After three years of watching competitors such as Apple eat its lunch in the smartphone market, Nokia finally has its "aha" moment. But is it too late for the cell phone behemoth to regain its footing?
On Friday the Finnish cell phone maker ousted its CEO Olli-Pekka Kallasvuo, replacing him with Microsoft exec Stephen Elop. Elop, who is a Canadian citizen, will be the first non-Finnish CEO to head Nokia, the world's No. 1 mobile handset maker. He will start his new job as CEO on September 21.
The change in the executive ranks should come as little surprise. Nokia, which has dominated the worldwide cell phone market for years, has been slipping in the all-important smartphone category. And the company has still not managed to crack into the North American market despite years of talking about reviving its efforts in the U.S. and Canada. Rumors circulated earlier this summer that the company was considering an upper management shake-up to reboot its efforts.
"The time is right to accelerate the company's renewal," Nokia Chairman Jorma Ollila said in a statement. "The Nokia Board believes that Stephen has the right industry experience and leadership skills to realize the full potential of Nokia."
Indeed, the time is right. But some might argue the time was right two or even three years ago to make a change when Nokia first noticed Apple grabbing significant market share and profits. And it's questionable whether the new top executive is actually what Nokia needs to stay on top worldwide and revive the company's high-end smartphone business.
Elop, 46, had been the head of Microsoft's Business Division, which includes Microsoft's Office suite of products. Prior to that, he held positions at Cisco Systems' routing rival Juniper Networks, as well as other tech companies such as Adobe Systems.
One of Elop's most promising attributes for Nokia is that he knows the U.S. market. On the other hand he has no experience in the ultra competitive mobile handset business. Still, Nokia believes that his experience in helping companies change will be a big asset to Nokia as it struggles to right its ship.
Nokia's problems in a nutshell
Nokia has two major problems that it needs to fix ASAP. First, the company has been slipping in the smartphone market, and it's expected to continue to lose traction to rivals such as those using Google's Android operating system and Apple with its iPhone.
Nokia's Symbian operating system still dominates the worldwide smartphone market with just over 40 percent of the market, according to a report from IDC. But the Symbian OS is expected to slip to just over 30 percent of the market by 2014, the IDC report predicts. Meanwhile, Google's Android is expected to jump from 16 percent of the market in 2010 to at least 25 percent of the market within the next five years, according to IDC.
In a separate report published this week, Piper Jaffray analysts were even more bullish on Android's prospects. They predict that Android will have over 50 percent market share by 2014 with Apple's iPhone iOS likely garnering between 20 percent and 30 percent of the market. Where does that leave Nokia and its Symbian? It will have to duke it out for the remaining 20 percent to 30 percent of the market with other rivals including Research In Motion with its BlackBerry devices and Microsoft with its latest mobile operating system.
The other major problem that Nokia faces is its inability to break into the U.S. market. The company has failed time and again to make significant gains with U.S. wireless carriers, such as AT&T and Verizon Wireless. This has hurt Nokia at the high end because its flagship smartphones are not offered on these carrier networks with huge subsidies. So while wireless subscribers can get a new Apple iPhone 4 for $199 with a two-year contract from AT&T, they have to pay full retail price for a Nokia smartphone. For example, the Nokia N97, which is not tied to any U.S. carrier, costs more than $600 without a contract in the U.S. Even Nokia E-series devices that are sold on AT&T's network in the U.S. are not getting the volume of sales that the iPhone and BlackBerry phones are getting. And without a strong showing in the U.S. market, Nokia's smartphone business is at a major disadvantage to its competitors.
Nokia is about to launch yet another key smartphone next week at an event in London. The new touch screen device, called the N8, uses the latest Symbian 3 operating system. It comes with a 12-megapixel camera and has video-editing software on the phone so people can edit on the go. It's being billed as the latest iPhone killer. But once again there is no news of a U.S. carrier that will offer the phone with a deep discount, which means the device likely will not get much of a foothold in U.S. market.
Nokia has also largely lost its focus over the past few years concentrating on developing a new services business using the Ovi brand instead of focusing on building phones and mobile applications that consumers want and instead of penetrating important markets like North America. The service launched in 2008 and was supposed to be a single place where cell phone users could store and access mobile content as well as digital media for their computers. But Ovi never gained significant traction, and slowly but surely Nokia has been shutting down aspects of the service.
Earlier this month, the company said it was getting rid of its cloud-based file-sharing service known as Ovi File, which will cease to exist as of October 1. It also dropped its "share on Ovi" media-sharing site last year. And it's also turning off its N-Gage gaming service later this year.
Nokia's "Comes with Music" service, which is bundled with certain phones, lets users download unlimited music that can be kept after a yearly contract has expired. It's unclear what will happen with this service. The company has launched the service in various parts of the world, but it has yet to launch in the U.S.
Even its digital mapping service, Navteq, which Nokia bought for $8.1 billion in 2007, has not seen big success. The company began offering free navigation for its phones to try to boost sales and prices of some of its premium smartphone devices.
How the new CEO can turn things around
Elop's two biggest challenges will be to first develop a smartphone that can truly compete against devices like the iPhone and the slew of new Android phones coming on the market. And that does not mean simply developing a phone with a touch screen that is loaded with a thousand new bells and whistles. For years, Nokia has led the industry in its ability to pack new features and functionality into a phone. But what these phones lack is ease of use. The Symbian operating system and the user interface that allows users to get to all those cool features have been cumbersome.
What's more, today's smartphone customers aren't looking for a phone that simply has the highest megapixel camera; they want mobile apps. And that is something Nokia's phones are lacking. Nokia has not published specifics on how many mobile apps are in its Ovi store, but an analyst estimate from February suggested that at the beginning of 2010, the Ovi Store only had about 6,118 applications. Nokia told Wired.co.uk recently that it currently has 13,000 "content items" in the Ovi store. These content items include music, video and other mobile content, the Wired.com story said. Meanwhile, Apple's App store has over 250,000 applications. And Google's Android Market has well over 50,000 apps in its store.
But building new phones and creating a developer community to feed consumers' rabid appetite for mobile apps is not something that will happen overnight. Some experts speculate that Nokia needs to drop the Symbian operating system altogether and use Google Android operating instead. This is a strategy that rival Motorola adopted to regain its footing in the smartphone market. But for Nokia, a transition to Android could be painful given its investment in Symbian and its hundreds of legacy Symbian products.
In addition to refocusing on its core business and turning around the smartphone product line, Elop needs to strike major deals with U.S. cell phone operators--and no, not just getting AT&T to offer a few devices here and there. Nokia needs to make sure that its flagship smartphones are front and center with at least one major U.S. carrier. Given that the company has long catered to carriers using the GSM network technology, it is currently limited to working with two of the four major wireless operators in the U.S., AT&T and T-Mobile USA.
It's clear that Nokia needs to make some major changes, but it's unclear whether Elop is the right man for the job and whether the company will take the necessary steps to get back on track. Microsoft, like Nokia, is a large company where change often comes slowly. What's more, Elop's experience has been in networking and enterprise software and not mobile phones. But as handsets become more sophisticated, perhaps Elop's computing background will help.
Unfortunately for Nokia, time is not on its side. While it attempts to regroup, rivals are poised to continue to grab market share. The explosion in Android has empowered companies such as Motorola, Samsung, HTC, and LG to take on Nokia. And with persistent rumors of the iPhone coming to Verizon Wireless, the largest U.S. wireless operator, within the next year, there are no signs that Apple will slow its growth anytime soon either.