RIM vs. Nokia: The fall from grace, divergent strategies and the future

In the wake of Nokia’s announcement of an additional 10 000 layoffs, the media has devolved into histrionics. Some are writing eulogies, while others are citing the announcement as a harbinger for the “end of the European dream,” referring to Nokia’s reported fall from grace as Europe’s strongest mobile phone competitor.

There’s no denying things are dire for Nokia. As it stands today, the total number of layoffs since Stephen Elop took over as CEO in September of 2010 stands at 40 000. Nokia’s stock price has continued to decline to one of its lowest points in the venerable company’s history, currently trading at US$2.48. It’s not just investor opinion either, Nokia recorded losses of nearly US$3-billion over the last two consecutive quarters.

Nokia’s fall from grace co-incided with the rise of Apple’s iPhone. In October 2007, four months after the first iPhone disrupted the mobile phone industry, Nokia’s stock price started to freefall from its second highest peak at approximately US$40.

If you’ve ever wondered why Nokia is so hellbent on competing in the high-end market despite its strong low-end offering, look to 2007. It’s the year everything changed for Nokia and, for everyone. In retrospect, they didn’t attack Apple with nearly enough urgency. In the haze of low-end growth, Nokia failed to address the fact that its high-end devices were no longer the sought-after flagship devices that made them the world’s top mobile brand. This distortion would eventually affect the desirability of its entire line, from the top right down to the bottom.

The second blow came two years later as Android started maturing. It was at this time that Elop wrote the “Burning Platform Memo.”

The memo pointed out Apple’s dominance of the high-end market: “Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.”

Elop also warned of Android as a threat to all markets, saying “Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100.”

Nokia had three options: pursue MeeGo — Nokia’s in-house high-end operating system — side with Android, or partner with Microsoft and adopt Windows Phone. When Elop decided to go with Windows Phone as its primary high-end strategy, a thousand Nokia employees walked out of Finnish offices in Oulu and Tampere in protest. The decision to not go with MeeGo left proud Nokia employees feeling betrayed by a non-Finnish CEO, an ex-Microsoft employee.

Elop defended his decision, saying that it was not a battle of devices, but a war of ecosystems. He argued that Windows Phone was more market-ready than MeeGo and with Microsoft’s partnership, Windows Phone and its ecosystem would mature quickly. “We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market,” said Elop. The Lumia 800 was released in November of 2011 and the Lumia 900 did not launch in the United States until April 2012.

Why did Nokia not side with Android, a decision that would have seen Nokia becoming the biggest Android partner — yes even bigger than Samsung — in the world? A lack of differentiation, Elop argued.

With Windows Phone Nokia had a reboot. While Apple and Android continued to sweep the mobile market with dual — and quad — core monsters and vast app ecosystems, Nokia had to make due with Windows Phone Mango’s single core architecture. Windows Phone 8 will bring dual-cores to the Nokia stable, but with quad-core juggernauts such as Samsung’s Galaxy S III kicking about, Nokia is still lacking.

RIM

Nokia was not the only company uprooted by hurricane iPhone. Canadian smartphone godfather, Research In Motion, weathered the storm a bit better than Nokia, but also eventually collapsed as its BlackBerry line became less competitive.

Starting in June of 2008, RIM’s stock started to nosedive from an all time peak of US$145, to its lowest point in eight years, currently trading below book value at around US$10.

Faced with the same predicament as Nokia, its co-CEOs both reluctantly stepped down. Newly appointed CEO Thorsten Heins would face the same options: pursue an in-house operating system (BlackBerry 10) or side with Android.

Again, similar to Nokia’s decision, RIM chose not to go with Android. Unlike Nokia however, RIM demonstrated faith in its own in-house operating system.

For as long as RIM has been suffering through Apple’s onslaught there have been rumours of RIM licensing out its software. With BlackBerry 10, the rumours are stronger than ever.

If BlackBerry 10 is strong — it has to be at least as good as iOS and Android or better — its licensing deal could see it become a hybrid of Apple and Google’s strategy.

Did Nokia make the right decision to give up MeeGo and partner with Microsoft? Did RIM make the right decision to try and make it on its own with BlackBerry 10? Should they have chosen Android?

Time will tell, but for the time being, Nokia’s strategy seems to be taking strain.

The future

We have to remember that this is Nokia and that it is no stranger to challenging times. In the early 1990s Finland suffered a severe economic depression. Nokia responded by focusing on its telecommunications divisions, and by divesting itself of its television and PC divisions. This move lead to Nokia’s meteoric rise to become the dominant telecommunications company of its time. Even when the dotcom bubble popped in 2000, Nokia took a hit, but the company picked itself up and reached new highs until Apple’s interjection in 2007.

There’s a similar pattern here. Nokia is divesting itself of its luxury Vertu line of phones and it’s doubling down on its Windows Phone efforts, acquiring Scalado to enhance imaging experiences for its Lumia line.

Nokia’s other efforts include:

• Reductions within certain research and development projects, resulting in the planned closure of its facilities in Ulm, Germany and Burnaby, Canada;
• Consolidation of certain manufacturing operations, resulting in the planned closure of its manufacturing facility in Salo, Finland. Research and Development efforts in Salo to continue;
• Focusing of marketing and sales activities, including prioritizing key markets;
• Streamlining of IT, corporate and support functions; and
• Reductions related to non-core assets, including possible divestments.

It’s a good effort and it will all help, but Nokia needs more phones — high-, mid- and low-end –, in more places, on more carriers, quickly. I agree with Dan Rowinski at Read Write Web who writes: “In short, Nokia needs to copy everything that Samsung has done with the Galaxy series and do it quickly.”

Consumers need to become aware of Windows Phone, which I believe offers a better user experience than Android and iPhone.

There’s room for a third, maybe even fourth player in the market. Will it be Nokia or RIM?