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Dear Stephen Elop: Suggestions for saving Nokia

Nokia spent years ignoring the U.S. Now, as Apple and Google eat its lunch, the new CEO wants a change. Here are a few ideas.

To: Nokia CEO Stephen Elop
Re: Nokia's turnaround

Dear Stephen:

It's clear from your "burning platform" memo--where you compared Nokia to 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--that you're upset. And I don't blame you.

While Nokia is still the No.1 seller of mobile handsets in the world, its lead is quickly eroding, especially at the high end of the market. Research firm Gartner reported today that smartphone sales rose 72 percent last year compared with the year before. But Nokia's share of that market fell to 28.9 percent. Last year you had 36.4 percent of the worldwide smartphone market, according to Gartner.

Meanwhile, Google Android phone sales have increased by nearly 10 times what they were a year ago. Gartner said that worldwide, Nokia's Symbian operating system remained slightly higher than Android, but only slightly. Other market research firms say Android actually outsold Symbian in the fourth quarter. Yikes.

Nokia CEO Stephen Elop
Nokia CEO Stephen Elop. Nokia

As you eloquently pointed out in your own memo, Android is only two years old. And with such strong momentum, these numbers are likely to be even higher next year and the year after.

As for Apple, after three and a half years of iPhone mania, Nokia still has nothing that even comes close to providing the same kind of experience. Verizon Wireless, the largest U.S. operator, is getting ready to sell the iPhone 4 starting tomorrow. This is a device that has been on another carrier already for nine months, and people all around the country are still expected to line up outside stores to buy it on Verizon.

Then there is Nokia: Still, the largest cell phone maker in the world, but nowhere near where it was at its peak a few years ago. Honestly, I thought your recent memo would have stirred up more concern among consumers that it has. But that's what is so sad. No one is particularly fired up about this. And the reason is simple: the once mighty Nokia has become an afterthought, particularly in the U.S. wireless market.

I'm sure you've been getting tons of unsolicited advice on what you should do to turn things around. And I know you will be announcing some big strategy shifts in London on Friday. But if I may, I'd like to chime in with some advice.

Get serious about the North American market
The days when the U.S. was considered a laggard in wireless are long gone. Unfortunately for you, Nokia unwisely pulled back in the U.S. several years ago, and instead focused globally on the high-volume low end of the market.

The company saw a big opportunity to leverage its global scale to address the untapped developing markets. And to be fair, this strategy has yielded some success. But it's hard to maintain high profit margins in a low-cost, high-volume business. You already mentioned competition at the low end of the market from Chinese manufacturers, such as Huawei and ZTE. But I'm afraid that's just the tip of the iceberg.

Nokia has said in the past that it wants to get back into the U.S. market. But this time you have to mean it.

Companies that specialize in tool kits for designing cell phones will make it possible for anyone to manufacture ultracheap cell phones. Soon cell phones made in China or India will dominate the low end of the market. Unless you're willing to shut down your manufacturing in Finland and Eastern Europe and move your operations to Asia, you won't stand a chance competing there.

Meanwhile, the smartphone market, where profit margins are much higher, is blossoming in more developed markets. The U.S. has nearly 300 million cell phone subscribers, according to the CTIA Wireless Association. Of those 300 million subscribers, only about 63 million of them owned a smartphone at the end of 2010, according to ComScore. In the past year, the number of people in the U.S. with a smartphone grew 60 percent, up from about 38.7 million at the end of 2009. What this means is that there's still a large untapped smartphone market in the U.S.

Nokia has said in the past that it wants to get back into the U.S. market. But this time you have to mean it. First, do some house cleaning. Get rid of your North American management team. You don't have to move the company's headquarters to Silicon Valley, as some reports have suggested. But this time you need a new strategy in the U.S. and new blood to execute that strategy. As Albert Einstein once said, the definition of insanity is doing the same thing over and over again and expecting different results. It's time for a real change, which means you can't simply reshuffle executives anymore.

Listen to North American carriers
If you take my advice and you recognize that the North American market is critical to Nokia's future, then you have to accept that carriers still call the shots in the U.S. I know this is a hard pill to swallow for many long-time Nokia executives and engineers who like to do things their way. But if Nokia has any hope of getting traction in the U.S., you need to give wireless carriers what they want. And what they want right now is a smartphone platform that has a consistent look and feel and offers Web-enabled apps that will help increase subscriber revenue.

I was happy to read in your memo that you believe the mobile market is about "ecosystems," and that Nokia needs to find a way to be part of an ecosystem. But the reality is that today's ecosystem for smartphones is all about Google Android.

Nearly 30 percent of smartphone owners in the U.S. now have an Android device, according to ComScore. And that figure is likely to grow as more Android devices come on the market. AT&T, the second largest wireless operator in the U.S., is only now just launching its Android push.

Of course, Android has its issues. There is a lot of fragmentation among different flavors and releases of software. But Android is here today, and it's a huge success. If you have any doubts about the power of Android, look at your competitors. Motorola was on the brink of disaster two years ago. Now the company has built a solid brand of "Droid" phones. And a tiny unknown cell phone maker, HTC, has now become a household name.

I realize that Nokia is coming to the Android party late, but what have you got to lose?

I realize that Nokia is coming to the Android party late, but what have you got to lose? Nokia's smartphone market share doesn't even register in most reports. U.S. consumers find Symbian a cumbersome mess. And U.S. carriers have no interest in throwing their weight behind the platform. MeeGo, which may be a worthy OS in the future, is not ready for prime time today.

Some people have suggested that Nokia use Microsoft's new Windows Phone 7 to get back into the game. I know you have ties to Microsoft. And I will be the first to admit that Windows Phone 7 is a cool operating system. But the developer ecosystem is still small. So I don't think that Windows Phone 7 alone can be the bridge you need to carry you until MeeGo is ready for prime time.

So my suggestion is why not do both? Release some Windows Phone 7 devices and some Google Android phones. Focus these devices on the North American market only. U.S. carriers and customers may hate Symbian, but the platform is still widely used and supported overseas. (You might as well milk Symbian for all its worth elsewhere.) If the Android and Windows Phone 7 strategy takes off in the U.S., you can always expand the strategy outside the states.

Keep innovating, but don't try to reinvent the wheel
I understand Nokia's reluctance to turn to Google for software innovation. How can Nokia differentiate its products from Motorola's and HTC's if it's using the same software as everyone else? And I agree with you. That is a problem.

And it's why I don't think Android is the solution to Nokia's long-term problems. The company still needs to innovate.

So continue working on MeeGo. The mobile handset market will not be won or lost based on a single piece of hardware, as you pointed out in your memo. Software and the ecosystem of application developers surrounding these devices have become hugely important. But it's also important not to push products into the market before they are ready. If MeeGo isn't ready--and from what I have heard it won't be for a while--then lean on something you know does work.

Focus, focus, focus
Finally, my last suggestion is that Nokia needs to keep its focus. That means getting rid of any initiatives and products that take away from the singular goal of getting back into the high-end smartphone market in the U.S.

This means abandoning the Ovi services initiative. Let's just admit it: Ovi was a flop. The Comes With Music service sounded interesting on the surface, but at the end of the day people don't want a subscription music service. They want to own the music.

As for the rest of the Ovi services, the plan was doomed from the start. It reminded me of an Internet portal circa 1999. Do wireless customers really need another e-mail client or cloud-based file storage? Again, the service offered nothing particularly unique.

Nokia is a 150-year-old multinational corporation. It was around years before cell phones were even dreamt of. And it's the pride of Finland. I would never predict its demise. After all, if Motorola can mount a turnaround, there's no reason Nokia can't. But now is the time for action. I look forward to hearing your future plans during the investor conference Friday. Good luck.