Windows Phone might be the most impressive bit of software Microsoft has produced – but it isn’t setting the world on fire. The iPhone and Android go from strength to strength – the latter proliferating so widely even Google doesn’t know how many Android systems are out there. (It can’t count the Chinese forks which don’t use any Google services and don’t phone home.)

This discrepancy puzzles people. Reviewers like WinPho a lot – it’s clean, fast, functional and forward-looking. The social media integration is very clever. Operators have a soft spot for Nokia and WP7 too, because – if for no other reason – they dislike and distrust Google and Apple even more. So what’s the problem?

Three weeks ago I raised the prospect that there may never be a third smartphone ecosystem – something upon which Nokia has bet the company. Many markets only have room for two leading players – and in the technology platform world, many have only one. On the margins the niche players are little islands. No matter how impressive WP is, if the needle doesn’t move, then it too becomes a marginal player. Ecosystems can perish more rapidly than they arise. If Windows Phone is to avoid the same fate as WebOS then the dynamic has to change.

But what might this be?

To help try and find an answer to this, I’ve been using Nokia’s Lumia 710 as a main phone – there’s no substitute for experience, and you can read my review of it here.

1. It’s a device business, stupid

The smartphone market is one driven by a desire for unique and distinctive devices – quite unlike the white box consumer electronics business. Operating systems and platforms don’t really matter to people, who make their choice from three or four models on display on the High Street at any particular time. This isn’t to say they don’t matter at all – nobody wants to choose a lemon – but if a phone is on display, it has a chance of selling.

Nokia has never had to think like this before, and spent the Noughties coasting on its brand and market position. Getting it to think about the customer and retail experience is one of the biggest cultural changes Elop has to make. Yet where are these quite outstanding and attractive devices going to come from? Microsoft’s reference platform allows little scope for differentiation or innovation.

A couple of years after announcing Android, Google did a strategic U-turn that upset many of its partners. It anointed a manufacturer to work with on what is essentially a reference phone, giving this chosen handset Google branding. The idea was that other ODMs (Original Device Manufacturers) would have to raise their game. It’s worked and nobody left the Android fold.

It’s hard to see Microsoft usurping Nokia’s branding (more than it already has), but the two need something creative to raise the visibility of WP in the public consciousness – it hasn’t left a footprint so far.

But Microsoft needs to loosen its reference platform to encourage some serious design innovation. Where’s the Windows Phone Communicator – with a clamshell or slide-out keyboard?

2. Growing up

This is probably the easiest of the problems to fix. It simply takes time, money and careful product management. WP7 was very much a working technology demonstration, lacking removable storage card support and a clipboard, amongst other things. Mango fixes a lot of these, but it still feels like a version 1.1 product. The flagship Nokia devices don’t have video calling or tethering, for example.

But it takes time. It took Apple three generations of iOS to implement a clipboard and four to implement coherent task switching and notifications. But these are major architectural features with huge knock-on impacts elsewhere. There’s little point in Microsoft getting one team to tune battery life when the system can change so drastically overnight.

Now I’ll get to the hardest problem. We need to raise some home truths about the Windows user interface, which aren’t noticed by bloggers and unboxers and only become apparent after extended use. Colour me surprised – you might be too.

3. We need to talk about the UI

The Metro UI for Windows Phone has been justifiably praised for being clean and distinctive. Microsoft is extending it across more products, most controversially, into Windows 8. But in extended use, I found myself using the phone less than I expected, because I simply didn’t want to read text on the screen. This realisation came quite subtly, and was unexpected.

Here’s what I think is the issue.

Some things in the world are theoretically human-readable, but nobody ever reads them. Postscript source code is one example, the fiction of Cory Doctorow another. Metro turned out to be a little like this. It is a UI designed to be glanced at, and it fulfils that very well.

But it makes poor use of the space available. My preferred WP Twitter app Rowl shows me three tweets at a time. You do have to pinch yourself that you’re using an 800×480 pixel screen. Entire newspapers were being laid out on VGA screens (or smaller – many were Mac Classics) 25 years ago – but this is a poor use of space.

The font is for glancing, not for reading, and the white-on-black colour scheme doesn’t help.

There’s too much thumbing going on. The default WP home screen shows you eight options. A thumb press will show you eight more options or twelve by revealing the Apps List. The default iPhone screen shows you 16, and a swipe 16 more. Android also shows much more. And from the Blackberry OS 7.0, I can change almost any setting by swiping from the top.

Now none of this is catastrophic – and it’s all fixable. Choose a better body font, change some of the proportions, and vary the size of home screen tiles – all would help enormously. But first, admit there’s room for improvement.

If you want to make the phone an "immersive experience", as per the jargon, don’t punish users for getting wet.

4. Give it all away? Not a good idea

"You can’t compete with free" is a cliche in the content world. And it’s proved one of the most misleading. Android is nominally given away for free, making Microsoft’s paid-for licensing model almost seem like an anachronism. Smartphone platforms are given away for free, or not given away at all.

But this argument is misleading. Android isn’t free at all, the patent uncertainties require ODMs to pay third parties – including Microsoft. This is a long way from being resolved.

So although one option is to go royalty-free, it’s one Microsoft doesn’t have to take. Not when there are more creative options on the table.

5. Telcos hate smartphones. They don’t have to hate yours

Telcos like growth, but they view smartphones very ambivalently. Once the pesky users have one – all they want to do is use it – the impertinence! – while the value of the services we use is captured by everyone except the telcos. So mobile operators have rapidly found themselves in same funk as broadband ISPs – who want punters to sign up (as long as the acquisition cost is low), and who don’t want them to leave, but who want them to use the network as little as possible while they’re there.

It’s a mug’s game: spending billions on network upgrades but seeing the value realised by device manufacturers (Apple) or ad networks (Google). The mobile network operators don’t want to be dumb bit-pipes – which is all they will be in Apple and Google’s future.

It doesn’t have to be like this – and Microsoft has an ace up its sleeve, with a messaging platform almost everybody in the world has heard of: Skype. It might be time to start thinking about some radical initiatives.

Here’s one: why exactly is Microsoft licensing Skype? Why is it even tolerating it? It paid a lot of money to acquire this proprietary VoIP messaging platform, and sees no advantage from it. How about raising the fees for Skype for some or all non-Windows mobile platforms? One of the first things Steve Jobs did in 1997 to stabilise Apple was to stop licensing MacOS and kill the clones.

And messaging is just one example. Advertising and media could benefit from some sort of semi-open shared platform on the wholesale side. This is something Microsoft and Nokia have thought about, so the idea shouldn’t be alien. But it makes sense to move value up the stack. When all smartphones look alike, one with an attractive bundle of messaging and content should be able to stand out from the crowd. We might even pay a pound or two more for it.

The verdict

Of course, Windows Phone might not need any of this. Perhaps it’s just not being seen, and will sell gazillions of units once people see it. Perhaps simply throwing more money at development and marketing will do. It worked for Xbox.

But Xbox was a success that was years in the making, soaking up billions of dollars of capital. Nobody involved in WP has this luxury. Nokia is fighting a battle on three fronts – and haemorrhaged €1bn last year – and Nokia is absolutely key to WP’s success. Although it has cash in the bank, it can’t fight on with this kind burn rate.

We know from WebOS, or BeOS, or many technically wonderful predecessors that won rave reviews from the critics only to perish in the marketplace, that being good isn’t enough. These are interesting times – the opportunity is there. ®

Humiliatingly, Nokia was forced to deny rumours last week that it was planning to break up and sell its crown jewels to Microsoft. Normally a company can remain impervious to Twitter-born gossip, particularly from a known antagonist.

Acknowledging the rumour simply gives it a chauffeured ride around the internet. But not this time: the ‘Microsoft buys Nokia’ story fulfils so many conspiracy theories, thousands of people wanted it to be true.

And the notion of Microsoft buying a hardware company and ripping up its licensing business has become much less outlandish after Google’s acquisition of Motorola’s phone business. Ah, but that was desperation, I hear you say; the Chocolate Factory had miscalculated its IP strategy catastrophically, and it had to grab what patents it could at almost any price.

But there’s a whiff of something – it isn’t desperation, more like earnest exasperation – around Microsoft’s phone business these days. Redmond has got an excellent product, for the first time, and people who have a Windows Phone love using it. But there just aren’t many of those folk around. The phones aren’t shifting. Christmas has come and gone, and while we wait for some reliable channel figures, Nokia’s flagship seems to have made almost no impact on the UK market. It’s the phone that leaves no footprints.

So that makes Nokia’s American comeback all the more challenging. Your reporter has lost count of the number of thwarted US comebacks Nokia has made over the years – each time the story ends the same way. Either the operator gets cold feet or Nokia gets cold feet first.

In recent years Nokia baiting has become a cruel bloodsport for American pundits and bloggers, the latter even refusing to review Symbian phones on the reasoning that, well, they must be rubbish. After years of being patronised by Europeans and told to catch up, talking heads in the States are now taking their revenge. Europe’s dominance turned out to be temporary; the US public is now getting the best gadgets and fastest data networks first – even if the nature of the competition means they’re paying a high price for it. And as the industry leader in Europe’s 2G dominance, and general bossy boots, Nokia is now getting thoroughly beaten up for missing out.

This is not the most promising position from which to launch your comeback – but then again, expectations are now calibrated so low that any success is going to mean a lot.

Yesterday Nokia launched what’s probably its most competitive US product for a decade. You’re welcome to contest that claim, of course (fire away!) but bear in mind that the last time Nokia caused a ripple was four years ago. That was with a US model of the N95 – marketed under the slogan "this is what computers have become" – which was delivered six months after the Apple iPhone had started shipping.

The Lumia 900 has a fair bit going for it. It’s got a modern UI that’s really nice to use. It’s got the backing of a major operator. And it’s bang up to date with advanced network technology – it’ll be able to use AT&T’s LTE data network, which is already live and due to be rolled out in full by the end of next year.

But it also has the drawbacks of The Phone That Leaves No Footprint. The 900 is identical to the 800 but with a larger screen – which brings no additional increase in screen resolution – and larger battery. The 900 also shares the 800′s peculiar camp colour palette, which restricts its appeal. And the same harsh square corners – and the camera mirror that scuffs if you so much as breathe on it. All these points have been flagged by multiple reviewers but Nokia seems quite deaf to them, and quite insistent that it’s the greatest design ever.

"It looks sleek and progressive on the outside," according to CEO Stephen Elop in a canned promo video. I can understand sleek, but what on Earth does progressive mean here?

The tech bloggers’ criticism that it’s not cutting edge remains a valid one: compare the screen resolution to the Galaxy S2 or the Razr Android. This matters, not because most punters fit the boy racer category (they don’t), but in perception: it’s a fast moving market and regular buyers don’t want to lock themselves into two-year contracts with something they fear will be obsolete. And how frustrating this must be: the Lumias perform extremely favourably to the competition.

The greater problem for Nokia – and Microsoft – is the nagging idea that there’s no room for Windows at the smartphone table, no matter how fabulous it is. Remember that Elop’s great gamble at Nokia is to make Windows the ‘third ecosystem’. Well, maybe there isn’t going to be a third ‘ecosystem’ in smartphones. Maybe there’s going to be Apple, Android, and everything else – BlackBerry, featurephones and dumbphones. After all, there wasn’t room for more than two in PCs.

It’s too early to tell yet. Nokia has yet to throw its best designers (assuming they haven’t all left) or radical innovations at Windows Phone yet. This is very much a product market, one that’s crying out for some differentiation at the moment.

But if it turns out to be the case that there are only two ‘ecosystems’, then the Armageddon option of breaking up the company doesn’t look quite so irrational.

Pundits this week are describing Nokia’s fall from grace as one of the greatest corporate car-crashes of all time. But here’s an unfashionable view. Nokia’s problem is not Stephen Elop, or his strategy. Its problem is it didn’t have Stephen Elop, or his strategy, in place two years ago.

And while we are certainly watching a dramatic destruction of shareholder value – this will be a terrible year for Nokia – it’s worth remembering that three bad quarters are not necessarily fatal to a company. I’ll admit, this is not a popular opinion this week.

Five years ago, Nokia was a market maker and a global consumer brand, comparable perhaps only to Sony for its influence and reach. This week shares are back at 1998 levels. Elop was forced to rip up the revenue and margins forecasts he made for the entire year in February, announcing Nokia’s “big switch” away from developing its own Meego and Symbian platforms, to paying royalties to use Windows Phone. Sales would be significantly lower, and margins weaker, than the company had predicted back then. Nokia said it wouldn’t make any more forecasts for the year, which is very unusual. In other words, it was already over the cliff edge, but didn’t know when it would hit the ground.

Headline writers blamed the switch to Windows – creating an “Osborne effect”. This popular catchphrase describes the falling sales of existing products caused by pre-announcing successors that are not yet available – and it’s actually a myth – pre-announcement didn’t kill the original Osborne Computer.

But, still, it’s pretty bad, and not going to get a lot better. At least eight analyst firms cut their ratings for the stock, with Bernstein Research cutting the price target to $4.

Bernstein’s estimate puts the enterprise value of the company – the market value minus the cash pile – at €11bn, and that includes the networks division and Navteq. It led one pundit to speculate that Nokia was now worth less than Skype. The Windows effect at work?

Now just because two things happen together, does not imply a causation. If you look at Nokia’s explanation, you’ll see that’s only part of the story. The message is opaque, but we can read between the lines.

Nokia said that “competitive dynamics … across multiple price categories”, were to blame – which simply means the competition makes cheaper, more attractive phones across the board. This is exactly what Elop warned of in his “Burning Platforms” message. In addition to Android and the iPhone, Nokia faced a new threat of very cheap phones in Asia from companies you’ve never heard of – Micromax, Carbon, Lava – which can take advantage of a new generation of packaged hardware. Elop identified MediaTek as one of these companies. A few years ago, it wasn’t possible for a new entrant to grab an off-the-shelf reference design. Now it is.

This was one of the three factors in his “Burning Platforms” internal blog post. The third was the competition from featurephones in Europe. In Europe, the competition – such as Samsung – make better, cheaper featurephones, thanks to their faster release cycles, better design, and better use of innovation.

“They are fast, they are cheap, and they are challenging us,” wrote Elop.

None of these problems can be pinned on the CEO, whose competitive analysis really can’t be bettered. Nokia’s problem is that it only started looking for a new CEO in April 2010, and Elop has only been in the job for nine months. He quickly identified that neither of Nokia’s high-end platforms were competitive and could not have moved any faster to ditch them for an alternative that is competitive.

Elop was caught between a rock and a hard place. The fact is that the product pipeline Elop had been bequeathed was so lacklustre, and so inadequate, that Nokia’s valuation would be exactly where it is today – or probably even lower – if he hadn’t announced the Windows Switch when he did. Imagine four more months of 24-hour news reporting on delays to Symbian and Meego.

The pipeline was the result of a paralysis that choked the company from 2008 onwards. By 2009 the competition had been given two years to polish its touchscreen products. Apple was able to add many missing features, some considered essential such as UMTS and MMS, to its iPhone. In 2009 Apple dropped the exclusive carrier deals and the sales rocketed. Google had the time to turn Android around into a fairly slick, iPhone-like UI.

Yet Nokia stumbled on with poorly specified hardware and still unable to put a modern UI over Symbian, despite thousands of man-years of labour. Even more importantly, competitors were adding value at the application layer, so that, for example, every phone can get the user to Facebook very quickly and easily. Nokia’s engineers were still squabbling over which toolkits it might want to use.

Nokia’s entire software engineer capability was created by Jorma Ollila and built around the idea of a “software factory”, with teams creating a base platform from which product managers could pick their components. When Nokia was churning out 30 Symbian phones a year, all largely the same, it had some merit. But it was unsuited to the rapid development of distinctive, individual products.

On 25 May, Nokia announced it was bringing its first dual-SIM products to the Indian market – where dual-SIM phones are now almost a third of the market. Again, the lack of competitiveness has been a problem.

This is the legacy of the previous management – and it left Elop with little choice. The Microsoft decision effectively bypasses the remaining Nokia engineers. He’s got rid of, or sidelined most of the “Indians”. But what about the “chiefs”? Elop still has most of the executive management around him that got the company (and its shareholders) into the tank.

None of this was a secret, and it’s a poor reflection on the analyst community who only just cut their formerly bullish ratings on Nokia.

This week Elop pledged to bring a Windows Phone to market sooner rather than later, suggesting it would most likely appear in 2011 after all. But why rush? Nokia will have two more bad quarters in 2011, and this may turn into three or four. In the 1990s, Apple saw its revenue halve, and in one year endured losses of 15 per cent of revenues. A company can crawl back from the brink. But a poorly differentiated or buggy range of new products will have much direr consequences for Nokia, and make it very difficult to tell any kind of “comeback story”.

The idea of Windows-on-Nokia has great support from the operators, who have already counted out RIM, and don’t wish to be faced with a duopoly of Android and Apple. Pundits should be more concerned that Microsoft, now Nokia’s most important supplier, can maintain a reasonable place of development.

It’s only taken a year for Microsoft to bring support for obscure languages such as Russian, Japanese, Brazilian Portuguese and, er… Finnish to Windows Phone. When the Chinese can produce an iPhone knock-off overnight, that should be worrying somebody

In a press release the Foundation’s CEO Tim Holbrow, brought in after the sudden departure of Lee Williams last month, acknowledged a “seismic change in the mobile market but also more generally in the economy, which has led to a change in focus for some of our funding board members.

“The result of this is that the current governance structure for the Symbian platform – the foundation – is no longer appropriate.”

Nokia talked about a new “open model” for the source code today – but it remains to be seen exactly what this will mean. The decision was blessed at a board meeting in Amsterdam today, where the 11th annual Symbian developer event is taking place, albeit in much more modest circumstances.

The Register understands the Foundation, even in its diminished form, may not live on much past April 2011.

Nokia acquired Symbian, then employing around 1,200 staff, in 2008 and devotes 4,000 people to the system. But in the hope of attracting more licensees, Nokia devolved licensing and governance issues to a jointly-owned nonprofit organisation, the Symbian Foundation. With key supporters such as Samsung and Sony Ericsson declining to use the OS or back the Foundation financially this year, it had little else to do.

Symbian developers will revert to consulting Forum Nokia for technical information – just as they did two years ago before the ill-fated Foundation was set up. Nokia’s handling of Symbian has been one of its most catastrophic errors – open sourcing the code wasted two years as lawyers picked through the code, just as the smartphone market became mainstream. By the time the code was ready, it was no longer competitive.

Symbian likes to use the treehuggy phrase “ecosystem” instead of “economy” to describe the activity around the OS. It’s evidently not an economy. But even “ecosystem” implies it has some sort of life.

Nokia has also torn up the OS roadmap, and will speed up the delivery of new functionality to users in chunks, as and when it’s ready, instead of in milestone releases. In less prominent statements, Nokia has clarified what had become a very confusing development picture.

Eighteen months ago, the Symbian Foundation’s David Wood (who has now left the organisation) announced that Nokia’s Avkon code, the UI for S60, would be deprecated and a widget library called Orbit for Qt would take its place. A comment left on Nokia’s official blog here, says it is dropping the Orbit in favour of Qt Quick. Qt Quick is a declarative language for describing user interface layout. But Avkon will be retained for backward compatibility.

Sun’s Java boss Rich Green joined Nokia in May to try and sort out the mess. It’s much less of a mess now, and the decision to step off the milestone treadmill should fulfill the long-standing criticism that Nokia works too slowly. That’s a valid one – it’s almost two years since Nokia acquired Trolltech, and shortly afterwards declared Qt as the API to write to across its two platforms. Only last month did developers receive the tools with which they could (kind of) do the job.

Elsewhere, as we reported, Nokia is taking an axe to its Ovi and Symbian development, promising to streamline it and implying that more work will take place in house. There are cuts, and the future of the Foundation must now be debatable.

As for the Symbian APIs being cruel and inhumane? After I described Symbian as “good system design”, several people emailed to tell me that I was very, very wrong.

One experienced industry source pointed out this example.

“Symbian is the only platform that has to spend one day teaching people how to use strings before they can code in it. The approved method is that you create an HBufC (a Heap allocated, BUFfer that is Constant), then Call Des() on it (which returns a TPtr – a pointer to a writable descriptor),” he says.

“So writable strings in memory, and constant? Blows your mind.”

Related Stories:

Symbian’s Utopia – and why it was an impossible dream

Why Symbian failed: developers, developers, developers

The report is very long on detail and short on opinionising – and for those of you fascinated by technology and bureaucracy, something quite interesting emerges. What we learn is that the company’s current predicament was fated in 2003, when a re-organisation split Nokia’s all-conquering mobile phones division into three units. The architect was Jorma Ollila, Nokia’s most successful ever CEO, and a popular figure – who steered the company from crisis in 1992 to market leadership in mobile phones – and who as chairman oversaw the ousting of Olli-Pekka Kallasvuo this year.

In Ollila’s reshuffle, Nokia made a transition from an agile, highly reactive product-focused company to one that managed a matrix, or portfolio. The phone division was split into three: Multimedia, Enterprise and Phones, and the divisions were encouraged to compete for staff and resources. The first Nokia made very few products to a very high standard. But after the reshuffle, which took effect on 1 January 2004, the in-fighting became entrenched, and the company being increasingly bureaucratic. The results were pure Dilbert material.

For example, have a look at the section which starts here, with “A novel application or feature has been dreamed up that should end up installed in a phone a year from now. This is the beginning of a long day’s journey to nowhere.”

Innovations produced by the R&D department and designers could no longer be implemented quickly – one example should have taken just a couple of weeks, but instead took months to be incorporated into phones.

Executive managers interviewed note how the result was a large number of indifferent products.

Another consequence was also predictable. It’s what political writers call the most morally corrupting effect of bureaucracies: nobody takes responsibility. With the three divisions covering their own backsides, nobody wanted to make the long-term strategic investments necessary to keep platform software up-to-date. This resulted in the Symbian user interface being neglected. Nokia had developed a touch screen UI called Hildon, which became Series 90, starting in 2001 – and that should have been the basis for Nokia’s iPhone competitors today. But it was canned in 2005.

“We produced a quite enormous number of rather average products. It would have been smarter to make fewer – and better,” says one interviewee.

The masterplan was ripped up by Ollila’s successor, Olli-Pekka Kallasvuo, in 2007, but by then the units had become enormously wealthy fiefdoms, and many of the problems remained. Lots of people could veto a decision, but the leadership required to drive one through was absent. Nokia’s product pipeline all but dried up in 2009.

There’s plenty here that will ring true to Nokia loyalists over the past five years. As the journalist Mikko-Pekka Heikkinen notes, Nokians fought each other harder than they fought the competition. One example we commented on at the time was the battle between N and E series, each the output of competing MultiMedia and Enterprise fiefdoms.

Until OPK finally called time on the scrap, the enterprise E series phones were denied the best imaging features of the consumer multimedia range. The N series users were denied MailForExchange, and SIP functionality. Yet many N series customers also used their phones for business, at enterprises with Microsoft Exchange corporate email, and they made use of VoIP.

Nokia’s core best-selling line S40 was neglected. Several Nokians have pointed this out to us – in internal commuications, the company lauded its high-end Symbian multimedia devices but barely acknowledged the success of its feature phones, which brought home the revenue.

One wrote to us recently:

“About four years ago one of the S40 ‘phones achieved a major feature milestone and got one lacklustre paragraph in the internal newsletter; by comparison an S60 offering had been reduced from a ridiculously high Field Failure Rate to something just risibly high. But from the pages of congratulatory wanking you’d have thought that the damn thing had achieved sentience.”

It’s telling how many products Nokia released during 2006 and 2008 which were almost great, but which had correctable flaws – and how these died of neglect once on the market. Many of these devices had one feature in particular that could have brought wider success with just a small revision. A product-focused company would do this, but a matrix-focused one wouldn’t – it was an extra cost.

One example is the Symbian-based 6220 Classic phone. This was a small, fast, functional and competitively priced phone, and also had a Xenon flash, giving much greater depth and quality in dark conditions – a rare feature that imaging customers cried out for. But it also had a hard-to-use and unreliable keypad, which broke frequently. A tweak to the keyboard would have helped – and would certainly have been introduced after a few weeks in the old Nokia organisation, based around product teams who took a real pride in their work.

The portfolio culture has also resulted in some inexplicable design decisions that ripple across today’s handsets. Between the end of 2007 and autumn 2008, two of Nokia’s most successful and popular enterprise phones – the E51 and E71 – were released. The design was a large part of their success. But for an encore, in 2009 Nokia released successors with a severe design defect, the E52 and E72.

Both phones feature a “Backspace” key perched precariously over the right softkey on one side, and the “Terminate Call” key on the other. It looks elegant. But the Terminate Call key forces the phone to Terminate the application in use. All but the nimblest fingers would hit the key by accident. If you were writing a text, then, and made a tiny slip, you were catapulted back to the home screen, without warning, with the text or email message several clicks away in the Drafts folder. I use an E52 – and it’s almost the perfect candybar business phone.

But because the flawed key design, with the floating backspace, is part of Nokia’s 2010 “design language” for 2010, the flaw is replicated across several devices – including, now, the C3 and E5.

There are exceptions to the matrix. Nokia’s N95-8GB is the best example of what Nokia can do when the gears mesh, and the organsation focuses on product quality – although it followed a painful time with its predecessor the N95, which took over six months to stabilise. The 8GB was brought to market quickly while it was still ahead of the competition, and saw improvements in almost every department; the phone’s robust design gives users terrific service even today.

Maemo and the Nokia Internet Tablet devices were subversive projects that also managed to survive the infighting – and might possibly save the day. (And they must – as I wrote last week, there is no Plan C.)

The article also notes goodwill towards Nokia’s new CEO, Stephen Elop, to restore Nokia’s competitiveness. As he doubtless knows, a savage axe will accompany the restructuring. But as the Con-Lib Coalition is discovering, bureaucracies are much harder to dismantle than anyone realises, and you need a positive vision to go with the bloodshed.

Related Link

Helsingin Sanomat [in English]

Read more at The Register

It’s very, very timely – and even if you don’t follow Nokia, mobile or telecomms it’s a fascinating exercise in business analysis and organisational studies. Enjoy.

Read more at The Register…

The ambitious, Nokia-sponsored interactive extravaganza began this weekend, and it’s an interesting experiment. In Kring’s own words, this series of events, called Conspiracy For Good, is “not quite a drama, not quite a flashmob, not quite an ARG [alternate reality game]“.

What is it, then, and how did it come about?

Kring says that the underlying message of Heroes was one of “hope and interactivity and global consciousness and saving the world”, and when Nokia approached him to do some content for Ovi, he pitched the idea of anti-capitalism activists shaming a wicked corporation by using Swampy-style hacktivist tactics. You can be Swampy, if you wish to be. I have no idea if you get to keep the phone, but Nokia is donating towards a real library in Zambia and giving away 50 scholarships if the bad guys lose. So there’s very little prospect of the bad guys not losing.

It was the love-child of Nokia’s VP Tero Ojanperä. So for four weeks you can find clues hidden online and in the real world. You’ll encounter reality actors or “reactors” – some in character as Swampies, some as evil corporate suits – to guide you. And you’ll be using a Nokia phone.

Kring calls it “social benefit storytelling”. But you can see another reason why it appealed to a technology company – because Kring endorses the modern idea of “engagement”.

“Shows like Lost and Heroes did force you to go on line and look for clues – they were sort of a bridge to this. Each tentacle carries one little piece of the story and you have to put the pieces together,” he told us. “It’s not the same as letting it wash over you – you’re forced to participate, and guess, and predict.”

Which audiences have always had to do before – with Miss Marple, or Twin Peaks. But because the interactivity is now electronic, tech companies are very interested. In this version of ‘engagement’, the concept of the Mind places it as a kind of communally-shared external cyber-appendage, a bit like the Ood’s Hive Mind in Dr Who.

So how would it work, I wondered. People will shame the fictional corporation into… what, exactly?

Kring explains:

“We have this contract that proves they illegally obtained this land, and they’re a very tricky corporation. and in a very guerrilla kind of way we expose them. Busted exactly. But there’s a lot of stuff to find out before we bring them down.”

There’s no doubt who’s Good and Bad here. Isn’t what makes great drama the moral ambiguity – forcing the audience to decide who to root for? When people are forced down one path some rebel, while for others it becomes an exercise in reinforcement.

Kring politely disagrees.

“I may not completely share your view, I believe in archetypal and mythical storytelling and what’s missing from the world. We used to know what’s right or wrong, by the myths we heard around the campfire. Those are now missing in our culture and have been replaced by consumerism.

“We really wanted the secret society to be really cool. We force the audience to choose which is the right path; by giving them a moral fork in the road.

“People are starved for archetypal stories, where there is good and evil and people are given a choice.”

It just didn’t seem like much of a choice – particularly if you were being guilt-tripped. 50 people in the real world would lose out on scholarships if the Bad Guys won. Kring didn’t think so. On Heroes, he explained, some people started supporting the bad guys.

“If some people want to become part of [evil corporation] Blackwell Briggs, that’s fabulous! On Heroes people started a Syler’s army where they identified with [evil megalomaniac] Syler.

“Ultimately if you align yourself with Blackwell Briggs you have been on the wrong side of the narrative…”

Surely you’ll burn in hell for supporting Blackwell Briggs?

“Hah, yes.”

I thought these questions probably arose because a decision was made to put this into a political context. There’s no problem with killing a zombie or a cannibal, or even an alienate determined to wipe out the human race. Did he need to give such an explicit and simple political view?

“We try not to be political”, says Kring. “We tried to create someone who’s the face of persecution, corporate greed, and injustice.”

But the world really isn’t so simple. The idea that business is all bad and philanthropy good is one that quite a few recipients of charity might see as a bit patronising. Grinding third-world poverty isn’t much fun no matter how many books you’ve got – and yet economic development gives us incubators and… Nokia phones.

“I’m not sure I follow.”

For Kring this problem was solved by making the bad guy so bad any such ambiguity might be banished.

“Well, Blackwell Briggs is trying to trade on human capital to exploit resources. They’re involved in child labour and … we’re trying to exaggerate it and make it so broad no one can have any doubt. Cutting the heads of babies, that sort of thing.”

Was the choice of name for the bad guy a coincidence, then?

“The name was meant to conjure up Black Hats, good guys wear White. Any resemblance is just a coincidence.”

So Xe (formerly Blackwater) haven’t sued you?

“Not yet,” he says.

It seems absurd, at first – Nokia is still turning a profit in the billions, while Apple’s annual loss was in the billions of dollars. But one thing should focus minds of executives and shareholders for one reason that’s never mentioned – the Sudden Extinction Event.

A recent theory suggests that life on Earth is extinguished and starts over every 27 million years. Coincidentally, 27 million years is how long it takes the Dave TV channel to show every repeat of Top Gear without showing the same repeat twice [*].

Businesses suffer Sudden Extinction events too, and we saw one in the past 12 months right in Nokia’s backyard: the rebirth and crash of Palm. Some businesses are much more vulnerable to Sudden Extinctions than others, and I’ll explain why by using Apple’s pre-Jobs quandary to illustrate it.

Nokia’s huge asset today is cash. It turns over a lot of cash, and it still makes a tidy profit. The most recent financial year saw a profit of around €9bn gross, with a net profit of €3.3bn for its devices and services division. Maintaining profitability is a decent achievement. Nokia also has around €8.8bn cash in the bank.

Back then Apple was smaller, of course, and it was hit harder. It saw revenues fall from $11bn in 1994 to under $6bn in 1998. Unable to respond to falling demand quickly, Apple lost $1.8bn over two successive financial years. (It took a decade, and the iPod, for Apple to rescale the peak of its 1990s income.)

But Apple had two great advantages.

The replacement cycle for Apple products was much longer than it is for Nokia’s products today. It varies in each market and each age group (and on who you ask) but it’s around 18 months. Apple’s kit back then was replaced every few years – and it didn’t help that they were built like tanks.

Much more importantly, Apple had a “network effect”. It had lost the IT productivity market to Windows, but in education and particularly in professional content creation, it was the dominant system.

Repro houses took Apple files. The publishing systems were Apple. They were usually tied together using AFP and AppleTalk networks. The workforce of contractors knew Apple products. (I recall how difficult it was to find Photoshop or Quark contractors who knew the shortcuts for the Windows versions in the mid-1990s – the Apple shortcuts were so deeply ingrained.)

And in this market, Apple’s computer continued to work. The PowerPC chip was still pretty fresh, and looked to have plenty of life in it. So making the move to Windows would have been costly.

Even for individuals, moving away from the Mac was much more problematic than it is today – valuable data was trapped inside extended attributes (or in Apple parlance, resource forks), that Windows had problem reading. Better to sit tight than move.

Despite its terrific brand, particularly in Asia, Nokia has no such network effect. Customers can choose to switch from a Nokia phone quite painlessly. They copy the address book to a SIM, and off they go. Given a bad experience, customers can stay away a long time.

A recent poll by YouGov showed that only a third of smartphone owners would even consider a Nokia as their next purchase, a drop of 12 per cent in just six months; only 15 per cent would recommend a Nokia, another number falling.

Today, Nokia cites amongst its great advantages its scale and logistics, and in particular its manufacturing assets. But there’s no point in having manufacturing if the demand isn’t there – the factories become a costly overhead. Without high-margin products of its own, Nokia may as well become a contract manufacturer.

Cash is still 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.

Footnote

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.