Waves Associates White Paper - Death of a Ringtone How Nokia's smartphone software strategy failed and ultimately killed the brand

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Waves Associates                                                White Paper

   Death of a Ringtone
   How Nokia’s smartphone software strategy failed
   and ultimately killed the brand

  © 2014 Copyright Waves Associates Ltd. All Rights Reserved.
  www.wavesassociates.com

Death of a Ringtone

Background
Much has been written about the ups and downs of the cellular / mobile phone industry over the
past 25 years, and particularly the smartphone industry in more recent times. There seems to be a
rule in this particular sector that the leading companies eventually lose their positions – often
quickly and brutally. Mobile phone champion Nokia, one of Europe’s biggest technology success
stories, was no exception, losing its market share in the space of just a few years.
In 1999, one in every three phones sold in the world was a Nokia handset and the Nokia brand
was the 5th most recognisable brand in the world. Not so long ago, the thirteen note ringtone of a
Nokia handset was the de facto soundtrack of the mobile revolution. By 2007, Nokia had
achieved a market dominating position with more than 40% of mobile phone sales worldwide. But
consumers’ preferences were already shifting toward touchscreen smartphones and mobile
applications. With the introduction of Apple’s iPhone in the middle of that year, Nokia’s
smartphone market share shrank rapidly and revenue plummeted.
On 25th April 2014, Microsoft Corp. announced it had completed its acquisition of the Nokia
Devices and Services business for US$7.2 Billion, and just recently announced plans to stop using
the Nokia brand on its handsets altogether. Nokia as a brand has all but disappeared.
The demise of Nokia has mystified and fascinated many, given the tremendous success it enjoyed
during the late 1990s and early 2000s, its roots in Finland, and its historical ability to re-invent itself.
So where did it all go wrong for Nokia? In practice, Nokia died from a thousand cuts rather than
any one specific mistake, but the software cut was the deepest.

Mobile Phones become Smartphones
The convergence of digital technologies, the emergence of the mobile Internet and advances in
technology integration enabled the smartphone era. The biggest issue Nokia faced was that they
were a hardware company and not expert in software and software management. Any
company switching from hardware to software or vice versa faces major challenges and Nokia
was no exception.
Throughout much of Nokia there was a lack of understanding of the significance of software, how
to manage it and what appropriate business models to adopt. The company was much more at
ease with mobile communications technology and hardware such as electronics and mechanics,
but faced major difficulties understanding, appreciating and managing software.

Building a Software Organisation
At the time the smartphone market development started, Nokia’s senior and middle
management was populated by people with mobile phone business and mobile hardware
backgrounds. Most were very experienced and capable people, but lacked experience of
software and Internet based business models or of leading large software development
organisations.
The company could have aggressively hired Silicon Valley or software industry experts in the early
2000s to prepare for smartphone and online service development. This may have injected some
much needed software and Internet business understanding and strategy. Instead, Nokia chose
to look internally for its software strategists and leaders.
At that time, software development process and discipline was lacking in many key teams - with
the possible exception of cellular software – and this was impacting product quality and slowing
progress in developing a smartphone platform.
"It's only software" was a common refrain in Nokia, trivialising the problems associated with
managing the increasingly complex software technology and architecture. Senior management
could easily understand the process and status of mechanical tooling or printed circuit board
design, but the same did not apply when it came to software - there was clearly a disconnect
between software engineering and management.

Death of a Ringtone

Selecting a Software Platform
Tough decisions about which software platforms to support, and which ones to 'kill', were made
slowly. Nokia tried to support multiple software platforms, variants and releases (Series 30, 40, 60,
90, Maemo, MeeGo) which meant ineffective and inefficient use of valuable resources, as well as
fomenting internal rivalries.
Supporting multiple platforms put tremendous pressures on other parts of the company as well,
not just the software community. Product Management, Services, Software Procurement, After-
Sales Service … all these functions were stretched by the diversity of software options in Nokia’s
products.
One could even argue that in Symbian, Nokia made the wrong choice of platform for
smartphone development as it was optimised neither for real-time nor touch, requiring a huge
effort to correct and leaving Nokia far behind the competition. Symbian, was clunky, complex
and not consumer or developer friendly.
By the late 2010’s, with Android joining Apple in the market, the two main smartphone software
platforms were Unix/Linux based, although they used different application programming
languages. Fuelled by the explosive growth of applications in both Andoid and Apple
ecosystems, development tools quickly emerged that enabled application developers to port
their software from one platform to the other. Symbian was not in that club, but perhaps MeeGo
could have been?
The MeeGo joint development with Intel promised a new platform which could gain wider
developer acceptance and enable Nokia to refresh its smartphone UI, but after only one product
launch, MeeGo was dropped in 2011 when the deal with Microsoft was announced.
In the end, for a variety of reasons, Nokia chose Windows Phone. After two years of making
Windows Phone products, Nokia had 90% of market share for the platform, but only 10% for the
overall smartphone market (by volume, Android now has 75% and Apple 15%). Since then, market
share has dropped.

Connecting to Users
Despite all of the resources allocated to customer research, market analysis, business intelligence
and consumers, Nokia was late to spot the key trends in the developing smartphone market, most
notably, touch UI and mobile applications.
Even if they were aware of such trends, the company failed to energise itself in those directions
until competitors had led the way. Some key figures within Nokia even thought that touch was a
novelty feature not to be taken seriously.
The lack of a coherent strategy for software and services, coupled with an overloaded
requirements management system not fully integrated with holistic product management,
caused a disconnection between consumer needs and delivery teams. Nokia became a
follower, not a leader.

Creating an Ecosystem
Nokia struggled to create a viable Symbian ecosystem and monetise it in the way that Apple had
done with the iPhone and iTunes. Most available Symbian applications were operator or business
oriented, rather than consumer focused. Later releases of Symbian were not backwards
compatible with earlier versions, so existing applications required extra effort from developers to
port them to the new release. This caused a fragmented ecosystem that was confusing for
developers and users alike. With over 1.2 million applications in both Google’s Play store and
Apple’s iStore today vs. 300,000 in Microsoft’s Windows Phone store, the gap continues to widen.
Symbian application development support tools were poor and often delivered late, giving
developers little time to finalise their applications before the new release was in the market. The
acquisition of Trolltech and the introduction of Qt on the Symbian platform didn’t drive

Death of a Ringtone

application development as hoped. For these reasons, the developer community did not thrive
and grow, leaving the door open for Apple and Google.
Symbian also did not attract many licensees, the key ones who actually brought Symbian-based
smartphones to market were Fujitsu, Mitsubishi, Motorola, Sharp and Sony-Ericsson – but in all cases
the sales volumes were low and Symbian was eventually dropped. Nokia was left standing alone.
Nokia’s naivety in the software business also affected its software procurement function. Software
procurement was split between different parts of the organisation with unclear responsibility and
accountability. For example, there were two procurement functions responsible for software:
direct and indirect. In the early days the responsibilities were clear, but as software technology
developed to be functioning both online and on the device the waters were muddied.
Like so many corporate behemoths before them, the Finnish phone giant grew dangerously
intoxicated on its success during the late 1990s and early 2000s. Having ridden so high for so long,
it is perhaps no surprise that a degree of complacency and arrogance crept in. This led to Nokia
believing that it had little to gain by adopting software from outside.

Building a Service Offering
Nokia’s online service strategy faired equally badly. Software services were run by a separate
business unit within Nokia with a lack of coordination to smartphone software, creating a
fragmented, uncompetitive and non-viable ecosystem.
Nokia tried to compete in maps and navigation, music, online apps store, photo library, games,
messaging, mobile wallet and several other online services through both acquisitions and internal
developments.
The responsibility for procurement of consumer services was split between product management,
developer support, marketing and the sourcing function. Once again the need to manage the
needs of these different entities caused an increased delay in decision making and thus allowed
faster moving competitors to close the gap.
Nokia's software mode of operation and organisational structure also posed problems as there
were many very large software teams distributed across the organisation often disconnected
from the customer and end-user due to a software 'factory' mode of operation.
The Ovi sub-brand was created in 2007 for Nokia’s services, but failed to create a coherent
offering and by 2011 was just a media and apps store. Nokia was aiming for global domination,
but in the end, only maps and navigation remained viable.

Where did it all go wrong?
Nokia entered the new millennium as a mobile communications giant and pretty much created
the smartphone category for the mass market. In 2005, Nokia had over 50% market share in
smartphones and from 2005-2011 tried to develop an ecosystem and services that could rival
Apple and Google, but it failed to …
 Appreciate the importance of software to the smartphone business
 Understand the key technology changes and consumer trends
 Select a software platform that would support services and applications reliably and
attract other smartphone licensees
 Develop viable business models that included online services and mobile applications
 Build a software development process that was integrated with holistic product
management
 Foster a developer community and apps ecosystem
 Seek out the best expertise or partners to help expand into the software business
All of the issues listed above relate to software in one way or the other, and it is for this reason that
the software cut was the deepest. Nokia failed to properly understand, manage and develop
their software business. Software killed Nokia.

Death of a Ringtone

Author: Donal O’Connell, Bruce Godfrey, Nick Filler
Date: 25/11/2014

Waves Associates provides a Software Evaluation and Valuation service to a range of clients
including start-ups, VC fund managers and other investors, receivers liquidating a company's
assets, companies purchasing, outsourcing or developing software and those involved in mergers
and acquisitions.
This White Paper is published by Waves Associates Ltd. For more information about Waves
Associates and the services offered, visit: www.wavesassociates.com

This White Paper should not be taken as constituting advice of any sort and no liability is
accepted for any loss resulting from use of, or reliance on its content. While every effort is made to
ensure the accuracy and reliability of the information, Waves Associates cannot accept
responsibility for errors, omissions or inaccuracies.
© 2014 Copyright Waves Associates Ltd. Reproduction in full or part is prohibited without prior
consent from Waves Associates, contact info@wavesassociates.com.

© 2014 Copyright Waves Associates Ltd. All Rights Reserved.                                   Page-5
www.wavesassociates.com

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