Ovi services platforms do desperately need cosmetic surgery -- OK, massive plastic surgery to modernize the user interfaces and reduce operating system fragmentation. Instead, Elop proposes a brain transplant, by swapping out Symbian (and Meego) and Ovi for Windows Phone and Live services (except for maps). A brain transplant will kill the patient.

There are loads of problems with Nokia software and services development, and some of them are company cultural. Fixing the problems is the more sensible approach. Perhaps if Nokia had more time for such a dramatic platform switch, the Microsoft deal would make more sense. But the mobile market is too volatile. Nokia can't afford to lose developers and customers, particularly in markets where its massive share should be advantageous rather than put to risk.

A Giant Stumbles, Not Falls

More fundamentally, Nokia has a perception problem. The company is perceived as having fallen far behind Apple and Google, when the giant has merely stumbled. In getting back up to run, the giant has longer stride than the tiny upstarts; running, Nokia can catch up fast. Nokia needs discipline more than it needs Windows Mobile. Nokia needs a CEO who praises the company's accomplishments while acknowledging change is necessary and who encourages employees to do better -- to fight harder to hold onto their market lead and to extend it.

How can anyone outside Nokia believe in its future when the CEO shows by his very words and actions that he does not? If Nokia's perception problems were bad before, they're thousands of times worse, in just a week -- thanks to Elop's "burning platform" memo and his deal with Microsoft.

Yesterday, Elop took the defensive at Mobile World Congress, asserting that Nokia would receive billions of dollars from Microsoft and that the arrangement creates a "third ecosystem." Say what? Third ecosystem? Nokia still leads the first mobile ecosystem -- the one driving more than 400 million unit sales last year. The "third ecosystem" statement is yet another sign of Elop's misguided attitudes -- that he sees more what Nokia is not rather than what it really is.

I'll be shocked if Elop doesn't alienate a large chunk, perhaps the majority, of Nokia employees, whose morale can't be too high this week looking at the future. If Elop really saw what Nokia is, there would be a different deal -- that doesn't sell off the crown jewels -- and certainly not one that alienates and blindsides Meego partner Intel.

If Elop's goal is to make enemies in Finland and across Europe, he's off to a helluva good start.