What Are the Chances for Nokia + Microsoft’s “3rd Ecosystem” Bet?

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How’s that “burning platform dive” working out for you, Stephen Elop?

After Nokia’s CEO made his controversial burning platform speech and dove into the arms of Microsoft on February 11, 2011, Nokia’s stock price dropped precipitously and is still falling, its developer and customer community rebelled, and 1,000 Nokia employees staged a walkout.

Nokia does not seem to be doing a very good job of creating a buzz around the benefits of supporting what Elop calls, “the third ecosystem,” by which he means having a Microsoft/Nokia mobile phone/application ecosystem to compete with the Google/Android ecosystem and the Apple/iPhone ecosystem.

Granted, change is hard; cultural change is very hard, and you often have to cannibalize your current offerings in order to evolve to a next generation. But Elop’s handling of this planned transition will go down in management history as one of the worst SNAFUs ever.

Nokia’s oh-so-public trashing of its existing software platforms, and, by extension, all those employees and developers who have invested in it, was badly done. When you need to make a transition to a new platform, you should do so by making it seductive and a “no brainer” for customers, developers, and partners to transition, not by telling them they are stupid!

You (our readers) were quick to pick up on this gaffe…. Among your comments, I found Aussie, Peter Horne, to have the best analysis:

“Nokia is a large and powerful Finnish company, influenced by founder stakes and is a huge employer, which means that”

“1) The company won’t leave Finland”

“2) It will make local decisions (see 1)”

“3) This guy [Elop] will have to live amongst the people he is dangerously close to insulting.”

“It is not unusual for x-pat U.S. execs to talk to their new companies as if they are U.S. employees, only to regret the fact that they didn’t take some time to work out the Real Politik. This guy looks like an idiot to me…”

~ Peter Horne, Patty’s Pioneer

Microsoft’s Unpopular Coup

What smells the most to me is the fact that Microsoft is clearly the master puppeteer. Microsoft didn’t acquire Nokia, but they might as well have. Microsoft is buying Nokia with billions of dollars of investments in R&D because Microsoft needs to establish a beachhead against Google’s and Apple’s ecosystems. I don’t believe that this approach will work. You can’t “buy” an ecosystem. You have to grow it, organically. If you build it, they (customers and developers) won’t necessarily come, even with bribes.

Nokia has exacerbated the fact that it is handing the reins over to Microsoft by making management changes to replace Nokia executives with Microsoft executives. That’s what you do in a take-over. On February 12, 2011, Nokia replaced Mark Louison, the president of Nokia U.S., with Chris Weber, “a 15-year Microsoft sales and marketing veteran.”

“This is very bad for both companies… I’m not sure Nokia will survive this process. These things take 12-24 months to play out but they are about corporate culture, which is driven by employee attitude.”

“The attitude from MS right now will be that ‘they own’ Nokia and they will gravitate to all things Nokia and drop the ball on other alliances. That means that all the chips are on red (Nokia). There will also be a flush of hubris and optimism that finally MS is in a “winning” position. They are not in a winning position and the bet is not tilted in their favour; but the attitude will have momentum and it will push them even further behind.”

“Then the attitude from Nokia will be disgust; disgust at the board and disgust at the new management. They might be desperate but they are still proud (….do not underestimate how much this will be being played out in the local community). There is a rumour that 1000 people have already resigned in disgust; that suggests the attitude of better to die on your feet than to live on your knees. Nokia will die on its feet.”

“Carly Fiorina; remember her at HP? All busy, but in the end, no business? But everyone gushed at the start. Elop is Fiorina with a foreign workforce.”

“I believe we are watching some giants fall…”

~ Peter Horne, Patty’s Pioneer

Why Kill Your Golden Goose Prematurely?

One of the biggest mistakes Elop made, in my opinion, was to trash both of Nokia’s current software platforms (presumably because he wants developers to move quickly to write apps for the Microsoft Windows Phone 7 environment). Yet, at the same time, his business strategy calls for selling an additional 150 million phones running the now-declared obsolete software!

Horace Dediu’s blog, Asymco, is a great place to check if you want to understand mobile strategies—particularly those surrounding Apple and its competitors. In a February 14th post entitled: Who will buy the next 150 million Symbian smartphones?, Dediu provides a sobering marketshare analysis for Nokia, and he commented:

“One could question why would anyone buy a product whose platform has been declared end of life. Perhaps there is a built-in assumption that end users are inherently stupid. However even in that scenario the question is which distributors will make the same bet with Nokia? Or, even more perplexing, which operators are willing to stock EOL products for two years when that shelf space is getting strong bids from Nokia’s rivals?”

~ Horace Dediu, Asymco

In short, why announce to the world that you’re replacing a software platform at least 12 months before you could hope to have a replacement product? My brother agreed:

“Being bold and jumping off the platform sounds brave and courageous.”

“But, you cannot just throw a switch and transform yourself and your product line over night.”

“I understand the strategy. I don’t understand the execution.”

“Given Elop’s background, I had assumed that Nokia would move to WP7 phones.”

“But, given their position in the global market, and the length of time that it takes to make such a switch, I had assumed that he would announce a two-level strategy: Symbian for lower-tiered products and WP7 phones for the higher end products. That way, they could present both as viable platforms — each optimized for a different market need.”

“If, in the course of events, WP7 phones kept moving down market and eventually displaced the Symbian products, that could be presented as simply a natural technological evolution.”

“But, to tell the world that your entire current product line has no future is crazy — especially when you have NOTHING currently available to replace it.”

“Once again, the management of a major IT company is doing something that just seems stupid on the face of it.”

~ Jonathan Seybold

Peter Horne offered his counter-proposal as to how to steer a company needing to make a major transition:

“If I were running Nokia?

“First, I would define a set of scenarios for what grim meant. It was grim already, the last thing I would want to do is make it more grim. I would present that to the board and make sure they are under no illusion as to where the company was in terms of finances and strategies. Big companies go broke; get used to the idea. Our job is to make sure we did our best to make sure it wasn’t us but there are no promises.”

“Second, I would talk to my team. On the assumption that the world’s largest mobile phone company did not get there because it was being run by blithering idiots, I would listen to what people thought was going wrong and why.”

“Third, I would then choose a new strategy that made sense today given where I am as well as where I want to be tomorrow. It would need to make sense to the team, and it would need to be more linear than “transformative” which is a word that is only useful with hindsight.”

“Fourth, I would cut my costs to get to break even on a cash, rather than accounting basis, and break even would include expensing my capital developments so that I always know that there is cash in the bank. Cash, not strategy, is king in times of crisis as cash buys time.”

“Fifth, I would tell the market that the problems are dire, the strategy is high risk, and it’s going to take some time and patience. If they don’t like it, then the market is there for them to end the conversation.”

“Sixth, I would shut up and do the hard work of helping a traumatized and demoralised team, that would expect senior management to tell them they are all idiots, see hope and build a good future.”

“It’s not that hard really; it’s about being thoughtful to ALL your stakeholders and keeping your composure when every one else loses theirs.”

“What is composure? Faith in your team, faith in yourself, and faith in the future. But it all comes down to faith because nothing in this life is certain.”

“I’m not sure we are seeing this at Nokia, or Microsoft for that matter, right now…”

~ Peter Horne, Patty’s Pioneer

I agree with Peter, Jonathan, and Horace Dediu that this Microsoft/Nokia coup is a classic example of mismanaging a “bet the company” strategic move. I also don’t think it’s a good way to win the hearts and minds of the customers and influencers who will be the drivers of your ecosystem.

Republished with author's permission from original post.

Patricia Seybold
With 30 years of experience consulting to customer-centric executives in technology-aggressive businesses across many industries, Patricia Seybold is a visionary thought leader with the unique ability to spot the impact that technology enablement and customer behavior will have on business trends very early. Seybold provides customer-centric executives within Fortune 1 companies with strategic insights, technology guidance, and best practices.

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