Friday, July 17, 2009

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.

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