Stephen Elop, Nokia's new chief executive, has seemingly begun bracing the company for radical change with a no-holds-barred memo saying the once dominant mobile phone company is now "years behind" its competitors.
The memo, published at The Wall Street Journal and Endgadget, arrives on the eve of a public strategy briefing at the end of this week and the massive Mobile World Congress trade show next week. Nokia, which reported a 21 percent decline in profits for the fourth quarter of 2010, declined to comment on the memo.
In it, Elop says Nokia is like a man on an oil platform in the North Sea who wakes to explosions and fire, but who survives after choosing to leap into the icy sea. "Nokia, our platform is burning," Elop said, and Nokia itself, not just competitors, has poured gasoline on it.
He said Nokia has failed to respond to three competitive challenges: Apple's iPhone, Google's Android operating system, and low-cost phones from China. Its own Symbian operating systems is unwieldy, and its higher-end MeeGo is late. And while Nokia failed to respond, the rules of mobile phone competition expanded from specific devices to ecosystems.
"The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem," Elop said.
"This means we're going to have to decide how we either build, catalyze, or join an ecosystem," he added, raising the possibility that the company will indeed expand beyond its own operating systems to something like Android or the Windows Phone 7 system from Microsoft, Elop's former employer.
He painted a bleak picture with no market strongholds when it comes to Nokia's competition:
In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. 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.
And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under 100 euros. Google has become a gravitational force, drawing much of the industry's innovation to its core.
Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally--taking share from us in emerging markets...
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.
At the mid-range, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.
Clearly, Elop is laying the groundwork for a new Nokia to be unveiled later this week. The big challenge will then become to convince employees, customers, developers, investors to go along with it.