Nokia adopts third way in return to the fray

WHEN former Microsoft heavyweight Stephen Elop was parachuted into Finland to take charge of Nokia a little over two years ago, to say the mobile phone maker was in trouble was an understatement.

WHEN former Microsoft heavyweight Stephen Elop was parachuted into Finland to take charge of Nokia a little over two years ago, to say the mobile phone maker was in trouble was an understatement.

Mr Elop, the first foreigner to run the Finnish mobile phone maker in its 148-year history, pulled no punches about the problems of the once-dominant technology firm in a memo to staff.

"We fell behind, we missed big trends, and we lost time," he wrote, "I have learned that we are standing on a burning platform."

Nokia was under siege from Apple and Google. "We have more than one explosion - we have multiple points of scorching heat that are fuelling a blaze around us," the Canadian executive warned.

Apple's iPhone and Google's Android-based devices have blown away Nokia in the mobile phone market. It had about 80 per cent of the market in 2003 but its share has since dwindled to single digits.

Nokia has gone from being a dominant force to an underdog in a few years. Its shares, which once changed hands at more than €60 ($78), have not traded above €5 since the middle of 2011, and this week were at €3.

At the same time, low-cost Chinese manufacturers are also invading Nokia's territory in the emerging markets. A Nokia employee half-jokingly said the Chinese were releasing products faster than "the time it takes us to polish a PowerPoint presentation".

The big question was and still is whether Nokia can recapture some of its lost ground in the global smartphone business.

Mr Elop turned to his former employer - Microsoft - for salvation. He made the decision to ditch Nokia's Symbian software and adopt Microsoft's Windows-based operating system for its new flagship Lumia smartphones.

The move also involved Nokia turning its back on Google's Android operating system, which has been key to allowing players like Samsung to tackle Apple.

The Nokia boss told BusinessDay this week the decision at the time was to adopt not just an operating platform but an entire "ecosystem" - industry jargon for the full range of applications that are available on a mobile device such as mapping, navigation, music, entertainment and office software.

Mr Elop asked whether Nokia was up to the challenge of developing its own ecosystem. "The assessment was that it was a much higher risk solution," he says.

In making the decision to adopt Windows, Mr Elop said he was worried that Nokia was entering Google's Android game too late relative to everyone else in the industry. "One vendor was well on the road to become the dominant Android vendor at the expense of everybody else," he said.

"If you look back two years when we made the decision, Samsung was big, HTC was pretty big, Motorola was pretty big.

"And of course, what happened in the last two years is that Samsung has captured the lion's share but others have been squeezed down to a very small market share."

With the benefit of hindsight, Mr Elop said he had made the right call at the time.

By entering into a partnership with Microsoft, Nokia was able to preserve a degree of autonomy and safeguard many of its intellectual properties that were not compatible with the Android system.

He nominated Nokia's HERE technology - location-based services similar to Google Maps - as a case in point. HERE, which is also known as Navteq, is widely used in navigation. In fact, four of five cars on the road use that system.

"In the context of Google, of course you are required to adopt Google Maps capability, which would have taken away our Navteq assets," Mr Elop said. "They would have been less valuable to us."

He also pointed out that Google was becoming less accommodating with users of the Android system.

There are tentative signs that Nokia is recovering from its lost decade in the age of the smartphone. The company unveiled a surprise profit for its core mobile business unit for the first time in a year, driven by sales of its flagship Lumia phones.

However, the tentative recovery must be placed in perspective. Nokia shipped 4.4 million units of its high-end Lumia in the last quarter. Apple sold more iPhone 5s in the first weekend of its release last year than Nokia sold in the quarter.

Mr Elop's call for a third ecosystem - namely a Windows-based platform - in the smartphone business has found a strong backer in Australia - David Thodey, chief executive of Telstra, the county's largest mobile carrier with more than 14 million customers.

"We are a great supporter of a third ecosystem and I do think it will have a very strong place in the tablet and also in the mobile worlds, and it will also migrate through onto the desktop," Mr Thodey said this week.

Mr Elop said the key to Nokia's success also lay with its ability to "differentiate" from its competitors, meaning the new Lumia smartphone that has cutting edge photography technology.

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