Mobile-review.com Spillikins #77. Olli-Pekka Kallasvuo Is a Persona Non Grata in His Own Company

This summer happened to be extremely hot for the majority of European countries and many events, which spiraled out of control of Nokia and its PR department, turned the heat on the company as well. Even if I wanted to ignore these issues they would have been impossible to disregard. The future of mobile phones market is being decided at the moment. A year and a half ago I mentioned the summer of 2010 and several subsequent quarters as the active battle between the companies. This is what is happening today. Inevitably this issue of Spillikins is dedicated to such events. The major share of news was generated by the market leader. The sources ranged from the company itself to former employees of Nokia and the customers in the market. We will start to find the way in this storm from the second quarter results announced by Nokia.

Contents:

Second Quarter for Nokia Is the Scenario of Sony Ericsson, Motorola and Siemens

There was no secret or surprise here, because in July Nokia announced that its results will barely reach the lower level of its previous forecasts or will be even worse. The shares went down immediately after the news became available from Reuters and only a couple of days later the official statement was issued by Nokia. It is a significant moment, which shows that the company cannot keep this sort of information inside and it is published by media outlets before the company plans to make it public. After these examples it is virtually impossible to speak about the protection of information. Time and again we see that the confidentiality of information is non-existent. A week ago the company placed the info on its unannounced model on the corporate website, but then hurriedly deleted it.

Let's look at the quarter results and try to interpret them from the perspective of market trends.

These figures are enough for our analysis. I am not going to concentrate on the fact that the net profits of Nokia went down 40%, which is an alarming tendency, but it is a logical consequence of the abovementioned details. We can easily interpret only them, as the company followed Siemens, Sony Ericsson and Motorola. The route is well known and has been tried and tested before Nokia.

At first sight everything looks fine. Nokia is the market leader and sells more and more phones and smartphones. Its market share will increase as well. What problems can it have?

But the company does have problems and the only solution available for Nokia now is the price. It cannot sell at high prices as it has no products for such actions. In each segment Nokia faces several competitors and it makes the company set minimal prices and lose profits.

Is it good? Surely not! It just leads nowhere. The company has no unique and strong products, which influences its revenues. The first figure of note is the drop in the average phone price. I think that in the fourth quarter the average price will go up due to Nokia N8 and its active promotion. We will not see any dramatic price increases though.

How Nokia managed to record growth in the smartphone market? Has the company offered strong products? There was no miracle and Nokia started to market its smartphones in lower price ranges and they were treated as a replacement for ordinary phones. The customers also see them as Nokia phones, and have not the slightest idea that they are the proud owners of smartphones. The move towards the lower price range was painful for Nokia and the average smartphone price decreased by 20% during the year and will continue to fall. This is the price the company pays to keep its market share in the segment.

Is the average price so important? May be we should look only at the market share? I will explain it now. The more money you earn the more you can invest in the development of new products. The fall in profits is only one of alarming signals for Nokia.

Look at the research carried out by Goldman Sachs about the profits of companies in the phones market. The analysts bravely divided the market into the share of Apple and the rest of manufacturers. According to the diagram the company has only 3% of the market, which is nothing. Remember this!

Now look at the graph on profits from one product for Apple and other market players.

This is a shocking picture, which is difficult to believe. There must be some mistake. How one company, which controls a mere 3% of the market and is represented with 1 model only, can earn more than the rest of the pack with their 97%? Or is it possible after all? The figures prove that it is real and Apple has simply ousted all the other players from the top price range and Nokia was the first and biggest victim. All attempts of Nokia to regain its position in this segment look interesting, but they don't promise much. At the moment the company is concentrated on the middle price range, which is still profitable. Samsung is the main rival here. I think at the beginning of August Korean giant will announce its figures on sales and profits, which will show the record growth again as it was during the previous year. This is a stark contrast with Nokia and difficult market conditions it faces. I was always amazed how many excuses one can find to justify its mistakes, when the rivals boost their sales quarter after quarter and enjoy the process.

Now one more diagram, this time from Nokia (I found it on Allaboutsymbian.com), which shows the growth of Symbian market share. It is not a fantasy, but as we showed above, it leads to nothing. The company does not earn money this way and it is a desperate measure.

50 Million of Symbian^3 Devices or Nokia Top Executives Got it Wrong

I hope you remember the story about Nokia N8 declared as the last device in N series on Symbian followed by a denial from Anssi Vanjoki, which led to even more confusion. Now the company leaked some more information on its plans. In particular, CEO of Nokia mentioned during his conversation with analysts that the company plans to sell around 50 million of devices on Symbian^3. This statement had to emphasize that the company plans to play a key role in the smartphone market and Symbian^3 is the OS the company needs.

Anssi Vanjoki spoke in the similar vein when he claimed at the beginning of July that Symbian^3 is the OS necessary for Nokia at the moment. There is a feeling that Symbian^4 was forgotten for the time being, though Nokia itself confirmed that this version would be crucial for the company and market in general. I was surprised by the latest development, because it signals several negative consequences for Nokia.

The launch of Symbian^4 was planned for the first quarter of 2011. The lion's share of sales for Symbian^3 will be in 2011 as we should not take into account the fourth quarter of 2010 and the only product in the form of Nokia N8. It gives just a couple of millions of sold devices worldwide at best. Or even 1 million.

Now let's look at Nokia smartphones market in 2011. The key objective is to retain leadership and all actions are performed accordingly: the drop of smartphones prices, introduction of many similar and inexpensive models. The market share of Symbian will surely go up, because Symbian replaces S40. In the second quarter of 2010 the company sold 24.5 million of similar phones. Even if there is no further growth 2011 will give no less than 100 million devices according to the most pessimistic scenario. It is reasonable to forecast the continuous growth of up to 50% and in 2011 Nokia will sell around 150 million of smartphones. Will Nokia regain its leadership? The answer has to be positive, but will it solve old problems and lead to success? Of course not.

The booming growth of smartphone sales will be confined to inexpensive models without a touchscreen. It already happens today as we can see from the graph. Even Eseries sells better than multimedia Nseries devices.

If you ask me which is more popular on the smartphone market – cheap models without a touchscreen or similar devices with a touchscreen and a slightly higher price I would definitely stick with the first option. This is a common sense based on the current market tendencies. Touchscreen solutions from Nokia are more expensive and sell worse than the rival products. The fact of their belonging to the smartphone group does not matter much for the customers – they need a touchscreen for the minimal amount. And they find it.

Let's go back to the figure of 50 million devices on Symbian^3. It will constitute a third of sales in 2011, which is not bad for the OS labeled before as transitional and unimportant.

On the basis of rumors around Symbian^4 we can easily guess that its release will be delayed and the number of devices will be limited. They will be expensive as well. How many items will be sold? I think no more than 5-10 million. We should not forget MeeGo to be released on several models. Their sales will be even lower than for Symbian^4, because they are more expensive. The platform is fresh and unknown. The sales of Nokia N900 were disappointing for a reason. In total MeeGo and Symbian^4 will contribute no more than 12-15 million phones in 2011.

Slightly less than 50% of new models will support Qt, about which Nokia cares so much. We will speak about it below. The majority of devices will be based on Symbian S60 3rd Edition FP2 (somehow nobody asks about the development of smartphones without a touchscreen, while they also become outdated) and S60 5th Edition. Taking this into account we can say that Qt revolution is postponed. Do you know why? Because Nokia prefers to fight not for profits, but for its market share. To be more precise, they cannot act otherwise. In 2011 the market of Nokia smartphones will remain fragmented, which will not make it possible for developers to create apps with Qt for all smartphones at the same time. The old models will dominate until 2012. These conclusions are made only based on official Nokia figures, if you just think them over and use a broad perspective.

Absolute Power of Qt or Revolution Delayed! Again

I am really amazed how certain managers, companies and societies blindly believe in words. People invent the words, which should solve all the issues at once. I firmly believe that some words are created on purpose to hide their incompetence, narrow-mindedness and the lack of professionalism. A person puts on a clever air and uses sophisticated terms to conceal the uncertainty. When you become a bit more specific, it is clear that the person cannot answer simple and basic questions. The same applies to big business; just the scale is much bigger.

For example Nokia views Qt as its magical instrument to solve all possible problems. Qt is a development tool, which makes life easier for developers by allowing the creation of apps for different platforms, for example, Symbian, MeeGo and others. This absolute power should transfer Nokia to the magical country where nobody will abuse it.

Hmm. I wonder what substances they consume. Or maybe there is something in the air? Let's approach this idea again, but in a reasonable way free from Nokia propaganda full of "brave new world" remarks, but low on true facts and figures.

So, Qt is an instrument. Some sort of a spade. A good spade, which is more effective than a traditional one, which looks simple and old fashioned. The spade needs a worker, who will use it. Without this worker it will remain useless. It can be made of gold and increase the productivity of labor 10 times, but without the worker this tool is a mere waste of time. I don't believe in miracles and the spade is an element of the whole. So it needs the worker after all.

Unfortunately, when Nokia was creating Qt, it forgot about the developers. The company thinks that by offering such a cool "spade" they can attract the developers from all over the world, who would be happy to work with this spade at the expense of any other. Our spade is sleek and the best in the world think Nokia representatives, because otherwise they would have acted differently.

You need a spade to lay the foundation for cottages, where people will live. Other companies also build cottages and attract the tenants. The competition is strong. The builders value not only spades, but also the location of future cottages. It is easier to sell a house in the blooming valley with brooks, flowers and birds than in a dry and windswept steppe. Apart from the tools, you need a good location. Do you follow me? Nokia created an excellent spade, because Qt is really cool. But other companies have their own alternatives and offer better location – devices and shops to sell cottages, sorry, applications.

I have already mentioned in Spillikins how OVI Store turned to be a flop. It is confirmed by the official data. Remember the number of tricks Nokia used to increase the level of downloads (not even the sales) for its shop. They offered apps to create software from RSS feeds and gave the content at reduced prices. All means were used to show any progress. The company ran out of tricks and as of the start of this year OVI Store provided around 1 million of content downloads (not only apps, but images, melodies and so on). By April 1 the growth reached impressive 70% with 1.7 million downloads a day. July 1 had the same 1.7 million downloads. In the shop around 13000 items of content are available. This is also a Nokia trick, which doesn't publish the number of apps and mentions the content only. One image is an element of statistics for Nokia. We don't know the number of apps in the shop, but they cannot constitute more than a half. The number of applications in Android Market has reached 70,000 and keeps on growing at the startling pace. In the coming months the barrier of 100,000 will be easily broken.

The task of Nokia managers responsible for OVI Store seems not to create a good shop, but to throw dust into the eyes with numbers, which turn out to be inflated. At the moment OVI Store is an outsider among other shops both in terms of convenience and the sheer number of available apps from smaller manufacturers.

Another aspect Nokia likes to ignore is the immense investment in OVI Store. We are not bound with any obligations and we can discuss the myth of the store. So, get ready. In OVI Store you can have almost 90% of the most popular games and apps available for other platforms. Wait a bit. The company is creating a spade, sorry, Qt to develop applications. Big companies are already in the business. They have created their applications for Nokia products. So Qt is a tool to make their life easier and attract independent developers. My idea is simple and clear for everybody. Today OVI Store has apps to sell successfully. Apple Store and Android Market confirm it fully well, but OVI Store doesn't have such sales.

Let's go back to my cottages. They are built according to the standard design and appeal to many people. The only problem of Nokia is that they built the cottages in the steppe, where nobody wants to live. That is all. They have a wonderful spade and excellent cottages (applications), but the lack all other elements of success. The sales office is in the steppe and though it has an air conditioner and cold drinks in abundance they send false reports to the head office. Employees of advertising department don't understand how to promote cottages in the steppe, so they just derail the construction process. HR manager complains the workers come from small companies and don't want to build cottages and ask for special treatment. Unfortunately, there is nothing rational in Nokia mantra where Qt saves the company. Nokia should understand that Qt is just a tool, which must be complemented by workers, sales department and so on. Theoretically they exist, but do not work. You can ignore the real state of affairs and pretend that everything is great or try to change the situation for the better. So far Nokia prefers scenario No 1.

The first step must be to solve the issue with Ovi Store, which is dead and shows no signs of growth. The company confirms that. The number of downloads is just a drop in the ocean for Nokia. Almost nothing.

Storming the U.S.

Although I am not going to write a lot about that, you should know that the Nokia CEO has provided his perspective on the company's problems in the U.S. market during the aforementioned phone call with the analysts. It turns out that he blames the certification and decision-making procedures, impossibility to bring the Symbian products to the market within a short time span, and carrier dominance, of course. I have one single question to that. Why is it that Nokia has been claiming the opposite, saying that everything is going according to the plan in the U.S. market, before? Moreover, they have been producing U.S. specific, non-Symbian models. The CEO's explanations appear none other than an excuse. What is important is the fact that the company considers the market its priority and is intended to storm it again. For that, the Nokia N8 as well as future MeeGo based problems (that's a typo, but one that makes sense; I meant the future products) will be used. It looks like it is a matter of honor, but the common sense tells me it is somewhat overly optimistic to engage in carnage with the recovering Motorola, RIM, Apple and HTC dominating some segments, as well as Samsung, LG and a galore of Japanese companies once again rushing to the market. I am certain that the straightaway attempt to win the U.S. market is doomed to fail. Unfortunately, Nokia hasn't been able to create authentic business processes for the market throughout the years. The problem is in understanding the market, not in the products.

OPK: Persona Non Grata in Nokia

Last Monday, July 19, there appeared a note in Wall Street Journal, according to which Nokia's board of directors is looking for a CEO replacement. There is no further information available, only that the offers were sent to two candidates and one was already rejected as the recipient didn't feel like moving to Finland. Both candidates are U.S. top managers. There are no official comments from Nokia, however, Kallasvuo said the following in his interview to CNBC after announcing the second-quarter operation results: "There has been a lot of speculation on my position, on myself, during the last couple of weeks and that is not good for Nokia and must be brought to an end one way or another." I am afraid that it will be the board of directors, not the Nokia CEO, who will bring the speculation to an end. The aforementioned WSJ note claims that the CEO will be replaced within a month.

Is it good or bad news? For the competitors, it is great news, since the person, who has spent most of his life at Nokia and understands the company well, will be dismissed. For Nokia, the news is mostly neutral, since no single man plays any significant role in the company. One can make decisions, one can affect some particular processes, yet one can't control the company to the full extent. That is due to the way the business processes work at Nokia. Effectively, the board of directors is trying to make an impression that they are working, not twiddling their thumbs. They are showing that they care about the price of the company stock. They need a scapegoat to wreck their anger on.

In my opinion, Mr. Kallasvuo is not the type of person to deal with Nokia's problems and their constant growing over time. Yet the problem is that there simply isn't such person among the company's top management. Both decisions and problems are collective responsibility. A new person brought in will find themselves in the corporate culture different from that of any other company in the world, especially different from the American tradition. Such discrepancies won't allow one to do their best as much energy will be wasted on fighting inside conflicts.

Is OPK leaving or not? I guess that he is as he has no other choice left. He will be made responsible for the previous years' mistakes and his successor will be claimed to improve the situation. But that is far from being true. Much needs to be changed in Nokia's business processes for the new CEO not to face the same very problems after a while. The situation reminds me of Motorola's management reshuffle that looked pretty much the same at the beginning.

Extracurricular Reading about Nokia

There is so much going on about Nokia these days that this is one of the largest issues of Spillikins ever. Probably, the next two articles I am about to refer you to need to be addressed in greater detail. Both of them are written by Nokia's former top managers. The first article is a usual babble decorated with fancy words explaining why Nokia is where it is now and why it all isn't so bad. There is much incoherence, juggling with facts and other misrepresentation there. Yet what makes the article interesting is that it is genuine Nokia style. If you want to familiarize yourself with the way many executives think there, here is your chance.

The second article is by Juhani Risku, another Nokia's former employee in charge of developing new functions and ideas, and hence much more useful. The manifesto, as his book is sometimes called, was published in Finland a few months ago. Today, the material is partially available in English as a separate article. A healthy perspective on the Nokia strategy, people in the company and some other questions, it is highly recommended for reading. There is some delusion typical for the Nokia employees (e.g. about how long it takes other companies to develop what Nokia has had for years. The secret is that such processes take Nokia the same several years, no less than that) there, though. Anyway, the article is worth your time as it is only a former Nokia employee who has so much to say about the company's problems and ways to solve them. Good job.

Those are two different perspectives on the same problem from two former Nokia employees. Personally I like the second piece better, as it is honest and without unnecessary verbiage, straight to the point. Perhaps, you have another point of view? Let's discuss it.

Nokia Messaging in Russia: No More Freebies

Recently, owners of Nokia smartphones with the preinstalled Nokia Messaging application have been receiving notifications that the service is expired. According to their reports, the following message has been sent to the e-mail accounts that use the service but are not provided by Beeline (translator's note – popular wireless carrier in Russia) or Nokia:

"Dear customer!

Thank you for using the "Beeline Mobile e-mail" service.

If you wish to continue using the service and automatically receive e-mail messages on your Nokia phone:

Enter the following code on your phone: *110*5551# [Call].
Wait for an SMS notification of the service activation.

After the activation, your access to the Beeline Mobile e-mail will be renewed automatically.

The service is provided free of charge till September 1, 2010; after September 1, the subscription fee is RUR 195 (translator's note – approximately EUR 5) per month (VAT included).

The service terms and conditions are available at the following address."

The sender address is nokia.com, that is, Nokia suggests Russian users to connect to the Beeline network. I haven't seen reports from customers of other carriers and don't know whether they have received such notifications or not. I will be glad if you share your experience. What I don't understand is how a preinstalled application, an e-mail client to be precise, can suddenly become payware. It is a big mystery for me. Do you have an explanation?

Samsung Gives Away Galaxy S, Apple Delays White iPhone

Once again, Apple has put off the release of the white iPhone 4. There is no explanation provided, and the estimated availability date is late 2010. As far as I can remember, it is for the first time that a manufacturer is not able to start the shipment of an alternative color solution within a reasonable amount of time. I believe, Apple is out of luck, and the notorious antenna problem has also affected the delivery date of the white version. The most logical explanation is that the company is shipping the revised version of the device from September 30 on, and they need all the production facilities for that. Since the production of the white version has not begun yet, the delay appears quite logical. In my opinion, there is nothing wrong with that. Yet that is not what one would expect from a company of this kind.

What Samsung did in Britain, on the other hand, is quite ridiculous. The PR team tracked down iPhone 4 users who were complaining of its reception quality and presented them with free Samsung Galaxy S devices. That is a beautiful story, which however, raises a lot of questions in terms of PR. Why give away the flagship for free when one can sell it? How many people were involved in the project? One hundred of free phones are not much, yet the feedback from such projects is minimal. In my opinion, presents of this kind are unfortunate, since word of mouth PR is not very good, and everyone's expectations turn out to be high (everyone looks forward to a free phone and is not willing to pay for it). Without knowing the details of the project, I can't say that it's my final judgment, but as of this writing, it looks stupid.

Vodafone 360: No More Special Phones

The joint project by Samsung and Vodafone has turned out to be unsuccessful. The first two LiMo models – the Samsung H1/M1 – created specifically for the carrier and its 360 service suite, have been selling for about half a year. The users kept complaining of the complicated menu, mediocre ergonomics, and as a result – the launch of the Samsung H2/M2 was cancelled at the last minute. It is not a good time for the LiMo phones these days as the developing Android doesn't allow for a large degree of freedom. By the way, it is also one of the main reasons why the first two devices were not successful on the market.

The unlucky experience with those models forced Vodafone to reconsider its phone strategy, and from now on, the 360 services will be available for a wide variety of phones, without any dedicated models. For the carrier, it means an increase in the development speed but not a price reduction. The use of standard models has also its limits in terms of integrating the services.

I'm curious about what the Russian MTS (translator's note – another popular wireless carrier), developing the 360 service suite and planning to introduce the Samsung models for it, will do. It is not known whether the solution will be developed further or discarded. I think it's about time I paid a visit to MTS and found that out.

MTS QWERTY: The Chinese Offensive

A week ago there was a police program on a federal TV channel. Much attention was devoted to Chinese phones, or china phones, as they were called. The program storyline was that such phones are dangerous, unhealthy and nothing but fakes, and people selling them are criminals. That was the main idea. What is the reason for that program? Phones from China are spreading very fast, which doesn't necessarily mean bad quality, fakes or anything like that. Large retail stores have to take Chinese phones into account in some regions of Russia already, as the latter at times can be better than their more prominent counterparts. Russia is one of the first countries on the way of china phones to Europe; we are taking their first strike. And I can't say that it's awful. The devices are cheap, will definitely last for a year, and offer reasonable functionality for the money asked.

The main problem of Chinese phones is that the retail chains are not willing to buy them as they will have to bother with the certification, licensing and other related things, will have to create the service conditions. At that, the Chinese companies haven't reached the level required to support the full-fledged expansion at their own expense. Hence it is only the carriers, who can take some particular phone, adapt it to their needs, and bring it to the market as part of their own projects. An excellent example of such cooperation is the MTS QWERTY, a model from Huawei sold by MTS in Russia.

The phone looks similar to the Nokia E71. The build quality is decent, albeit the MTS device is made of plastic.

The first thing to keep in mind is that the QWERTY is not a smartphone. It is a regular phone on the MTK platform (MT6238) produced by Huawei (manufacturer index 8900). For EUR 90, you get a candybar with a 2-megapixel camera, Bluetooth, and a fairly handy QWERTY keypad. The menu is nice. The original device features support for various social services (through Nimbuzz), whereas the Russian version from MTS has its own proprietary solutions for that. The carrier has also thrown in a number of games, which makes the model more appealing to the younger audience. One also gets 480 text messages as a free gift upon purchase.

It is a good phone for talks, which is not locked for MTS and can be used with any other carrier. We will discuss the device in greater detail in the review; although it has its cons, it is the cheapest solution in the form factor with a keyboard. The Chinese offensive has begun, and the carriers are at its edge. This specific mode is an experiment for MTS, though. The first shipment is approximately 10,000 units. Based on the sales, the operator can make that figure a monthly volume. For comparison, the Nokia E63 costs around RUR 6500-7000 whereas the Nokia E71 is retailed for RUR 11,500 (translator's note – EUR 165-180 and EUR 300, respectively). That is probably why the first week of the MTS QWERTY sales showed that the model gets snatched away. I am receiving a lot of e-mail requests to test the phone, too. To meet those, the device review will be published within a week. Also, its video preview should be available on our YouTube channel as of this Monday.

PUMA: Love at First Sight

I fell in love with the phone at MWC 2010, when I got my hands on it in an outside booth. The article was so enthusiastic that I myself am surprised. You can find it here.

When the phone arrived to me in Moscow, I decided to respect the rules of the game in order to prevent my initial impressions from affecting the final conclusions. Should you know, I was unsuccessful. Completely. The situation was unique, as I, lovestoned, played with the device and praised those behind it, without even paying attention to its characteristics. I spent a week with the phone without knowing the resolution of the camera, with only a rough idea of the actual screen diagonal. Usually, what interests me most, are the technical characteristics, not the impressions. But with this excellent product from Sagem, the emotions come first. There is one catch, though. You have to be a PUMA fan to realize the true worth of the phone. Every now and then, the level of its sophistication can blow you away. On the box, made of recycled paper, there is an image, according to which, you will need your brain to use the device. I would put it differently. The people behind the device cared about a plethora of tiny little things, which allows one to say that they like what they do. For example, you can hold the camera button to activate the flashlight mode. Isn't that handy? And it's like that everywhere. The device offers a high general level of comfort, sports plenty of winning details. They make you neglect the fact that it's expensive, based on an outdated platform and with occasional working delays. All of that fades away. The emotional charge beats the disappointment with the technical realization. I am certain that the model will be blamed by many. It can't do that, it's freezing there, it has one icon too many in some menu. All of that is expected. But those, who can understand it and love it, will discover an ideal model. It is an exceptional example of an emotional device. It is the PUMA customization that makes it ideal. Moreover, I believe that we will see more devices like that in future, and all of them will be different. It is important that emotions, impressions, but not technical characteristics matter, which requires a perfect balance of the two realms. The PUMA has it. It is a casual model from the technical point of view but a little masterpiece from the emotional perspective.

Sagem's business is not going well, they are struggling their way out, and the device didn't come natural for them. And that is splendid as it shows what an emotional device can be like. In Russia, it is due this fall. The price is around USD 400. We will talk about that in the review, though. The latter will be out this week if nothing extraordinary happens.

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Spillikins #77. Olli-Pekka Kallasvuo Is a Persona Non Grata in His Own Company