Nokia's fall from grace

Nokia's fall from grace

Windows Phone is holding back one of the most promising phone makers in the industry.

What should have been a day of pride for Nokia served only to remind the world how far the company has fallen. At last week's Lumia 1020 event in New York, it became clear that the company has no plans to change its ways--even if its stubbornness means sliding into irrelevance in the smartphone market. As Apple and Samsung duke it out for first place, Nokia is left fighting for the scraps along with BlackBerry and every other unlucky device maker in the smartphone game.

How did the number one phone maker in the world end up an also-ran? Simple: it bet the house on Windows Phone.

Nokia's mistakes

In 2011 Nokia and Microsoft established a strategic partnership in which the Finnish phone manufacturer agreed to make smartphones that ran on Microsoft's mobile operating system, while simultaneously phasing out Symbian. Earlier Windows phones from the likes of HTC and Samsung hadn't been all that impressive, but people were confident that Nokia--already beloved around the world for its durable and colorful handsets--could save the platform from obscurity.

The Lumia 800, Nokia's first Windows Phone, was well-received abroad, and the U.S. public seemed excited at the idea of a Nokia smartphone that would work with U.S. carriers. But the first Windows Phone that Nokia brought stateside was the Lumia 710--a phone that lacked the polish and style of the 800 and was limited to one of the smaller nationwide mobile carriers (T-Mobile). The Lumia 900, which followed a year later, was a much better handset, but once again its distribution was limited to a single carrier (this time, AT&T).

These single-carrier deals arose partly because Nokia didn't (and doesn't) have the clout necessary to release a phone on all four major carriers at once. Even before it made smartphones, Nokia was more popular in other parts of the world than it ever was in the United States, where its name doesn't carry the same gravitas that Apple or Samsung does. Without a huge success under its belt, Nokia must launch its phones with carrier exclusives and co-marketing deals.

Owing to limited phone availability and an overreliance on Microsoft's phone OS (which wasn't gaining traction in the marketplace), Nokia's earnings in the fourth quarter of 2011 dropped by an astounding 73 percent, and at the beginning of 2012 the company had sold just 1 million Windows Lumia phones since launch--far fewer units than its Apple and Android competitors had sold during the same period. Even so, people remained hopeful that Nokia would catch on.

Gartner analyst Carolina Milanesi told Reuters that Nokia needed to step up its marketing efforts to drive sales of Lumia phones and recoup some of its losses. She explaine, "Android is still an easy sale. Nokia needs to convince the sales people in stores to sell Nokia."

Microsoft helped Nokia that quarter by giving the company $250 million in "platform support payments," and Nokia weathered the storm--only to keep making the mistakes that had put it in its unenviable position in the first place. Meanwhile, interest in Windows Phones began to wane as people discovered that the platform lacked many of the apps available on iOS and Android, and as Samsung began to make big moves with its Galaxy line of Android devices.

Samsung surges

The Samsung Galaxy S3, which seemingly exploded overnight, quickly became one of the best-selling smartphones of all time. Its shadow loomed heavily over the September 2012 unveiling of the Nokia Lumia 920, an excellent phone whose shortcomings were magnified when it was placed next to its two strongest competitors. Countless reporters and editors fussed about the 920's size and weight compared to the iPhone 4S and the Galaxy S3, painting a picture of an outmoded phone running a neglected OS. Why would you want to buy a big yellow brick when you could get a slim, lightweight Android phone with way more apps and use it on any of the four major carriers?

In an All Things D article titled "A Third Mobile Platform? There's No Room for One," John Paczkowski explained that Apple and Android had gobbled up so much of the mobile market that not even the combined efforts of Windows Phone and BlackBerry stood a chance against the new duopoly. The balance of power suddenly shifted away from the old Apple-versus-Android dynamic and had become Apple versus Samsung versus the rest of the Android mob. The third place spot that Windows Phone--and by extension, Nokia--had hoped to fill no longer existed.

The Android approach?

Flash forward seven months, and Nokia is still hemorrhaging money: In the aftermath of the $196 million loss that Nokia posted in the first quarter of 2013, shareholders and critics are begging CEO Stephen Elop to "please take another road." What they're really saying is that they want Nokia to make Android phones.

"I think Nokia would be incredibly competitive if they moved to Android. With that great camera software, they could definitely give Samsung a run for its money," says Patrick Moorhead, president and principal analyst at Moor Insights and Strategy. "Nokia has shown they have great hardware, they have great camera technology--but they are riding a platform that doesn't have the steam to get them to where they need to be."

The biggest complaint out of the Lumia 1020 reveal wasn't the phone's exclusivity with AT&T, but the fact that it ran Microsoft's mobile OS instead of Google's. My friend Marc Flores from PhoneDog did a good job at summing up my feelings in his article:

"Unfortunately, this amazing camera is housed in a Lumia phone running Windows Phone 8. Not that there's anything inherently wrong with that, but Windows Phone's market share compared to iOS and Android is small, and for good reason. While its apps are improving, and app selection is growing, it's still not on par with their iOS and Android counterparts. Some popular apps, like Instagram, aren't even on Windows Phone 8 yet. It's already 2013!"

In a 2011 interview with CNET UK, Elop stood firm and said that if Nokia built an Android phone, it would feel "like giving in." In more-recent interviews, Elop has stated that Nokia is focusing on its line of Windows Phone Lumias and has no interest in exploring other operating systems. Basically, Nokia is betting its entire future on the success of Windows Phone OS--a gambit that I'm almost certain will blow up in its face.

Can Nokia turn it around with Windows Phone?

Not everyone agrees with that sentiment. Ramon Llamas, an analyst from IDC, thinks Nokia is making the right choice by sticking with Windows Phone. "If your name is not Samsung or LG, you're not making money from your Android smartphones right now. For Nokia to go with Android, I just don't see it," he says. "When you're trying to champion a new platform in the face of Android and iOS, it's gonna be an uphill battle from the start."

Rather than abandon Windows Phone, Llamas suggests, Nokia should retool its marketing efforts to show people what they can do with its handsets. The big mistake Nokia made with the Lumia line was that it used marketing merely to list the phones' specs, instead of focusing on what made the phones so special. A few years back, Samsung tried going toe-to-toe with Apple using the same tactic--and failed miserably. Steve Jobs had a point when he put people before specs: You can throw only so many numbers and figures at people before their eyes glaze over, and it's much smarter to show how a device can improve a person's life than to brag about how much RAM it has.

Marketing can get you only so far, however, and ultimately Nokia is still at the mercy of Microsoft when it comes to keeping the software on its phones competitive. You can't develop your own versions of apps (Maps, Music) indefinitely without eventually starting to look pathetic. Like it or not, Elop has tied Nokia's future to that of Microsoft's mobile OS, and it remains to be seen how much longer he'll stay at the helm--or how much longer the company can go on--if things continue on their current trajectory.

Microsoft is nearly out of allies in the mobile market at this point. Samsung is focusing on its Android Galaxy line, HTC doesn't have the resources to focus on anything other than Android, and who even remembers the last LG Windows Phone? (I certainly don't.) Huawei? ZTE? Please. Without Nokia, Microsoft has nothing--and the moment Nokia goes down, so does Windows Phone.

Microsoft needs to start throwing its weight around to get Nokia on all four carriers (at the same time), and it needs to update its OS to support the features Lumias need to stay relevant. If I were in Balmer's sweaty, oversize shoes right about now, I'd throw Nokia all the money and support it needs to reverse the downward trend and help Lumia come out on top.

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