WELCOME TO NOKIA, MR ELOP
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WELCOME TO NOKIA, MR ELOP The biggest cellphone company in the world has spent the past few years searching for a way to take on upstarts like Apple. Now it has turned to an unknown Canadian with no background in mobile. Can Stephen Elop make Nokia cool again? SEPTEMBER 2010
SPECIAL REPORT - NOKIA
What Nokia does next
By Georgina Prodhan and Tarmo Virki
HELSINKI and LONDON, September 20
T
HE company many see as among the most innovative operating system loses ground to upstarts like Google’s
in the world is a strange mix of intensity and laid-back Android, the company risks losing even that title.
cool. Its products are revolutionary and have trans-
formed an entire industry, says the author of a definitive Which is why, on Sept. 10, Nokia announced that it was
history of the firm. The mobile phones it makes, says one replacing its CEO and had dialled up what it hopes will be
executive, are a perfect fusion of form and function, both some Silicon Valley mojo.
“beautiful and practical”.
Enter Stephen Elop, a Canadian who headed Microsoft’s
Apple, right? Actually, it’s Nokia -- or at least Nokia at the turn business division. Elop, the first non-Finn to head Nokia in
of the century, when the Finnish firm had just become the big- its 145-year history, begins this week, just in time for the
gest mobile phone company in the world with a market value autumn equinox that heralds the long, dark Finnish winter.
of $250 billion and visions of the cellphone as a fashion acces- His appointment is part of a wholesale regime change: Chair-
sory, a substitute for cash, even as a handheld computer. man Jorma Ollila, the architect of Nokia’s cellphone success,
and smartphone chief Anssi Vanjoki have said they will follow
We know what happened next. Within years, Fortune maga- CEO Olli-Pekka Kallasvuo out of the door.
zine was asking “Has Nokia Lost It?”; today, North American
rivals like Apple and Research in Motion have stolen the lead Nokia is on a path often trodden in the unforgiving world of
in high-end smartphones while Asian competitors are loosen- consumer electronics, an industry which is built, after all, on
ing Nokia’s grip on the mass market. Investors who have obsolescence. In the beginning comes a great product slightly
checked Nokia’s stock price recently -- using an iPhone or a ahead of its time, and a charismatic leader. As things mature,
BlackBerry, probably -- may know the stock has fallen back to imperceptibly at first, habits harden, bureaucracy grows. Once
1998 prices, putting the company’s value at about 15 percent more nimble rivals seize the initiative, the buzz -- and fast-
of its peak. The cool factor? Gone. money investors -- vanish.
Granted, Nokia is still easily the biggest cellphone maker in Philips, which convinced the world it needed electric razors
the world, with incredible market share in fast-growing mar- and invented the home video cassette recorder, has now
kets such as India. But as its margins shrink and its Symbian largely given up competing in consumer electronics and
FROM THE TOP
Chairman Ollila,
right, says new CEO
Elop can look afresh
at how things work
at Nokia but was
not employed to
shake up strategy.
REUTERS/Markku
Ulander/Lehtikuva
2
SPECIAL REPORT - NOKIA
YESTERDAY’S MODEL Outgoing CEO
Kallasvuo holds a Nokia phone from
1987 at the International Consumer
Electronics Show in Las Vegas earlier
this year. Kallasvuo failed to boost
Nokia’s presence in the United States
REUTERS/Steve Marcus
is concentrating on healthcare equipment and lighting instead. if channelling Apple’s Steve Jobs.
Sony, while still a force in everything from televisions to Walk-
man music players, has seen better days and is cutting 10 Addressing the press conference -- broadcast live on Finnish
percent of its global manufacturing capacity. television -- Elop seemed more concerned with being liked than
shaking things up. He talked about his love for ice hockey -- a
Most famously there’s Apple itself, which after early success passion the Canadians and Finns share -- and noted that both
with personal computers went through a decline in the late countries have territory in the Arctic Circle. “Now, my role ... is to
1980s and early 90s that threatened to sink the company. lead this team through this period of change, take the organisa-
But following the triumphant return of Steve Jobs in 1996, the tion through this period of disruption,” he said, appearing to read
firm came back with a vengeance. Even though it was at one from notes. Not for this bespectacled executive the stage-striding
stage forced to accept a $150 million investment from then style that Silicon Valley expects. The 46-year-old’s profile was
arch-rival Microsoft, it went on to achieve phenomenal success so low that he didn’t even have an entry in Wikipedia until Nokia
with products like the iPod and iPhone. hired him.
Like Apple, Nokia is determined to transform itself. In 2007 it set At a surprise appearance at the company’s annual showcase
out to add software and web services to its existing offerings. So conference last week, he was more dynamic, calibrating his
far, the results have been mixed. The arrival of Elop is partly an approach to appeal to a young crowd of software developers
admission of that, as well as being an attempt to boost the vision who had spent 36 hours dreaming up and building Nokia apps
of a new, software-focused Nokia. in a London hackathon. He leapt onto the stage to present a
million-dollar award to one developer, and invoked the wild
“What they really need is a software guru,” says Tim Bajarin, energy of the famous, and often repeated, performances of his
president of Creative Strategies, a California-based analyst old boss Steve Ballmer.
firm, who has been following Apple for 30
years. “This has been a huge hole in Nokia’s
strategy. They knew that building the soft-
ware ecosystem around Nokia hardware
held the key to their future.”
STEPHEN, NOT STEVE
On the morning of his first appearance as
Nokia’s CEO-designate two weeks ago,
Elop didn’t give the impression of being
a magic man. Dressed soberly in a neat
suit and tie, he blended in with the Finnish
executives surrounding him. Compare that
with his predecessor Kallasvuo, who gave
the keynote speech at this year’s Interna-
tional Consumer Electronics Show in Las
Vegas wearing a black T-shirt and jacket, as
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SPECIAL REPORT - NOKIA
“Developers, developers, developers. You guys matter. It When it was plain he was not going to become the next Adobe
means so much to Nokia, and I can’t help but be proud that my CEO, Elop wasted little time in moving to Juniper Networks as
first act at Nokia is to give you a million dollars. Woo, isn’t that COO, and then on to Microsoft to run its business division -- a
great?” he said, echoing Ballmer’s rant at a 2006 Microsoft $19 billion operation that includes Microsoft’s Office software
software developers’ conference. and is the largest of the company’s five divisions.
Elop’s mild, besuited delivery was a faint echo of Ballmer’s Elop did not develop a public profile there, but Ballmer
manic, sweat-soaked chanting, but the applause he drew from says he was a solid leader of the unit during the recession.
the few hundred developers in the cavernous auditorium of Importantly, he helped steer the company toward online
London’s ExCel conference centre was warm enough. versions of programs such as Word, Outlook and Excel which
users could access from anywhere, including mobile devices.
Members of the audience said they hadn’t seen or heard That was a tough transition for Microsoft, whose fortune is
enough of Elop to form much of an impression of him. “He founded on software installed on desktop computers. The
wasn’t at Microsoft that long, so he might be OK,” said one Sili- company announced a tie-up with Nokia a year ago as part of
con Valley insider, a comment that reflects a common industry this drive. Microsoft’s chief negotiator in the deal: Elop.
disdain for the software giant’s style.
Elop’s low-key style may be one reason Nokia has hired him. It’s
NO-KEY-UH? certainly more in keeping with the Finnish culture of seriousness
Elop may not be a showman, but the father of five does have than with the freewheeling U.S. West Coast. And in
impressive Silicon Valley credentials. After graduating in com- at least one small but telling detail, he has already made a
puter engineering and management from Canada’s McMaster difference. He pronounces the company name the American way,
University, and a spell as chief information officer of restaurant “No-key-uh” rather than the Finnish “Knock-ee-uh”.
chain Boston Chicken, he spent seven years at Macromedia.
The San Francisco-based software house produced Web
design tools beloved of Apple developers, and Elop held many MISSED CALL
senior positions including head of worldwide field operations. America is the toughest nut for Nokia to crack. When
Olli-Pekka Kallasvuo, Elop’s predecessor, took the helm in 2006,
It was Macromedia who made the Flash video software that he made one big promise -- he would focus fully on fixing Nokia’s
powered the rise of YouTube, and Dreamweaver, which is problems in the United States, spending a week each month on
widely used for building websites. The company successfully it. But Nokia has continued to lose market share in the U.S.; the
pushed to get Flash into mobile devices, winning over every company now has well under 10 percent of the market, lagging
handset maker and service provider including Nokia. Adobe behind rivals such as Apple, Samsung and LG.
bought the Macromedia business for $3.4 billion in 2005.
APP WORLD Apple has grabbed market share by becoming a favourite platform for
the developers of applications. REUTERS/Robert Galbraith
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SPECIAL REPORT - NOKIA
TEST TIME A customer
tries the new Nokia
N8, right, at the firm’s
flagship store in Hel-
sinki. Despite Nokia’s
struggles in the United
States, it remains the
biggest phone maker
in the world. The N8,
below, is one of four
new Nokia phones
released last week
REUTERS/Markku
Ulander/Lehtikuva
Failure in the United States is a legacy of Nokia’s global busy conquering the world, the idea that a phone should be a
ambitions. Looking to build mobile markets in Asia, Europe small computer in your hand was becoming mainstream -- and
and Africa in the mid-1990s, it focused on the GSM standard companies from Palm with its Treo to RIM with the BlackBerry
that is now the world’s prevalent mobile phone technology. were providing them. That was even before the advent of the
But about half the U.S. market stuck to phones based on the iPhone, an object so cool it was nicknamed the ‘Jesus Phone’.
CDMA standard, which limited Nokia’s potential.
“They’ve tried since, but it’s part of their DNA. I don’t think
The shape of Nokia’s phones also played a part. While consum- they understand how to be hip and cool,” said one executive
ers in much of the world were going crazy for Nokia’s candy-bar who’s worked in the U.S. wireless industry for more than a
phones, and quickly learning the T9 predictive text technology decade but did not want to be named criticising Nokia.
that made it fun to send trillions of SMS text messages a year,
Americans never really caught the texting bug. Consumers there “IT’S PART OF THEIR DNA. I DON’T
preferred clamshell handsets -- the ones that flip open like a wal- THINK THEY UNDERSTAND HOW TO
let -- such as the Motorola Razr. For a while, that may not have
seemed to matter much: the rest of the world offered a poten-
BE HIP AND COOL”
tially much bigger market for handset sales.
But Nokia’s weakness in the United States has proved part of its ‑-u.s. wireLESS EXECUTIVE
undoing because it prevented the company from easily joining
the smartphone party once it finally got going. While Nokia was AN IMAGE THING?
As the new boss makes his rounds of Nokia’s Helsinki
headquarters, one of the people he might like to check in with
is Mark Squires. Head of social media at Nokia, the burly
50-year-old Englishman runs the firm’s official blog. He
started his job in 2008 after outlining in a paper how Nokia
needed to connect better with its customers, to live up to its
own slogan: “Connecting People”.
“We were passing our products down through a distribution
chain, a very good distribution chain, and through some excel-
lent operator partners, but in doing that you don’t actually get
physical contact with your end users,” he says, sipping coffee in
a London hotel lobby.
“If you’re not listening to what they’re saying -- if there’s no
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SPECIAL REPORT - NOKIA
mechanism for you to listen other than through third parties contrast, Czech director Milos Forman, with whom Linardos
-- it’s a bit like constantly asking your brother how your mother worked on “The People vs Larry Flynt”, allowed his actors to
is but never ringing her.” repeat an improvisation again and again for a week until they
found their own voice.
Still, Squires was surprised at the hostility of some of the re-
sponses to a post earlier this year disputing Apple’s claim to “If one is top-down, there’s a bottom-up way of doing things
be the world’s largest mobile-devices company. Entitled “A -- and that’s what I recognise in the Nokia culture,” says Linardos.
Fruit Confused?” the piece sparked a flurry of arguments, which “When you get that working -- and it takes a while to get working
Squires puts down in part to an online army of Apple fanboys. -- you get something that’s more sustainable because you’re
getting this collective energy and this collective vision versus one
He attributes Nokia’s image problem to the disproportionate person telling you who it’s going to be.”
presence of U.S. users in social media -- he says 70 percent of
Nokia’s own blog traffic is U.S.-based -- and the strong follow- It isn’t always easy though. Linardos describes the self-doubt and
ing that Apple has in that market. wrong turns that have been an inevitable part of Nokia’s years
in transition. “I’m not going to lie -- the last few years have been
“The opinions there -- which are led by probably the largest very hard,” he says.
company fan base there is -- or certainly the most
vociferous if not the largest -- is why you have this image
perception out there.” NEED A HERO
Without a premium product, or something to galvanise
excitement around its devices, Nokia’s operating margin for
CONNECTING WITH NOKIA phones has collapsed to 12.5 percent from 21.7 percent just two
Nokia, say some company insiders, should emphasise its years ago. Apple’s operating margin over the last 9 months
differences with Apple. Elop has joined a company whose was 29 percent; RIM’s over the last six months was 24 percent.
workers -- they call themselves Nokians -- are intensely pas-
sionate, but also one whose management culture is more If he is to deliver a hero product that can take on the iPhone,
democratic than dictatorial. It is expected that the CEO regu- Elop needs to get developers excited enough to produce the
larly lunches in the staff canteen, for instance. applications that consumers now expect to bring a device to
life. While Apple boasts in its advertising slogan that “There’s
George Linardos, a former movie producer who has also an app for that,” in Nokia’s case, there probably isn’t. Its Ovi
worked at Macromedia, has come to appreciate that culture. store has about 13,000 items for sale against almost a quarter
Linardos left the beaches of his native California to join Nokia of a million at the App Store.
five years ago, and is now product manager for Ovi Store,
Nokia’s online outlet for services like ringtones, games and Catching up won’t be easy for Nokia. Thanks to its pioneering
music which sets out to rival Apple’s App Store. role in the mobile industry, Nokia has a multitude of software
platforms, which complicates life for developers. Even now, it’s
Asked to describe what it means to work for Nokia, Linardos not clear where Nokia’s going with its software strategy. Its four
answers with an anecdote from Hollywood. During the film- most recent models -- well received without moving reviewers
ing of “Wall Street”, he says, director Oliver Stone humiliated to superlatives -- are the first to be built on the delayed update of
Michael Douglas in public in a deliberate and successful effort the operating system, Symbian 3. Symbian 4 is due out next year,
to provoke the actor into a rant he then captured on film. In but so too is another system, Meego, which was jointly developed
with Intel and is itself a merger of two
earlier platforms.
It’s a tangle which produced some-
thing of an own-goal during
last week’s conference, Nokia World.
Nokia invited the CEO of Rovio,
Finland’s hottest start-up, to speak
about the improvements Nokia has
recently made in the way it approves
apps and pays developers, and new
development tools it has released.
He duly did, but the truth is Rovio’s
cult following has been earned not
through Nokia, but with the iPhone.
Its insanely popular puzzle game,
Angry Birds, has been Apple’s no.1
paid app in 60 countries. Because of
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SPECIAL REPORT - NOKIA
Nokia’s fragmented software strategy and the delay of Sym- Michael Halbherr, who now runs the business, is convinced
bian 3, the only Nokia model for which it is so far available is that Nokia’s future is inextricably tied to maps, navigation and
the niche N900. services linked to where the user happens to be. In an office
overlooking the construction site for the new building, he en-
HOME IMPROVEMENTS thusiastically sketches a grid showing the places he believes
Linardos says he sometimes envies rivals like Apple and these are set to occupy in all devices.
Google. “They got afforded the luxury of being able to say, with
operating systems and services, of sort of sitting down at a It’s the same grid the German manager drew for the board
whiteboard and saying: ‘Who do we like that’s out there? Who three years ago, when he was trying to persuade Kallasvuo to
do we not like? How would we do it?’” he says. buy Navteq. He recalls Kallasvuo’s response at the time: “Holy
smoke!”
“In Nokia’s case, we’re in an existing business shipping hundreds
of millions of phones a year, with obligations to keep certain The bold plan has attracted some of Nokia’s best and bright-
revenue levels. So what we did was more like having to remodel est, insiders who felt it was time for a change. Tuula Rytila-
an old Victorian house while we were living in it.” Uotila leapt at the opportunity to join the venture after taking
Nokia’s last hit smartphone, the N95, to market. “I felt we
Nokia has an enormous number of older, more basic phones in need a material change, not little bit of change,” she says. “I
circulation, and it likes to make new features back-compatible for thought, I have to leave the company or bite the bullet.”
the mass market, taking up valuable research and development
time and money. The venture appeals to Nokians’ desire not just to make money,
but to change the way the world works.
That presents a dilemma: on the one It’s a passion that has yet to win over
hand, Nokia needs to focus its efforts investors. Analysts have been ask-
more closely on the top end of the mar- ing Nokia to write down some of the
ket, the high-spending North Americans goodwill from the deal almost since
and the Europeans who have traded their it was done. “You have to pay for the
Nokias for iPhones and BlackBerrys; on birthright to play in the navigation
the other, it is enormously proud of its industry,” insists Halbherr. “The map is
size and the trust it commands among your entry ticket. It’s the endgame for
the 1.2 billion people who use Nokia the navigation industry.”
phones and the more than one million
people a day who buy a Nokia -- more
than its three nearest rivals combined. CONNECTING WITH PEOPLE
As Elop settles into the Helsinki
Any move to slash the portfolio or take winter, market talk is turning towards
resources away from the bottom end the industry alliances he may look
of the market would cut at the heart of to build. One fairly safe bet given his
what many Nokians believe in and work background is that he will deepen ties
for. That means that even as he goes af- with Microsoft. Microsoft itself has
ter Apple and Google, Elop will have to had little success in the smartphone
celebrate and build on the company’s market and Elop’s old boss Ballmer
successes elsewhere. FUTURE GLOW Nokia hopes its free Ovi made a point of saying how he looked
map system navigates the company to a forward to continuing to work with him
“Nokia needs to Americanise while brighter future. REUTERS/Fabrizio Bensch in a Microsoft staff memo marking the
simultaneously protecting its assets Canadian’s departure.
in the rest of the world. An injection of
Silicon Valley attitude will play well in Would Nokia ever move onto Micro-
the United States, but the company soft’s Windows operating
must take care not to unsettle staff in Europe and elsewhere,” platform? Probably not. So far, it’s been a partnership with few
says Neil Mawston, analyst at research firm Strategy Analytics. results; even with better coordination the two companies are
likely to remain rivals when it comes to mobile platforms.
LOCATING PEOPLE What about Google’s Android, which is free and has an active
The new boss will find another big challenge inside the Berlin and fast-growing developer community around it? Such a
headquarters of its navigation business. The fruit of the move would entail a considerable loss of face for Nokia and
company’s most ambitious acquisition to date -- the 2007 antagonise Microsoft. It would also require Nokia to abandon its
purchase for $8.1 billion of U.S. digital mapping firm Navteq -- own software push. “The day Nokia goes for Windows Phone 7 or
it’s aimed at tapping the local knowledge of Nokia’s mass of Android, investors will sell their Nokia shares,” says John Strand,
users to create location-based services. CEO of Danish telecoms consultancy Strand Consult, who has
followed the industry since the 1990s. “That would be the day
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SPECIAL REPORT - NOKIA
Nokia turns itself into a hardware manufacturer like Dell.”
More ambitiously, Nokia could try to merge with one of its smart-
phone rivals. RIM has become far more affordable in the past few
months. As it has expanded into lower-margin international mar-
kets -- where it could benefit from Nokia’s distribution network
-- RIM’s market value has fallen to $24 billion, down nearly 40
percent since March.
Then there’s HTC, which makes smartphones and has em-
braced both Android and Windows. The Taiwanese firm is now
valued at $19 billion (corrects). Motorola’s phone unit, too,
is looking for a home and would give Nokia access to North
American markets.
NORTHERN EXPOSURE Nokia headquarters in
Nothing’s impossible. But it’s worth noting that Nokia has not Espoo, Finland. REUTERS/Antti Aimo-Koivisto
bought a hardware company for years and would have little to win
from a hardware-only deal. And Elop does not have a free rein on
strategy anyway. Ollila initially said he would step down “soonest” people went out into the forest in Nokia rubber boots. The big
after helping the new CEO settle in but then clarified that he will change came when Ollila, who headed the cellphone unit from
not leave until 2012. 1990, became chief executive and transformed the Finnish
conglomerate into a global handset leader.
Elop “has the mandate like any chief executive to look afresh,
but he was not employed to shake up strategy,” Ollila told the Elop’s arrival finds Nokians energised for the challenges
Financial Times in an interview. ahead. “When you are against the world, it also excites peo-
ple,” says Juha Akras, head of human resources at the company.
“We are ready to fight and that’s the key thing here now. Now
“IF ONE IS TOP-DOWN, THERE’S A Nokia is in a challenger position again.”
BOTTOM-UP WAY OF DOING THINGS -- Linardos, the former movie producer, also relishes the
AND THAT’S WHAT I RECOGNISE challenge. Casting his mind back to 2007, he speaks with an
AT NOKIA” almost Finnish intensity.
“I remember having a very distinct discussion ... with my
boss at the time and saying everything was hunky dory, sales
‑-GEORGE LINARDOS, OVI STORE PRODUCT MANAGER
were going great, our stock price was great, we were on top of
the world, and saying, what’s going to happen is, we are now
OUT OF THE FOREST leaving the light and walking into a forest. And just like when
In the airy wood-panelled spaces of Nokia’s headquarters, with you do that, you’re going to watch the light start to fade
its huge windows capturing light from the sea, Elop will have behind you and you’re going to only see darkness ahead.”
plenty to reflect on. Nokia’s revenues fell 19 percent last year, The company is six months past the point where things looked
while operating profit halved. The value of its brand -- one of most hopeless, Linardos says. An injection of new blood that has
its key assets -- dropped 58 percent in just one year, according been going on beneath the surface has helped to lift spirits. Just
to a global study by Millward Brown. as long as everybody understands Nokia’s in it for the long haul.
“Nokia has had significant transitional moments before,” says “It’s not, as gets played in the media sometimes, a story
Dan Steinbock, whose 2001 book, “The Nokia Revolution: that has a finish line in six months where one platform wins,”
The Story of an Extraordinary Company That Transformed an he says. “What they call ‘sisu’ I call a kind of tortoise-and-the-
Industry” helped mark Nokia’s apotheosis. “This, however, is a hare quality, which is just a constant march and a sort of certain
defining moment.” persistence and just never stopping and just going, going, going.”
History shows it would be unwise to underestimate the compa- (Additional reporting by Sinead Carew in New York and Bill
ny’s determination to be reborn. Nokia partly defines itself by the Rigby in Seattle)
Finnish concept of “sisu” -- which roughly translates as “fighting
spirit” -- and the truth is, Nokia has reinvented itself in the past in ¤ Interactive timeline of Nokia milestones
a more fundamental way than Apple has ever had to.
Nokia began as a paper manufacturer in 1865 at a riverside
wood pulp mill in southern Finland and grew to make every-
thing from tyres to television sets. Not so long ago in Finland,
the Nokia brand was a common sight on lavatory tissue, and
8
SPECIAL REPORT - NOKIA Edited by Simon Robinson and Sara Ledwith For Reuters 3000 Xtra subscribers: For more special reports hit F9 and then SREP Comments, queries and tips: Simon Robinson Sara Ledwith Enterprise Editor, Europe, Middle East, Africa Top News team, Europe, Middle East, Africa simon.robinson@thomsonreuters.com sara.ledwith@thomsonreuters.com Georgina Prodhan Tarmo Virki European Technology, Media and Telecoms Correspondent Senior Technology Correspondent georgina.prodhan@thomsonreuters.com tarmo.virki@thomsonreuters.com COVER PHOTO: Incoming CEO Elop at a news conference in Espoo, Finland, Sept. 10 REUTERS/Lehtikuva/Markku Ulander © Thomson Reuters 2010. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. ‘Reuters’ and the Reuters logo are registered trade- marks and trademarks of Thomson Reuters and its affiliated companies.
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