Microsoft Will Fail Nokia’s Handset Business – Former Vice President of Nokia

Nokia Take Over Not Expected to Help Microsoft to Become Viable Handset Market Player

by Anton Shilov
09/03/2013 | 11:40 PM

Although Microsoft Corp. will now get the remaining of what once was the world’s largest maker of handsets, this will not help the company to become a serious vendor on the mobile market, according to Tomi Ahonen, a renowned industry expert. The analyst believes that the lack of vision at Microsoft and unwilling of Nokia to truly innovate for different market segments will further reduce market share of the combined company.

Steve Ballmer and Lack of Focus

 

Microsoft started its efforts to create operating systems for mobile devices in the 1990s when Bill Gates was heading the company. By the time Mr. Gates stepped down as the CEO in the year 2000, the company had Windows CE 3.0/Pocket PC platforms for personal digital assistants (later rebranded to Windows Mobile) with the same appearance as Windows 98/ME/2000 operating systems. Until Mr. Gates continued to be chief software architect as well as chief research and strategy officer at Microsoft until 2006 – 2008, Windows Mobile platform has been developing rather well, commanding 12% of the global smartphone market share in 2006 – 2007.

But after Steve Ballmer started to head further development of Microsoft’s mobile efforts, everything started to get wrong. Following several releases that had compatibility issues, Microsoft decided to scrap Windows Mobile in favour of all-new Windows Phone platform, aiming primarily customers, not businesses like its predecessors. In addition to new user interface, Windows Mobile is usually blamed for the lack of vision when creating a platform. First of all, Windows Phone lacked backwards compatibility with Windows Mobile 6/6.5 despite the fact that both were based on Windows CE technology. When it was released in 2010, it could only run on rather expensive hardware at the time; it took Microsoft two years to make Windows Phone 7.5 “Tango”, which could enable low-cost smartphones. Then Microsoft released Windows Phone 8 in late 2012, which is based on Windows NT kernel and is not backwards compatible with previous-gen Windows Phone apps. Needless to say that after three incompatible major OS releases in four years Windows Phone market share declined sharply to around 3.5% in Q2 2013.

“[Bill Gates] believed strongly in smartphones and Microsoft grew to become the second largest smartphone OS behind only Nokia's Symbian. At its peak, Microsoft handset partners owned 12% of the smartphone market using the Windows operating system. That crashed under [Steve] Ballmer's mismanagement and lack of focus. By 2010, Windows [Phone/Mobile] only held 5% market share in smartphones and had fallen from second place behind Blackberry OS and iPhone iOS and Android. From second place to fifth, and with the difficult transition in place from Windows Mobile to Windows Phone, actually the Windows Phone OS would fall one slot further down to sixth, behind Samsung's new bada OS at the time,” said Tomi Ahonen, who once worked as a vice president of Nokia and who is now among the most renowned experts in the field of mobile communications, in a blog post.

Stephen Elop and the Lack of Creativity

When Mr. Elop came to Nokia in 2010, he took the reins of the world’s largest maker of smartphones, who had competitive Symbian-based products covering almost every single niche that was out there back then, but only finding it hard to create a viable competitor for a single device, Apple iPhone.

In a bid to fight for the top segment of the smartphone market, Mr. Elop decided to scrap Meego platform that Nokia was developing as the “next big thing” along with Meltemi operating system for affordable smartphones in addition to Qt set of tools for software development for all three Nokia OSes (Symbian, Meego, Meltemi). Instead, in early 2011 Mr. Elop chose nothing other, but the Windows Phone 7 operating system which lacked a lot of things the main one being vision behind its development.

When Nokia controlled its smartphone operating system, it could address certain market niches and create products that would appeal business or consumer users. For example, the former needed QWERTY keyboards and extremely good battery, whereas the former would like to have rich multimedia capabilities, excellent camera and so on. Nowadays Nokia offers Lumia 1020 as the premium consumer smartphone, but now it cannot address business users, the market share has been stolen by Apple and Samsung. Moreover, first generations of Lumia only tried to fight Apple’s iPhone, but with the same feature-set and Windows Phone operating system it did not have much chances.

“Compare Symbian-based smartphone portfolio to Lumia running Windows Phone. The early Lumia were all total iPhone-a-clones. No QWERTY variants. No better cameras (even Nokia's own N8 had a better camera than the iPhone and all Lumias up to the current flagship 1020). The early Lumias did not support full Bluetooth, did not have microSD slots, did not have removable batteries, no TV-out, no HDMI-out, etc. All feature sets taken from Apple's iPhone and differing from Nokia past. Nokia had previously made bigger screens than (then) iPhone, Lumia did none of that (on early models). So we can see what was 'Nokia thinking' i.e. a wide product portfolio that caters to many Nokia customer types and regional international differences, vs. the Apple envy view from Redmond, epitomized by Elop and the early Lumia line. Make them clones of the iPhone. […] Now look at Samsung. They have taken every niche that Nokia abandoned, and produced devices for it. Both in smartphones and in dumbphones. And they dominate the handset space and keep growing and generating ever bigger profits. The strategy was not wrong, Samsung is proving it can be done. But Elop's vision ruined Nokia (handsets),” said Mr. Ahonen.

Will Microsoft Turn Nokia Around?

Can a team of sub-par players win the world’s cup? Generally no. Just like in sports, in business it is all the same. While Microsoft will indisputably be able to produce new smartphones at a faster pace than Nokia did, its lack of a unified mobile operating system that spans from low-cost handsets to high-end smartphones to advanced media tablets will hardly allow it to win a significant market share.

Moreover, since Stephen Elop will continue to rule the “Nokia devices division at Microsoft”, it is hard to expect the company to cover all the niche markets that are out there, which is something that once made Windows the dominating operating system on the planet. Even Microsoft itself does not believe that its own Windows Phone-based handsets will be able to command more than 15% of the smartphone market in five years, even despite of the fact that it will obtain Nokia’s sales teams, device distribution and sales as well as Nokia’s cheap Asha line of smartphone-like devices.

“So, if you think that Nokia could 'come back' now with Microsoft money, the opposite is likely. The issue before for Nokia was an 'Elop Effect' inside Nokia, trying to turn the dominating global powerhouse into an Apple iPhone-clone, and abandoning profitable market segments (to Samsung). […] The next generation of Lumia under full Microsoft ownership, will be no closer to what we all loved about Nokia, but will be ever more distant from it. They will be, however, all the bad things you hated about Windows or Office or Zune or Kin or Surface. The best people of Nokia's true talent have long since departed. The last remaining good skill people know and can see the writing on the wall, they will quietly depart too. The Microsoft purchase of Nokia handsets is a dead end. It cannot ever succeed, so as a career move, its bad news for those who were employed by Nokia handsets,” concluded Mr. Ahonen.