Nokia, the Finnish mobile phone manufacturer, is getting clobbered as their market rapidly moves away from them. Recent analyst reports show that Android and iOS (Apple’s platform) based phones are rapidly gaining market share. Nokia sells neither. Nokia has a major press event in a few hours, where they will announce their smartphone strategy. I think a maximin strategy is both likely and correct.
Nokia’s Press Event on Friday 11 Feb, 2011
Reuters is reporting a press event from Nokia in London, at 0730 GMT (just over 4 hours from now) – where new president and CEO, Stephen Elop will announce Nokia’s smart phone strategy. Previously, Elop was the head of the Microsoft business division.
Nokia’s Current Situation
As a very quick background – Nokia already has a smart phone platform, called Symbian, which was dominating the market until manufacturers began shipping iOS and Android based devices. They “owned” the market, but don’t any more. This is a great example of the Innovator’s Dilemma.
Keeping things “as is” is not a viable option for Nokia – they have to change. Significantly.
The Wall Street Journal is reporting that they received a copy of a leaked memo where Mr. Elop telegraphed that things will be changing. From Jennifer LeClaire’s reporting of The Journal’s reporting:
According to the Journal, the memo describes Nokia as cornered by competitors and in need of a major transformation. Elop compared Nokia to a man standing on a burning oil platform who jumps into icy waters to escape the flames, the Journal reported.
Several great journalists and technology reporters have articulated Nokia’s current situation and the state and direction of the mobile phone industry – including the “inevitable” cannibalization of feature phones by smart phones. Instead of repeating their synopses – I’ll link to a particularly good analysis from Peter Rojas at GDGT.com.
Mr. Rojas sums up that Nokia is presented with the following choice of two options, and the possible outcomes of both (bold is mine):
Nokia now has to either dig in and find a way to create its own mobile ecosystem, complete with amazing handsets and a world-class OS that developers want to make apps for (something which is becoming harder with each passing day as iOS and Android further entrench themselves), or it needs to suck it up and work with an existing platform and try and use its massive resources to become the dominant player on that platform.
If Nokia bets big on being able to create a game-changing ecosystem and it fails to catch on in the market, there will be no salvaging the company at that point.
I have no doubt that the prospect of a Nokia handset running [Android or Windows Phone 7] worries Samsung, HTC, Motorola, Sony Ericsson, and LG, all of which are trying furiously to compete with the iPhone right now. The last thing they want is for Nokia to have a serious option in the high-end of the market. [...] The market is overcrowded with Android phones right now, and Nokia isn’t necessarily going to dominate it or even stand out, at least not without a ferocious fight.
So it may be that Nokia hedges its bets and introduces either Android or WP7 on a smattering of handsets in order to buy itself some time while it works on creating its own ecosystem. [...] Buying some time like this isn’t an elegant strategy, [...] but it’s probably the least bad of Nokia’s bad options.
Summarizing Nokia’s Strategic Choices
There are many factors and variables that make this situation look complex – but they roll up into a choice for Nokia between two strategies (excluding the uninteresting strategy of business as usual):
- Aggressively invest in their own software platform so that it becomes competitive with alternatives that are available to their customers.
- Adopt one of the competitive software platforms, and focus on differentiating their hardware.
The first strategy has the largest possible downside, and the largest possible upside. If the first strategy fails, Nokia becomes irrelevant in the smart phone market. The definition of success for this strategy leads to massive relevance (and profits).
The second strategy has a downside that keeps Nokia in the smart phone business, but as just another one of many manufacturers. Not great, but not as bad as exiting the market. The upside of the second strategy is also not as appealing as winning with the first strategy. The best Nokia can do is be the “hardware winner” but without control over the software environment. Even if there were as much profit opportunity, the risk that comes with lack of control would discount the value of winning with this strategy in Nokia’s eyes.
The Maximin Strategy – Game Theory
When you focus on the two choices – one with large up and downsides, and one with moderate up and downsides, you see that Nokia is facing a choice, in game theory, of adopting either the minimax or maximin strategy.
Nokia can either pick the strategy that has the highest possible best case, or pick the strategy that has the highest possible worst case outcome.
A maximin strategy maximizes the “minimum guaranteed payout” in game-theory-jargon. Translated, it is the conservative approach – minimize the downside of failing in the execution of the strategy. Mr. Rojas describes Nokia s a company that has “internalized a culture of mediocrity” (see his previous analysis for more details).
If Mr. Rojas’ analysis is even close to accurate, it seems like any strategy other than maximin would be foolhardy – almost as bad as changing nothing.
Nokia should definitely take the conservative strategy, using maximin to attempt to ensure that “the worst” is not that bad. And that means embracing [at least*] one of the other already successful smart phone software platforms for their future devices.
Nokia’s Next Move
In a few hours we will learn what Mr. Elop has decided to do. Or, if you heard about his decision first and are reading this second, you’ll now have either a favorable opinion of my analysis or not.
Last week, on This Week in Tech, John C. Dvorak made an eloquent argument as follows:
- Nokia can’t survive with business as usual.
- An “invest in Symbian” strategy is actually a red herring – Nokia is already doing that – but failing – so it would lead to assured destruction, and Nokia therefore must embrace another platform.
- Mr. Elop, as a former Microsoft person, would lose credibility if Nokia were to choose Windows Phone 7 as their platform.
- Mr. Elop, as a former Microsoft person, would not choose “only Android” because of the fallout it would cause in injuring Microsoft (as a perceived gesture of “lack of faith in Windows Phone 7″).
- Mr. Elop, therefore, will choose to introduce Nokia smart phones based on both Android and Windows Phone 7.
While I happen to agree with Mr. Dvorak’s analysis of the futility of doubling down on Symbian – primarily because of the challenges Mr. Rojas articulated in his article, that almost doesn’t matter.
Even if Nokia does have a viable strategic choice of investing in Symbian, they shouldn’t. The risk of failing to overcome a culture of mediocrity is too great.
Nokia’s “best” choice is to adopt either (or both) Windows Phone 7 or Android as their official platform moving forward. As Mr. Dvorak points out – doing both could be very smart. The two platforms were built with different personas in mind, and Nokia should offer phones for each group of people, based on the platforms designed for each group.