Nokia, Apple and Sudden Extinction Events
When the reaper calls...
Cash is King
Opinion is pretty unanimous why Nokia is getting beaten up by analysts and pundits on a daily basis. A little may be American triumphalism, but most of it is sound. Nokia isn't making high margin products, and its lower margin products aren't significantly better than the competition, which gets better every year.
Ten years ago, a low-end Nokia was still much better than a low-end rival - it was easier to use, had better battery life and reception, and often had better build quality. Today, Samsung makes very good 'cheap Nokias', and Apple and RIM have stolen the 'aspirational' bit of the market. With two billion new members of the middle class looking to make a statement, this is quite ominous.
In recent years Nokia has become so used to splashing the cash about that it's rare to find a marketing consultant who doesn't or hasn't worked for the Finnish giant. It single-handedly keeps parts of the economy going - particularly the Strategy Boutique sector - people who dream up segmentation strategies or demographic shorthand. It funds entire branches of academia. But Nokia's cash cushion isn't so great that it can afford that anymore.
For example, this means it can't afford too many splurges like the Navteq acquisition, which will never recoup the mind-boggling €8.1bn investment but has yet to be turned into a differentiator. In under three years, Maps has been Ovi-fied into near-oblivion, and Nokia needs to turn it into an asset that retains existing customers and attracts new ones. Nor can it afford to fail as it did with games, another expensive adventure it embarked upon with N-Gage in 2002 and finally abandoned last year.
With a network effect, Apple could afford to annoy partners and customers as it fought its way back to profitability. It did so again with the move to Mac OS X, before it was ready. Each time Apple gambled that customers could endure a bit of temporary pain. That's not the Finnish way - it still talks in terms of 'eco-systems' and about generating opportunities for partners, who increasingly realise they can seize them without Nokia's help.
Without a network effect, it's not a luxury Nokia can afford. Its responsibility is to shareholders, and it has to be pretty brutal. ®
You can view Steve Jobs case-study keynote at MacWorld in 1997 explaining Apple's recovery strategy here. The segment identifying the market starts at around 18m:30s.