Nokia's non-Android Android phone

At Mobile World Congress Monday in Barcelona, Nokia introduced its Nokia X series — three hybrid quasi-Android phones. The phones combine the Android kernel with Windows-style tiles.

The Nokia phones are as much (or little) Android as is Amazon’s Kindle. Like Amazon, Nokia eschewed Google’s proprietary layers and added its own proprietary layers on top of the Android Open Source Project. The new phones have Nokia’s Store, with Nokia’s maps, radio and in-app payments.

According to Nokia

Nokia Store testing has shown that approximately 75% of Android apps will run properly without any modifications; they’re ready to be published in Nokia Store.

For the remainder:

If your app uses Google services for push notifications, maps or in-app payments, you’ll need to make a few changes, but it won’t take long (usually less than 8 hours). Nokia services have been designed to minimize porting effort from apps using corresponding Google services and allow developers develop and distribute a single APK targeting multiple stores.

Nokia even offers a service for testing apps to see if they are compatible. If not, Nokia is doing a road tour (the “Nokia X Porting Bus”) across Europe to help developers to port their apps to provide dual-platform support.

Either way, developers will need to submit their apps to the Nokia Store to have them made available to customers.

The news sites are speculating about how Microsoft feels about this signal undercutting Nokia’s devotion to the Windows platform, in anticipation of the handset business being swallowed by Microsoft.

Microsoft can keep or cancel the platform once it takes control. In the meantime, Nokia and Android developers can attempt a low-cost experiment to see whether app makers will pay the porting costs, and whether Nokia’s hardware competencies are valuable for Android customers in third world countries. Still, it’s hard to imagine a scenario under which this platform is still available for sale in three years.

For me, what is most interesting is what this experiment means for the future of non-Android Android devices. The Nook was first, then the Kindle. Will this encourage other experiments? Will these experiments create a demand for non-Google Android devices? Will developers make dual-platform applications? Will it undercut the market power of the Android compatibility program?

So will this reduce Google’s control of the platform by moving demand to lower layers? Will it promote further dominance by Android? Or will it be the tree that falls in the forest, that no one ever hears?

Rewarding failure: blame it on the ex-wife

While Americans are used to paying large bonuses for failure, it’s not as common in Europe. Apparently Helsinki newspapers are alight with the controversy over the $25 million bonus Nokia plans to pay CEO Stephen Elop for halving the company’s market cap.

Elop’s failure has been long in coming. When Nokia announced its Windows strategy in February 2011, I (admittedly) mixed my metaphors:

Nokia CEO (and Microsoft veteran) Stephen Elop had already prepared the troops with his “burning platforms” memo, lambasting his new employer for how it failed to respond to the iPhone and Android challenge.
…
Elop has jumped off the burning oil platform into a ship that’s adrift and has a hold filled with water.
…
The sign of a troubled company is multiple Hail Mary passes in a row. … Nokia needs to fix its execution rather than throwing more Hail Mary passes than even Doug Flutie ever completed.

Twenty months later, the results were even more obvious:

Still, let’s not put too fine a point on it: Elop’s gamble to bet the company’s future on switching to the Windows Phone platform has been an absolute disaster. … Nokia has been more successful at killing Symbian — by starving new releases — than getting people to buy Windows Phones. In fact, as late as Q2, Nokia was still selling more Symbian than Windows phones.
…
[R]ealistic is the advice from former Apple Europe president Jean-Louse Gasée: fire Elop and switch to Android. If Nokia’s board believed in accountability, they’d lower the axe after the end of the Christmas quarter, but more likely they’re going to limp along until they can no longer deny the reality of Elop’s failed platform strategy.

Now the Helsingin Sanomat reports in Finnish and English that Nokia is begging Elop to reduce the bonus, but Elop is blaming his estranged wife for why he can’t (won’t) do so:

Helsingin Sanomat has learned that Risto Siilasmaa, Chairman of the Board of mobile telephone manufacturer Nokia, has held discussions with former CEO Stephen Elop on either cancelling or reducing his bonus of €18.8 million.

In the discussions, Elop has brought up the fact that he has filed for a divorce from his wife. If he were to agree to relinquish his final compensation of €18.8 million during the divorce proceedings, he might still be required to pay half of the value of the bonus to his wife.

Siilasmaa does not want to comment on the matter.

AS CEO OF NOKIA, Elop travelled around the world constantly. His family lives in the United States, in Seattle, Washington.

Elop has an apartment in Helsinki, but most of his time has been spent on work-related travel. His family includes his wife Nancy and their five children.

The HS speculates that Finland might have jurisdiction over the divorce, but that seems unlikely. Instead, Elop filed for divorce Aug. 1 in King County (i.e. Seattle), and Washington State is a community property state, which means (barring other contractual arrangements) Nancy Elop is entitled to 50% of everything her husband earned during their 20+ years of marriage.

So now Elop’s failure as a CEO deserves to be rewarded because of the failure of Elop’s marriage? The one-good-failure-deserves-another warrants recognition for creativity, but not a $25.4 million (or $12.7 million) prize.

Leaks to HS are intended to put the Nokia board in the best light, by comparing Elop to his peer group — CEOs of other failed mobile handset companies:

THE PAYOUT to the CEO is exceptionally large by Finnish corporate standards.

However, compared with the golden parachutes of Nokia's international competitors in similar situations, Elop's bonus is not particularly large.

Motorola Mobility's CEO Sanjay Jha was promised a final bonus of €47 million when Motorola's telephone operations were bought out by Google.

Thorsten Heins, CEO of Research in Motion, which manufactures Blackberry telephones, is set to be paid €41 million if the purchase offer made on Monday by investors is implemented.

Tero Kuittinen of Forbes argues that Nokia’s contract with Elop gave him a powerful incentive to run the company into the ground:

According to changes implemented in 2010, Elop was entitled to immediate share price performance bonus in case of a “change of control” situation… such as selling of Nokia’s handset division. Curiously, his predecessor [Olli-Pekka] Kallasvuo had no such clause in his contract. This adjustment meant that unlike previous CEOs, Elop was facing an instant, massive windfall should the following sequence happen to take place:

• Nokia’s share price drops steeply as the company drifts close to cash flow crisis under Elop.
• Elop sells the company’s handset unit to Microsoft under pressure to raise cash
• The share price rebounds sharply, though remains far below where it was when Elop joined the company.

Should this unlikely chain of events ever occur, Elop would be entitled to an accelerated, $25M payoff. Through some strange coincidence, that very sequence of events actually did happen to take place between 2011-2013. Practically instantly after Elop was handed his contract. Can you imagine how Nokia’s board must have giggled when they realized what had occurred? They had created a strong incentive for the new CEO to drive down the company share price, sell the core business to Microsoft and then collect $25M – and this actually happened!

The ignominious end of Nokia's handset hegemony

On Tuesday morning (Finnish time), Nokia announced that it was selling its handset business to Microsoft for €5.44b. The payment includes €3.79b for the division and €1.65b for a 10-year (non-exclusive) license to the Nokia patents necessary to operate that business. The deal is funded by Microsoft’s offshore profits that (as with most US-based multinationals) it has been unable to repatriate due to the US tax law.

A PDF published by Microsoft summarizes the deal:

• Microsoft acquires Nokia’s phone business
• Microsoft acquires Nokia’s Qualcomm, other key IP licenses
• Microsoft licenses Nokia’s patents for use across all Microsoft products
• Microsoft licenses ability to use Nokia HERE broadly in its products
• Nokia retains NSN [Nokia Siemens Networks], HERE, its CTO Office, and its patent portfolio
• Nokia and Microsoft cement original partnership with this deal before 2014 recommitment date

As a Microsoft shareholder, this seems like a final failed effort by Steve Ballmer to make big strategic moves to distract from the failure of his efforts to execute on the core businesses he inherited when becoming CEO in 2000.

Want proof? In the same PDF, Microsoft projects in 2018 an “assumed market share” of 15% for the Nokia (or Windows Phone) business. Microsoft hasn’t had 15% share since 2005, and its most recently quarterly share (like Nokia’s) was under 4%. As with all of Microsoft’s mobile strategy since then, the deal is more about hope than feasible strategies.

About the only good news is that the troubled Microsoft is acquiring the even-more-troubled Nokia for a song. Three years ago, Nokia’s handset division was grossing more than €6 billion per quarter; two years ago, Microsoft paid 20% more to buy Skype, a company without a business model.

Meanwhile, what about Nokia? Basically, its current and previous CEO have panicked as they have driven the company into the ground. Since the 2007 introduction of the iPhone, bought full control of Symbian Ltd. (and then killed it), switched from the once-dominant Symbian to the also-ran Windows platform, and now is exiting the business. All this from the company that was the world’s largest handset maker from 1998 until 2012.

The urgency of the deal for Nokia is evidenced by the key financial terms. Microsoft is “immediately” advancing Nokia €1.5b so it can keep the doors open until the deal closes — and Microsoft presumably assumes the salaries of 32,000 Nokia employees in the money-losing division.

It’s hard to see how losers buying losers (cheap) creates a winner. Yes, the mobile market is growing as Microsoft’s core business is dying. Yes, having a captive† handset manufacturer will justify keeping open the Windows Mobile division. But how will having a distant third place product with single-digit market share solve Microsoft’s numerous growth and profitability problems?

† Microsoft claims other licensees will continue, despite decades of failed licensing efforts by vertically integrated platform owners. Licensing didn’t work for Nokia with Symbian, didn’t work for Palm with Palm OS, didn’t work for Apple with Mac OS 8, and didn’t work for IBM with OS/2.

When you've lost Anna and Mikko...

With its market share collapsing worldwide, Nokia has now lost its home market of Finland. Quoting IDC data, Digitoday.fi reported Tuesday that Nokia had a 33% share of the Finnish handset market in Q1 2013, second to Samsung at 36% (Apple is third at 14%).

Unwired View helpfully noted that Nokia had lost the Finnish smartphone market in Q3 of 2012, but sold enough feature phones to keep the overall crown — until now. Nokia’s home market is lagging the rest of the world by only a year. According to IDC data, Nokia lost the global smartphone market share in 2011 to Samsung and Apple, and the overall handset market in 2012.

Apple is also fighting Samsung in its home market, but managed to top the Korean maker in the crucial final quarter of 2012. The two companies are splitting all the net global profits of the global mobile phone market.

As Unwired View concluded:

73% of all phones sold in Finland in Q1 were smartphones. And apparently Finns love Samsung smartphones. That kind of says a lot. When not even patriotism can stand in the way of the Android onslaught, one has to consider what chances Windows Phone (in its current form and iteration) realistically has. You really can’t say that the Finns weren’t willing to give Microsoft’s new OS the benefit of the doubt. Or that they are somehow biased against Nokia, a company once synonymous with Finland in the eyes of many.

All in all, it looks like more rough sailing aboard the S.S. Ballmer.

Note on title: Anna and Mikko are popular names in Finland for girls and boys.

Aboard the S.S. Ballmer

Microsoft’s success has always been about its alliances: Bill Gates lining up Basic licensees, the 1980 deals with IBM and Seattle Computer Products and (most importantly) licensing the IBM-funded DOS to all of Microsoft’s competitors.

With declining PC revenues, Microsoft is using its $50+ billion cash horde to buy friends. The Redmond company has created alliances with Nokia and Barnes & Noble in hopes of gaining a footprint in smartphones and low-end tablets. But into doing so, both companies have (for better or worse) paced on their platform bets on Microsoft’s (thus far) losing hand.

As part of my studies of Nokia’s smartphone strategy, I’ve been following the Microsoft-Nokia deal for several years. Tomi Ahonen has done a great job of covering how badly thinks have gone since Nokia threw away its (declining) smartphone lead and cast its lot with Microsoft.

However, the Barnes & Noble story is a different one. It has been searching for a viable tablet strategy for years. When it signed its surprising $300 million deal a year ago, it was losing its decade-long battle fight with Amazon over books, online sales, tablets and every else. The original 17.6% equity investment in the B&N spinoff of Nook Media was supplemented by a promise of $305 million in other payments.

Last week, rumors surfaced that Microsoft would pay $1 billion for the remaining shares of Nook Media. Barnes & Noble shares jumped on the news.

This would be the only good outcome for B&N: Microsoft gets a portfolio of online assets to fight Amazon, Apple and Google, and B&N gets some cash to prop up its dying retail business. To quote Steve Miller: “Go on, take the money and run!”

In the meantime, both Nokia and Nook Media are aboard the S.S. Ballmer without a lifeboat. Microsoft has known for 15 years that it needs a viable mobile strategy, and despite billions in R&D (and funds for products and alliances), has been unable to break single digit market share on either phones or tablets.

It’s not for nothing that Ballmer was named the worst CEO by Forbes a year ago, saying “"Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company today”. Ballmer was merely second worst in CNBC’s 2012 rankings. Both were before the recent Windows 8 fiasco exploded in the company’s face.

On Sunday, Al Lewis of Dow Jones cited yet another Ballmer critic:

Former Microsoft executive Joachim Kempin released a book timed to the Windows 8 launch last fall, called "Resolve and Fortitude: Microsoft's Secret Power Broker Breaks His Silence." In it, he, too, says Mr. Ballmer should be fired.

"He has no clue about technology," Mr. Kempin said in a telephone interview. "All the guys around him agree with him or they get fired."

Because of his long friendship with America’s second richest billionaire, his job has been secure thus far. As long as Ballmer remains at the helm, Microsoft (and Nokia and B&N) shareholders should expect more of the same.

Time for Nokia to replace Microsoft?

An article from the Oct 19 edition of Talouselämä, a leading Finnish news magazine:

Tutkijat: Android toiseksi kärjeksi Nokialle

Talouselämä

19.10.2012 09:22päivitetty 19.10.2012 09:26

Nokian olisi otettava Microsoftin rinnalle tai sen sijaan parempi kumppani, kirjoittavat tutkijat Timo Seppälä ja Martin Kenneyperjantaina 19. lokakuuta ilmestyneen Talouselämä-lehden Tebatti-palstalla.

The Google and Microsoft translations are a bit iffy, but here are some excerpts:

Nokia should take into Microsoft alongside, or instead of a better partner, write the researchers Timo Seppälä and Martin Kenney on Friday the 19th October edition of the magazine Talouselämä Tebatti column.

Timo Seppälä is a subsidiary of Etlatieto Ltd, a researcher at Etla, and Martin Kenney, Professor at the University of California (Davis).

The following post is part of a larger BRIE-ETLA research project.

Apple's iPhone revolutionized the mobile use of the Internet. In response, Google developed the Android operating system and offered it to phone manufacturers for free use.

In the past five years has led to a situation where Apple, as well as Samsung and other Android phone manufacturers utilize dominate the smartphone market. Nokia's "burning platform" has shrunk Symbian to insignificance and Microsoft Windows is still the underdog role.
…
Early last year, however, Nokia chose Microsoft's Windows [as its] only smartphone [platform]. In poker terms Nokia played all in, when the hand was a pair of jacks. Microsoft has no immediate risk at all.

The translation (from Finnish from the original English) is a bit hard to follow, but basically tells Nokia (in its home town) that it would have been better either with Meego or Android, and encourages Nokia to drop Windows (or at least choose a second parallel platform) rather than stick it out "until death do us part."

Nokia: bad news without end

Like other CEOs of struggling companies, Stephen Elop has an unenviable job. He took over Nokia in 2010 when his predecessor had been unable to arrest the company’s decline.

Still, let’s not put too fine a point on it: Elop’s gamble to bet the company’s future on switching to the Windows Phone platform has been an absolute disaster.

In quarterly earnings announced Friday, the company lost €4 billion for the first 9 months of 2012 — nearly a billion of that in the 3rd quarter — versus €0.4 billion lost in the same period of 2011. This is not a one-time blip: here months ago, Nokia also lost money and announced massive layoffs.

Smartphone sales have been falling since 2010, but the major collapse came this year as the company phased out its Symbian handsets. AllAboutWindowsPhone.com (née AllAboutSymbian.com) published the damning chart:

Nokia has been more successful at killing Symbian — by starving new releases — than getting people to buy Windows Phones. In fact, as late as Q2, Nokia was still selling more Symbian than Windows phones.

The only uptick in smartphone sales in Q3 came because during Q3, the company has rebranded its S40 (now “Asha Touch”) as a “smartphone” platform. Whether or not the new classification is accurate, it doesn’t reduce in increased sales and highlights how far the company has fallen since its 2010 peak.

It seems like the assumptions behind the Windows bet were flawed. Nokia (or at least Elop) hoped that being the big fish in the Windows pond would be better than slugging it out in the Android market.

Yes, Nokia (at least for now) has the majority of WP sales, but that's not much. The assumption was that Windows Phone would be competitive with Android and iOS, but so far it isn’t. Q3 numbers won’t be out until next month, but in Q2 WP was #5 at 3.5%, after Android, iOS, BlackBerrry and Symbian. Meanwhile, the transition has been managed in such a way to kill its Symbian cash cow before the customers embraced its new products.

For years, Nokia was the world leader in both smartphones and handsets. Now Samsung is selling almost 3x as many Android smartphones as Nokia is selling for WP, Symbian and S40. If Nokia isn’t ready to compete with Samsung, maybe it should just close the handset business and focus on infrastructure.

More realistic is the advice from former Apple Europe president Jean-Louse Gasée: fire Elop and switch to Android. If Nokia’s board believed in accountability, they’d lower the axe after the end of the Christmas quarter, but more likely they’re going to limp along until they can no longer deny the reality of Elop’s failed platform strategy.

Cutting their way to greatness, Espoo Edition

The news from Espoo this morning was grim: Nokia is axing 10,000 (about 8%) of its workers over the next 18 months, in hopes of getting operating expenses (for its core Devices & Services division) down to €3 billion by the end of 2013 (vs. €5+ billion in 2010). The company will be closing R&D facilities in Germany and Canada and a factory in Salo, Finland.

In conjunction with a new earnings warning, Nokia’s market cap fell to €8.3 billion, shares shares fell to their lowest level in 16 years, less than 3% of its peak back in late 2000. The cumulative effect of the layoffs mean that in five Nokia employees will be gone by the end of 2013.

In conjunction with the announcement, three executive vice presidents are resigning at the end of the month “to pursue other opportunities outside of Nokia”. CEO Stephen Elop offered touching testimonials upon their departure:

"Jerri has made a positive impact on Nokia's advertising, marketing and brand efforts. Our marketing has made great strides under her leadership," said Stephen Elop. "I will particularly miss the fresh insight and new energy that Jerri injected into the Nokia brand."

"Mary's leadership has been instrumental in our efforts to connect the next billion people to the Internet through innovation in new devices and services," said Stephen Elop. "Under her direction, Nokia has brought new opportunities to consumers throughout growth markets and contributed strongly to Nokia's business. I will miss the value she has brought to Nokia."

"During his 16-year Nokia career, Niklas has successfully supported our growth and transformation through leadership roles in groups ranging from services to, most recently, sales, marketing, supply chain and IT," said Stephen Elop. "Niklas has been a valued partner to me during my tenure at Nokia and his many ongoing contributions will be missed."

If that were true, why were they all forced out? For that matter, why are these execs being forced out and not the CEO? So far, there’s no evidence that any part of Elop’s strategy is working.

Mercury News tech columnist Troy Wolverton was even more cynical about Nokia’s announcements, as he tweeted:

Troy Wolverton @troywolv
Nokia's press release about its restructuring is an amazing collection of Orwellian doublespeak, starting with its headline...

Troy Wolverton @troywolv
Here's the headline: "Nokia sharpens strategy and provides updates to its targets and outlook"

Troy Wolverton @troywolv
What that really means, in plain English: "We're firing 10,000 people and our bottom line is going to be much worse than we forecasted."

Troy Wolverton @troywolv
I love this line too: "...Nokia is making changes to its management team by tapping into the strong leadership bench at the company."

Troy Wolverton @troywolv
What that really means, of course: We're firing a bunch of executives...

Nokia was the world’s largest handset vendor from 1998 until this year, when it was passed by Samsung. Its market share has been in a freefall, and the profitability story has been even worse as it lost the profit sanctuary that the N-series phones once provided b.i. (before iPhone).

Part of the problem is that Nokia didn’t move quickly enough to respond to the iPhone. I was a consultant to Symbian (which made the N-series operating system) from Dec. 2006 to Dec. 2008, and while there was an appreciation of some of the iPhone features, I don’t think the company was really worried. For indirect evidence, it appeared that the Nokia execs were even more confident than their English software supplier — until Android came along. Today, Apple sells more smartphones than Nokia and earns most of the handset industry profits.

Right now, I don’t see how Nokia’s going to turn things around. On the one hand, as they phase out Symbian they’ve given up platform control for most of their smartphones — having cast their lot with Microsoft. On the other hand, Samsung is also dependent on others for its smartphone platform — i.e. Google — with only about 12% of its phones that carry the Bada operating system.

Theories for the differing outcomes abound. One is that Samsung bet on the right smartphone and Nokia didn’t. Certainly no one is enjoying great success with Windows mobile phones, while Android is the bulk of the smartphone market. However, I think the Nokia’s long indecisiveness was part of the problem: it shipped its first Windows in late 2011, 2 1/2 years after Samsung’s first Android phone.

Today, there‘s one differentiated platform — the iPhone — and a bunch of commodity smartphone suppliers competing on execution — via time to market, small feature enhancements, and of course price. Nokia made its money when it had customer lock-in as the only game in town, and its DNA is not well-aligned for today’s competitive price-sensitive markets.

But in hearing about the latest round of cuts reminded me of Silicon Valley companies also trying to cut their way to greatness, notably HP and Yahoo. Cuts will not make a mediocre company great — they will only cause it to lose less money. Success will come from growing the top line, and thus far Nokia under Elop (and his immediate predecessors) has been heading in the wrong direction.

Nokia resembles HP in that both were once world-renown innovative companies, and both have stumbled as the market matured and price premiums disappeared. Apple was in this place 15 years ago, but were turned around by brilliant market-driving innovation. However, the Apple Steve Jobs turned around was smaller, more nimble — and more scared — than Nokia is today. If there’s a reason that Nokia’s slide will eventually end, so far I haven’t seen it.

Nokia and Microsoft: winners and losers

There is plenty to say about Nokia’s decision to phase out Symbian in favor of the-operating-system-formerly-known-as-Windows-Mobile.

Nokia CEO (and Microsoft veteran) Stephen Elop had already prepared the troops with his “burning platforms” memo, lambasting his new employer for how it failed to respond to the iPhone and Android challenge.

Nokia’s problem is that it never got software. It created Symbian so that it Microsoft would never take over handset profits the way it did on the PC. It outsourced key software development to Symbian and then continued to peddle its cursor-key S60 platform the in the face of Apple’s groundbreaking GUI phone.

Now it has partnered with Microsoft, a company that certainly is competent at software, but has yet to prove that it can execute on mobile software. Elop has jumped off the burning oil platform into a ship that’s adrift and has a hold filled with water. (Today its stock fell 13% in response to the news.)

Who are the winners and losers?

Winners

• Microsoft. Even if Windows Phone never goes anywhere, it gets a user base for Bing on the handset.

Losers

• Nokia. Despited hundreds of millions in side payments from Microsoft, it transitions from the world’s most popular smartphone platform of the past decade (albeit one in sharp decline) to the 5th most popular platform. It adopts Windows Phone 7, which has a 2% share in the US smartphone market, half that of the older Windows Mobile 6.
• Symbian and MeeGo developers. After following Nokia in its QT-everywhere strategy, they are now officially orphaned.
• Current Windows handset vendors. Presumably Windows Phone becomes a captive Nokia platform (the only kind it likes) and Samsung, Motorola and Sony Ericsson abandon their limited sales of Windows phones into US enterprises.
• Research in Motion. The distant and long-rumored hope of a Microsoft acquisition as an exit strategy is now gone.
• European network operators. Instead of key mobile Internet decisions — APIs, apps, app stores, search, bundled apps — being made by two American companies, they now will be made by (at best) three American companies.

Meanwhile, the Silicon Valley duo will continue their march forward to displace all comers — Apple with a plurality of profits and Google eventually achieving a majority of the market share.

The sign of a troubled company is multiple Hail Mary passes in a row. Nokia bought Symbian and made a half-hearted effort to establish an open source project (three years too late). It told developers to abandon Symbian APIs in favor of QT APIs that could enable a transition to MeeGo. And now it declares its future to be a platform that many have already written off.

All this because it doesn’t want to join the commodity free-for-all that is Android? In his memo, Elop told his troops

Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.

Nokia needs to fix its execution rather than throwing more Hail Mary passes than even Doug Flutie ever completed.

Update 9am: Michael Mace sees the Nokia-Microsoft tieup as like the Apple-IBM alliance 20 years earlier to create Taligent: similar in that execution will be the key, but different in that today Nokia has bet its future on the success of the alliance.

MeeGo: Nokia and Intel learn to let go

For years, I was trying to figure out why the world needed two Linux-based tablet operating systems: Nokia’s Maemo and Intel’s Moblin. Almost three years ago, Intel created Moblin as a fork of Maemo and its Hildon UI (inherited from Symbian).

The reality was that the world didn’t need a forked niche mobile platform, but of course forking is the reality of open source. The changes may be available, but when not invented here and an unwillingness to share control get involved, corporate egos trump the nominal openness of an open source license.

The two factions have been flirting with cooperation but had been unwilling to consummate the deal. On Monday, they finally did.

In an announcement at the European cellphone industry’s global big tradeshow — Mobile World Congress — the two factions announced plans to merge the two code bases. As Nokia’s open source guru reported in his blog:

We’ve been busy with our friends @ Intel.

We decided to expand the relationship we started already last spring. We merge Maemo and Moblin projects into one single project called MeeGo. MeeGo is an open software platform – an operating system – for a wide range of devices. It’ll run on X86 and on Arm based hardware. It will be developed as an open project hosted by the Linux Foundation.

So what does it mean? Many things.

Joint development
We will merge Maemo and Moblin projects. Their architecture is already very similar. They share many components but sometimes use different versions. But they build and integrate releases independently. And while Maemo is for ARM, Moblin is for X86. Now we merge them to get the best of both. A good Moblin build and integration, Maemo’s mobile optimizations and ARM support, Qt etc. We can also now make the bright engineers of Intel and Nokia to work close together.

Of course, the announcement is less about saving R&D engineers and more about combining installed bases, APIs, ecosystems, and third party developers. Neither platform was very interesting on its own, but together the hope is Meego will be the future for both ARM and x86 devices. Both will use Nokia’s QT and Nokia will peddle applications via its (struggling) Ovi store.

More importantly, both Nokia and Intel let go, and turned control over to a neutral broker — the Linux Foundation. LF (like its predecessors OSDL and FSG) has plenty of experience contending with giant corporate egos.

The one thing that seems ambiguous is the positioning vs. the world’s most famous (quasi) Linux mobile platform, i.e. Android. Are sponsors being coy about avoiding comparisons to Android, or is this really an up-market alternative, between handsets and PCs? In an era of iPads and netbooks, will such distinctions remain a year or two from now?

Hat tip: tweeter David Wood, live from Mobile World Congress.

Nokia vs. Google platform integration

After spending $8 billion to buy Navteq and its mapping database, Nokia has now decided to give away the mobile navigation service with its various phones. Darla Mack describes the new service from the standpoint of Nokia handset users.

Of course, maps — fixed line, mobile, location aware (whether GPS or fixed line IP address), 3D, turn-by-turn navigation and every other incarnation — are a major strategic area for the Monster of Mountain View. As a friend noted last week, the location aware mapping services are probably the only category leading aspect of Google’s Android platform right now.

And, in fact, Forbes remarks on the forthcoming battle between Nokia and Google. However, Forbes spends most of its time on the impact on TomTom and Garmin, which are already being substituted away by the Apple and Google mobile phones. (Nokia is stronger than either the iPhone or Android in Europe, where Forbes reports that TomTom has 44% market share.)

Even if the mobile phone substitutes aren’t quite there yet, this is another milestone in the mobile-phone-as-the-Swiss-Army-knife-convergence-device view of the 21st century electronics industry. This highlights the direct and indirect competition between the various service and software platforms: Nokia is a hardware company that offers services, Google is a services company that now sells hardware, and both are providing handset software.

So it seems like another milestone away from open innovation, towards vertical integration (or related diversification), in which every platform owner feels it has to own every piece of the puzzle. That doesn’t count the network operators, who also want to rent their own mapping services. (The Verizon service comes in for caustic criticism by one of the Forbes readers.)

To me, Apple’s purported partnership to promote Bing on its iPhone makes more sense than integration. My hunch is that Google and Nokia will still try to control every piece of the stack, even as Microsoft retreats away from mobile platforms into applications.

Not many Nokias come with music

Nokia has wanted to be a vertically integrated mobile services and devices company. It its own app store, its own maps and its own music service.

How’s that working out, Nokia? The data is in on the latter, as PaidContent (and others) report:

Free unlimited music for more than a year seemed like a good proposition, but, nine months after its launch, Nokia’s Comes With Music bundle is not proving particularly popular with consumers.

In July, the scheme had just 107,227 users across the nine countries in which it’s launched, according to figures Nokia (NYSE: NOK) sent out to labels and distributors, obtained by MusicAlly:

By comparison, PaidContent mentions that Spotify has 6 million users. As of May, Pandora claimed to have 4 million iPhone listeners. Sirius XM radio quickly got 1 million downloads for its music app (although it’s not clear how many of those pay the monthly fee.

The granddaddy of them all, the iTunes Store, has sold more than 6 billion songs, even if most of them (so far) are only for use on PCs.

PaidContent’s assessment:

Nokia has placed a lot of importance, and a lot of marketing money, on Comes With Music. But the programme has been hampered by DRM and complex PC operation and confusing PC-mobile sync. And that advertising campaign has really failed to communicate exactly what CWM means.

Even the official blog on which Nokia is celebrating CWM’s first birthday acknowledges: “Sure, it didn’t start out that rosy, with lots of folk not really certain about what Comes With Music offered ... we never shied away from the important education process that is needed in order to fathom that you can download and forever-keep as many tracks as you like – but the past 365 days have seen a much greater understanding and appreciation for the service emerge.”

DRM is dead, simplicity and ubiquity are in. It sounds like Comes With Music has a long way to go. Is it the problem with the product concept? The execution? The business model?

Whatever the problem, it’s clear that the benefits of vertical integration (compared to all the point solution rivals) are minimal for Nokia. One could argue that vertical integration has paid off handsomely for Apple, but for the past decade the company also had the best execution in the IT industry for product design and ease of use. The point products can’t copy Apple‘s vertical integration, but they can hope to copy (or surpass) its other advantages.

If my experience with my Nokia E61 and S60 is any indication, Nokia is a long way from winning awards for ease of use.

Maybe mobile money

Nokia announced Wednesday that’s developing a new service Nokia Money by partnering with Obopay. The product is mainly targeted at the rural poor that lack any sort of bank account, just as mobile phones have been targeted in China and India for communities lack wireline infrastructure; the US is in the indefinite future.

So it can enter the services market on the cheap, without having to commit a lot of management mindshare to make it happen. Going outside for new technologies? We call that open innovation.

Nokia also has some form of option on the upside. In March it invested an undisclosed amount in the company in what I’m guessing (given this current market) was a down round. At a minimum, it won’t have to buy out its own shares, although one of the Obopay investors is its old friend Qualcomm.

The US press is focusing on the PayPal rivalry, but I think DoCoMo is a better analogy. PayPal is the big player in its segment, but it’s a small subset of Internet e-commerce. DoCoMo has had a big hit for the past decade with some 48 million i-mode customers, but failed in its efforts to export the business model to other countries.

It appears as though there are few if any between-country network effect for mobile payments, which means the Big Emerging Markets are up for grabs, no matter what happens in the US or Japan.

The official Nokia release says nothing about an exclusive arrangement. Does this legitimate Obopay the way that IBM legitimated MS-DOS back in 1981? Or does it put Obopay firmly in Nokia’s camp, ruling out interest from operators like Vodafone, Orange or T-Mobile?

Nokia netbook nonsense

After proclaiming for a decade that smartphones will inevitably rule the world, on Monday Nokia announced the Nokia Booklet 3G, a high-end netbook that runs Windows.

To avoid allowing Windows Mobile get established in cellphones, Nokia created and nurtured Symbian for more than a decade. Now it’s becoming one of the last firms to adopt Windows, at a time when PC makers (like Dell) are adopting Linux-based Android smartphones, while other PC makers are considering ARM-based (rather than Intel-based) devices.

While I’ve noted that the netbook niche is growing rapidly, I don’t see how Nokia hopes to achieve any meaningful market share. Perhaps there will be a good 3G radio in its netbook, but HP, Dell, Lenova, Toshiba, Sony and others can buy such radios on the open market. (We call this open innovation).

I don’t see how Nokia will have an advantage on scale, innovation, features, branding or distribution over existing netbook makers like Asus, and Acer or the PC followers such as HP, Dell, Sony etc. etc.

It’s not that I doubt Nokia’s capabilities — although using software off the shelf will help it provide greater functionality than its current mobile devices.

However, I can’t see how being late to market in a commodity market is going to turn out well. The choices are low cost or differentiation. The former seems less likely, since it hasn’t been a low cost producer and it seems unlikely to happen any time soon.

Update 8am: However, based on the comments of reader Naru (below), it’s quite possible that Nokia is selling the product as a defensive measure to keep existing netbook producers from gaining a toehold among the network operators and their distribution channel.

Has Nokia has produced innovative phone hardware? Sure, but so have the Korean companies — and they also make PCs.

Meanwhile, the Taiwanese leaders seem to be keeping their lead producing low cost implementations of commodity netbooks. So far, there hasn’t been a lot of volume in the differentiated offerings, and perhaps there won’t be until the new Apple tablet comes along.

Nokia needs some open innovation

Nokia’s stock price was punished after releasing glum financial news Thursday. As I write this Friday morning, the stock is off 16% from its Wednesday close. While some say buy on bad news, Tiernan Ray of Barron’s says “Easy Call on Nokia: Sell”. (I think that would be more prescient if it had been published on Wednesday morning, or last week).

Ray is not alone in the chorus of naysayers. Parmy Olson of Forbes calls Nokia the next Motorola — long-dominant now unable to respond to new rivals and even the FT is painting a glum picture. The Times of London seemed inclined to take Nokia’s upbeat interpretation at face value.

Nokia has long gotten no respect in the US from analysts, journalists and many industry members due to their geographically skewed footprints. (Nokia is hoping to solve this with increased US distribution.) Nokia and Apple have long seemed mirror images across the pond, with Europeans being unable to understand Apple’s strength (or Research in Motion’s) because they and their friends don’t use the products, just like American’s didn’t understand Nokia’s. But if European commentators are glum on Nokia, then that’s bad news.

The most interesting of the three FT articles was the one the editors buried, “Nokia to accelerate mobile services push,” which notes that Nokia has spent heavily to create its own maps, music and email services that are not producing financial returns.

I think the Motorola analogy is an apt one. Nokia is like Samsung and LG, a hardware company that makes new devices with lots of features. On a good day, it’s a devices company that makes stand-alone devices that people want to use, rather than (as with so many high-end phones) just lumps of plastic with abominable software.

However, Nokia is not yet a mobile systems company, the way that Apple and RIM are, and that Google seems likely to become. Some of this may relate to its software and services skills, or operator resistance in Europe to its clout, or many other factors.

But my sense is that the Motorola analogy is quite apt. Motorola invented the hand-held cellphone market and dominated the US for more than 15 years; it assumed it would be the leader because it always had, and now it’s in freefall.

The paradigm for mobile devices has shifted — with iPhone, BlackBerry and the dozens of gPhone models soon coming — and so far Nokia has not been able to make the shift. In particular, despite its redeployment of Symbian as an open source platform (to compete with Android), Nokia seems to think it can control all the shots. It’s the 1-tonne gorilla in Finland (and at least 300 kilo in the EU), and it’s gotten used to end-to-end control and people buying it anyway.

I think it’s long past time for Nokia to admit it can’t control everything; Google and Microsoft have admitted it, and they are certainly dominant companies in their own right. Nokia needs to use more open innovation — cooperating with outside suppliers of technology rather than trying to buy them and control them. And it needs to build partnerships — as it tried to back in 1998 when it co-founded Symbian.

Google provides a good example. Even though everyone knows Google is calling the shots, Android is nominally governed by the Open Handset Alliance, which defines aspects of the whole platform (such as the Android Market), not just the software. If Nokia wants to avoid becoming the next Motorola, it needs to cooperate on things like app stores and music portals to create a pan-industry standard to compete with Android, the iPhone and their ilk. It’s no substitute for being a nimble, capable software savvy systems integrator, but it’s the best play for the hand they’re now holding.

Nokia platform proliferation

Nokia made two major extensions this week to its platform strategies — one in handsets, one in infrastructure. Both are about finding growth in the face of increasing commodization.

For more than a year, I’ve wondered when Nokia’s Maemo and Intel’s Moblin were going to tie the knot. With Tuesday’s announcement, it’s clear that neither side has made an exclusive commitment, but both parties seem inclined towards something more than a dalliance.

Both Maemo and Moblin are Linux-based platforms for mobile devices such as tablets or netbooks. For Nokia this more about netbooks than being about phones. For Intel, it’s a chance to break into the phone segment, which it once tried (and failed) with XScale (which 3 years ago Intel sold to Marvell).

Nokia still has both the highest volume and broadest product line of any cellphone maker, as well as unparalleled global distribution through telecoms operators. Nokia is not going to share control with Google in the commodity (i.e. Open) Handset Alliance, so combining the two similar Linux platforms is a way for it to attract at least a few allies going forward.

However, this muddies the Nokia platform strategy considerably. Unlike its rivals, Nokia had a fairly focused platform strategy with the S40 and S60. Going beyond the limited Maemo experiments could muddy its platform waters considerably. What does it mean for Symbian, the technology it bought last year and is now open sourcing? LinuxDevices is pro-Linux, anti-Symbian, and now assumes Linux will displace Symbian:

The partnership news further suggests that the rumors that Nokia is moving forward with Linux -- and not, it seems, Symbian -- devices that combine MID and smartphone characteristics, are true. It also appears that Nokia will likely focus on Linux for its future high-end smartphones, while leaving a soon to be open-sourced Symbian to handle less powerful smartphones and feature phones.

I think this is wishful thinking on the part of a pro-Linux analyst. Unless Intel and Nokia plan on joining LiMo or Android, the world isn’t ready for yet another Linux-based handset platform.

Instead, the Nintel (Innokia?) alliance will be growing the segment in between smartphones and laptops, which will be distinct devices from either one. Will they make phone calls? Yes, but using earphones and not by putting it to your ear.

In this regard, they are aimed more at the low end of the laptop segment — and thus at Microsoft — rather than the high end of the smartphone segment. Presumably an alliance with Oracle’s OpenOffice.org will be necessary to support Microsoft Office documents needed by users of these devices. (This may also be aimed at Apple, which has both smartphone and laptop products and is rumored to be working on a tablet-sized iPhone).

Intel hopes this will head off the predicted shift of netbooks from Atom to Netbook. I am not sure that I agree that it will work, since Qualcomm is working hard with Android to extend its ARM-based processors into the Netbook territory, and TI is also working hard to move upmarket.

The other major announcement was that Nokia Siemens Networks is buying Nortel’s CDMA and LTE infrastructure unit for $650 million, less than the $850m it offered five months earlier for a slightly larger product portfolio. This is a consolidation of a fragmented industry that delivers North American market share to NSN, mainly Nortel’s relationships with Verizon and Sprint

It’s not clear how NSN really benefits from the Nortel acquisition, given that the CDMA business is facing end of life (even if existing customers like Sprint desperately want an support path). Although LTE is the growth path for Verizon (not Sprint), Nortel’s LTE efforts never got very far before Nortel gave up. NSN gets some sales contacts as well as 2,500+ Nortel workers, but with it new platforms that it needs to maintain — not necessarily conducive to achieving scale economies.

It appears as though this is aimed at outlasting Alcatel (which now owns Lucent’s CDMA business) and Ericsson in the war of commoditization against the Huawei and ZTE. Based on an earlier interview, telecoms.com reported:

In a recent interview with telecoms.com, Tarek A. Robbiati, the chief executive officer of CSL, Hong Kong’s first-placed mobile carrier, predicted that Chinese vendors will come to dominate the global mobile infrastructure market. “Further consolidation will come in the next three to five years. In the end there will be only three [infrastructure vendors] left, and two of them will be Chinese. The European vendors are just too slow,” he said.

The chauvinism of a Hong Kong operator against European manufacturers would be expected, but Robbiati had a Euro-centric career since graduating from London Business School in 1996 — including work as an equity analyst for Lehman and a finance VP at Orange — before moving to Australia in 2005 and HK in 2007. So if he’s frustrated with European vendors, it’s the voice of experience.

Ovi store fizzles

Catching up on blogging.

On Tuesday, Nokia launched its Ovi Store to sell applications for S60 handsets. The store has direct operator billing in Europe, Russia, Singapore and Australia. Support for Ovi in the US (via AT&T) is due later this year.

Apparently the website was sluggish and hard to navigate (according to Symbian Watch and TechCrunch). The Register in the UK has been particularly merciless in pillorying the European cellphone giant. Writing on Wednesday:

Ovi is Nokia's answer to Apple's iTunes, offering a broader range of content to a broader range of handsets - or at least it would if it could stay up for more than five minutes and operated at a sensible speed when it was available

On Friday, longtime Psion and Symbian fan Andrew Orlowski wrote:

It must be frustrating to sketch out a long-term technology roadmap in great depth, and see it come to fruition... only to goof on your own execution. But to do so repeatedly - as Nokia has - points to something seriously wrong.
…
The launch was "an utter disaster" according to one blogger, or in a more measured assessment (from Ewan at All About Symbian), "rushed, early and not fit for public consumption". Nokia accepts second-best from Ovi, which apart from Maps is second-best in every category, the company all but admitted recently. But the Ovi application store deserves a Z-grade.

It's now clear that it was simply too ambitious to roll out a store to so many territories and in particular, to so many device categories, in one Big Bang. The number of devices supported goes back six years - encompassing eight versions of Series 40 and three versions of S60.

Nokia is a company that sells more phones than anyone, manages high volume logistics, works with nearly every carrier in the world, designs complex infrastructure and fancies itself a services company rather than a mere maker of handsets. It is a complex operation, with 125,000 employees and revenues of $71 billion.

You would think that it would be a top priority to roll out its main consumer portal against rivals like RIM, Apple, Microsoft and Google. Shouldn’t a company with this sort of scale know whether or not its portal is going to work before it launches?

These sort of systems are hard to build. Perhaps Nokia should take a hint from Google and release everything as “beta” for a few years so that it can disclaim any responsibility for reliability or responsiveness.

Symbian's planned app store

The Symbian Foundation has advertised for a new manager to run their app store:

The Symbian Foundation is looking for an Application Deployment Manager with a keen passion to drive a team in the creation of a superior Mobile Application Store. This will be a senior role within both the US office and Developer Services at The Symbian Foundation.

In this role, the Application Deployment Manager will work with the entire Symbian community (including device manufacturers and operators) to define, create and drive the deployment channels for Symbian Foundation’s Application Store.

It is interesting that the Symbian Foundation — substantially funded by Nokia — is creating a new app store while Nokia already is developing their own app store — due as the Ovi Store next month. The new store will support both S40 and Symbian S60, while presumably the Symbian store would only support S60.

Apple and Nokia ARM'd for netbook fight

The netbook world — or at least netbook speculation — continues to be a growth industry. One of the key questions is whether future netbooks will be more like laptops or like smartphones in their platform choices.

Towards that end, last month an industry expert predicted a shift from laptop (Intel Atom) to smartphone (ARM-licensees) processors:

ARM-based processors will take market share from Intel Corp.'s Atom in the netbook segment and hold 55 percent of the netbook market by 2012, according to Robert Castellano, president of The Information Network.
…
The movement is toward the original intention of a netbook—an inexpensive device for accessing the Internet, Castellano said.

A shift to ARM-based processors would benefit existing suppliers of smartphone CPUs like Qualcomm, Freescale and TI.

The key question about making a viable ARM netbook platform remains the software. Fortunately, there are a plethora of software choices used by smartphone makers, and a lot of investment and activity here.

Forbes Wednesday reported a rumor that HP is considering an Android-based netbook. (Android of course is a smartphone OS with a Linux kernel and its own GUI APIs). I wouldn’t be surprised if Dell copied this approach, certainly more plausible than the reports that Dell (the ultimate commodity IT company) will buy Palm (with its custom OS).

Nokia has been eying the netbook space with envy — the N97 is a little more phone and a little less laptop replacement have speculated that Nokia is considering offering a netbook, to the point that even Nokia admits the interest. ArsTechnica thinks it will be Linux powerered. However, given the lack of Linux applications, I find more plausible the speculation by The Register that the first netbook will be based on Symbian (like the N97).

And then there is Apple. Both its laptops and smartphones run OS X and its Safari web browser, so the question would appear to be which GUI and applications it thinks best for netbooks.

I strongly suspect that the Apple netbook (expected this summer) will be using the iPhone OS, because otherwise Apple risks cannibalizing its core laptop business.

However, it’s clear that there is an even better reason to predict this: the iPhone App Store. Apple controls the distribution of 3rd party software for the iPhone in a way it never has in its previous 30 year history, and also takes 30% of the action. Steve Jobs always got mad sharing profits with the middleman and now that sharing is over.

So in one swell foop Apple can put itself at the head of the migration from laptops to mobile devices, finish transitioning its developers from the desktop to the phone, change the software industry business model from bloatware upgrades to consumer fads, and switch from a business where it has 5% in North America to one where it has more like 30-50% (depending on your denominator).

Of course, there still are some important product details to be resolved, liked screen size, weight, battery life and keyboard. Something less than 2 lbs with a real keyboard would be huge for the US market, but I suspect that’s not what Steve has in mind.

But if this the wave of the future, what it does say for the rivals?

• Nokia has Ovi which has a solid infrastructure but not a lot of excitement. Still, more than any other firm they control their own destiny.
• HP (and others) would depend on the Google-run Android Marketplace which is gradually maturing but will never provide them a revenue stream
• RIM (creator of the BlackBerry thumb disease) has its new App World but is a long way from making laptop replacements.
• Other cellphone makers (Samsung, LG, Motorola) have neither app stores nor PC competencies. The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones. Neither camp has their app store or is good at software.
• The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones and even less in their own software and app stores.
• Many diversified Japanese CE companies (like Fujitsu, Panasonic, Sharp, Sony, Toshiba) are players in both spaces, and thus are well equipped to make portable devices but leave the app stores to the OS player or (especially in Japan) the operators.

Near term, it looks like Apple and Nokia are best situated to push ARM-enabled jumbo smartphones. Between notebooks, netbooks and PDAs, HP is a well situated challenger, but nearly all their portable devices use Windows, so going to Android (or some other choice) could be stretch.

Qualcomm's other shoe

Cross-posted from the San Diego Telecom blog.

After 10 years in which Symbian never supported CDMA or any Qualcomm chipsets, why did Qualcomm join the Symbian Foundation last week? As the EE Times reports, the other shoe dropped this morning:

BARCELONA — Both ST-Ericsson and Qualcomm Inc. have revealed partnership programmes with Nokia based round reference platforms that will use the Symbian Foundation's software.

Qualcomm's deal focuses on developing UMTS mobile devices, initially for North America, that will be based on the S60 software on Symbian OS, running on the San Diego, California- based chip maker's latest MSM7xxx-series and MSM8xxx-series chipsets targeting wireless broadband.
…
The companies, for long arch rivals due to long standing patent infringement law suits that were finally settled last year, say the first mobile devices based on the collaboration would be expected to launch in mid-2010 and be compatible with the forthcoming Symbian Foundation platform.

Nokia currently has a very limited relationship with US carriers. “UMTS … for North America” means selling S60 smartphones either to AT&T or T-Mobile, competing for shelf space with the iPhone or gPhone respectively. Certainly, outside the US the Nokia smartphones are sold side-by-side with the iPhone by the same carriers.

EE Times plausibly argues that this cooperation is because Nokia last summer finally resolved its patent fight with Qualcomm. In November, analysts told EE Times they thought it unlikely that Nokia would go so far as to buy chips from Qualcomm.

It seems particularly odd that Nokia would start its partnership with Qualcomm with W-CDMA phones — given its sells hundreds of millions worldwide — but perhaps it is just trying to prime the pump. Presumably the next step is to use QCOM chips to sell more CDMA phones in the US, although so far Nokia is outsourcing that work to ODMs.

On a somewhat related note, Qualcomm CEO Paul Jacobs was quoted in Barcelona by CNBC as saying demand for smartphones remains strong. However, unlike his predecessor (Jacobs père), Jacobs fils is a perpetual optimist.