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5 blunders that put Nokia in the hot seat

Nokia CEO Stephen Elop is in a bind now, but the problems at the company sprung up long before he joined the company.

Nokia CEO Stephen Elop shows off the Lumia 900 at CES 2012
Nokia CEO Stephen Elop, showing off the Lumia 900 at CES 2012, inherited a lot of problems when he took over.
Lori Grunin/CNET

If Nokia goes down, it won't be CEO Stephen Elop's fault.

The company appears to be in a nosedive after it warned again that its financial performance would disappoint. In addition, the company said it would cut 10,000 positions, or nearly 10 percent of its work force, by the end of 2013, as it reshuffles its management team and showed a few executives out the door.

While the clock is ticking, Elop still has a chance to pull the company out of its nosedive. Things don't look good, though, and they could get worse before they get better.

The seeds of Nokia's possible demise were planted long before Elop took the reins. A series of missteps turned the once dominating leader in handsets into a company barely alive.

Here are some of Nokia's biggest blunders:

1. It never jumped on the flip-phone bandwagon: One of Nokia's earliest and biggest mistakes was the failure to capitalize on the flip-phone trend that was sweeping the U.S. in the early 2000s. Prior to that Nokia enjoyed a lofty position in the U.S. Nearly everyone had a candy-bar-style phone from Nokia.

The Motorola Razr helped propel the flip-phone craze.

But a number of high-profile handsets from competitors began to push U.S. consumers towards the flip-phone model. Most notably, of course, was the original Motorola Razr, which became a runaway success and had Motorola actually challenging Nokia for market share at one point.

Nokia's response: make more candy-bar phones. Its dominant position -- the company at one time controlled two-thirds of the handset market -- meant it could afford to sell identical phones around the world, rather than customizing them for specific markets. Its reluctance to move into flip-phones early cost the company the U.S. market, a place where it hasn't had a major presence for more than a decade.

2. It continued to ignore the U.S. market: Nokia's inability to make custom phones for the U.S. market didn't win itself many allies among the local carriers, further accelerating its market share declines here. Nokia's "my way or the highway" approach with its handsets didn't sit well with the carriers, who were entertaining more nimble players like Motorola.

In addition, Samsung Electronics and LG Electronics were more than happy to bend over backwards to accommodate the carriers, and it's no surprise their influence in the industry grew over the last decade.

Nokia instead receded into a niche brand with a few loyal fans. The company set up its own shops in major cities such as New York, selling its phones directly to consumers without a contract, which meant a high non-subsidized price that only a small set of hardcore devotees were willing to pay.

More importantly, Nokia's minimal presence in the U.S. meant it wasn't tapped into the market when it shifted to the modern smartphone.

3. It failed to recognize the threat of the iPhone: Apple's original iPhone shook up the market and changed the expectations of what people could do with a smartphone. Only, that didn't register immediately with everyone in the industry, many of whom were comfortable with older, clunkier platforms such as Windows Mobile, Palm OS, and Nokia's own Symbian.

Nokia was particularly blind to the threat of the iPhone. The company was still the undisputed leader in smartphones, something its executives would regularly tout when asked about the iPhone.

The initial iPhone was extremely pricey, making it more of a luxury item for gadget enthusiasts. But when Apple struck a deal with AT&T to lower the price to $200, it became a mainstream product and a legitimate threat to all major cellphone makers. Cementing its hold was the introduction of its App Store, which tied consumers into a world of apps that only worked on iOS.

Nokia had its own application store, but it was a pale imitation of what developers could do with iOS. At that point it was clear Nokia had lost a lot of the buzz that sustained its brand. Its still-strong position was a legacy of its past strength, and as a result, it began to see its market share slowly deteriorate.

4. It clung to Symbian too long: Symbian was already showing its age when the iPhone arrived, but the cracks really started to appear when Google's Android took center stage.

Android gave other handset manufacturers a modern operating system they could use to compete with against the iPhone, and many were quick to jump on the bandwagon.

Nokia's N97 was a cool phone, but saddled with an old operating system. Josh Miller/CNET

Motorola, which faced its own struggles after the success of its Razr faded, adopted Android wholeheartedly and immediately got a big push from Verizon Wireless, which was looking for its own counter to AT&T's iPhone. HTC was quick to adopt Android and saw an immediate benefit. Samsung and LG followed more slowly, but in a big way.

Nokia, however, stubbornly clung to Symbian. Indeed, the company opted to double down on Symbian, initially acquiring the operating system with the intent to distribute it as an open-source license. In 2008, the company released Symbian as part of the Symbian Foundation, an effort to form a coalition of vendors and companies supporting the platform. It didn't work, and Nokia was forced to re-absorb the foundation two years later.

It wasn't until Elop showed up that Nokia had the guts to drop Symbian as its primary platform.

5. It chose the wrong next-generation platform to back: Nokia likely hung on to Symbian because its own efforts to create a new smartphone operating system was such a disaster.

Remember Maemo? Nokia probably doesn't want to. It was supposed to be Nokia's next smartphone operating system based on Linux.

Intel, ever eager to get into the smartphone business, was working on its own Linux-based operating system, called Moblin. In 2010, the companies opted to merge their work into MeeGo, a joint venture that only served to cause more delays.

It was evident that MeeGo wasn't ready for prime time after Elop shifted the company's focus to Microsoft and Windows Phone as its primary platform.

Nokia did unveil the MeeGo-powered N9 last year. But by then, the company had already shifted gears, turning the N9 into a novelty phone using a dead operating system. Still, the N9 lives on in a way; its chassis is the basis for the Lumia line of smartphones.

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