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.

It must be frustrating to sketch out a long-term technology roadmap in great depth, and see it come to fruition… only to goof on your own execution. But to do so repeatedly – as Nokia has – points to something seriously wrong.

Nokia spent more than a decade preparing for Tuesday this week, when it finally launched its own worldwide, all-phones application store. It correctly anticipated a software market for smartphones back in the mid-1990s, when it was choosing the technology to fulfill this vision.

That was just one of the bets that came good. Leafing through old copies of WiReD magazine from the dot.com era, filled with gushing praise for Enron, Global Crossing, and er, Zippies, I was struck by the quality of the foresight in a cover feature about Nokia. (Have a look for yourself.) WAP didn’t work out, but I was struck by particularly Leningrad Cowboy Mato Valtonen’s assessment that “mobile is the Internet with billing built in”.

And so Nokia has been encouraging users to download applications for users. My ancient 6310i wants me to download applications. Every Nokia since has wanted me to, too. Seven years ago, the first Series 60 phone (the 7650) put the Apps client on the top level menu, next to Contacts and Messaging.

The problem is today, it’s Apple and BlackBerry who have the thriving third party smartphone software markets. For six months, punters have been bombarded with iPhone ads showing what you can do with third-party apps. And yes, it’s like Palm all over again, but they’re very effective. So if Apple’s store is the model, then what on earth is Ovi?

The launch was “an utter disaster” according to one blogger, or in a more measured assessment (from Ewan at All About Symbian), “rushed, early and not fit for public consumption”. Nokia accepts second-best from Ovi, which apart from Maps is second-best in every category, the company all but admitted recently. But the Ovi application store deserves a Z-grade.

Web services or bust

It’s now clear that it was simply too ambitious to roll out a store to so many territories and in particular, to so many device categories, in one Big Bang. The number of devices supported goes back six years – encompassing eight versions of Series 40 and three versions of S60.

We waited a couple of days until the server load eased up, and Bill Ray kicked the tyres. On older devices it was mostly a miss. The mobile clients I’ve tried are painfully slow, don’t have previews and can’t distinguish between trialware and zero-priced applications. They either bill you in a foreign currency or simply drop you down a dead end.

The web version is even worse: try navigating through pages in Firefox, or try changing your default device in the preferences. The result is that every attempt to actually get applications is thwarted. Still, the pages fade in and out, in a very Web 2.0-style fashion. And maybe that’s the clue.

Apple’s App Store requires iTunes or the native client. iTunes is a familiar place for anyone who’s shopped for songs, audiobooks or movies there. It’s fast and slick, there’s a preview for everything, and pricing is quite clear. You’re only asked for personal details when you reach the acquisition stage. You get the same experience on the iPhone/Touch native client.

There’s really no need for a web-based version of the Ovi store at all, and piping everything through the Nokia PC suite (or some Mac equivalent) would at least encourage people to try the exciting Nokia PC Suite add-ons, such as Nokia Map Manager and er… Nokia PC Suite Cleaner. Apparently that cleans up after earlier Nokia incompatibility cock-ups.

(This is an ominous sign of trouble ahead: like Palm designing its stylus dual-purpose, one of which is to make rebooting easier after a crash. It’s not something the user should ever see.)

But Nokia has arguably far more at stake here than Apple or RIM. Once you’ve spunked $8.1bn on a mapping software company – shouldn’t you want people to use the maps – and the potential upselling opportunity? Or are the maps just a hippy giveaway?

‘Strategy’ is stretching it a bit

We all know in hindsight Nokia that should have focussed on making the mobile and PC clients perfect, and limiting the number of devices at launch to a subset of those supported. Anything before S60 3rd edition didn’t really need to be there, and there’s a case for limiting to devices launched in the past 18 months, even though there are a lot of N73s and E61s out there.

Separating the excellent applications from chaff such as movie trailers and wallpaper might have helped. There are still a handful of good applications out there, despite diminishing interest in Symbian, the pick of which is the best mobile email client in the world, Profimail. (Measured in ease of use, features, and the fewest seconds it takes to achieve a given task – a formidable combo.)

But again that goes against the Web 2.0 ethos of “stick any old crap up there – and let the Hive Mind sort it out”. No thanks, I don’t want MOSH 2.0.

And as for games – it would be flattering Nokia to call the six year N-Gage adventure a “strategy”. Again, it saw the market early, but didn’t follow through. Every now and again the multi-billion dollar investment veers back into view, only to disappear again. Is it N-Gage or Ovi Gaming? The few titles that are out there aren’t too bad, but again Nokia’s delivery strategy makes them hard to obtain. Meanwhile you can’t escape people playing games on their iPhones, or iPod Touches.
Operation Rescue Nokia

The market could benefit from a healthy Nokia software market, so here are some suggestions. There’s a valuable lesson to be learned. In business as in war, you make the most of your assets while trying to minimise your weaknesses. Nokia’s Ovi Store does the opposite: it emphasises the complexity and lack of focus at the company, and its disorganisation. If your first and only experience of Nokia was Ovi, you would never believe the company could ship 50 products into 120 markets with military efficiency.

Firstly, Nokia should focus on people’s needs – and applications that make the phone useful and fun – and not building up a “a portfolio of web services”. It’s already invested heavily in Maps and games – just make them easy to try and buy.

Ovi means “door” in Finnish

Secondly, the Ovi brand has made no impact on phone users at all. There’s no shame in abandoning confusing or invisible brands. Confine Ovi to mean boring, management services like backups, or data transfer, or services discovery. These shouldn’t be underestimated; they should give users security and peace of mind.

Thirdly, the vast majority of users want to do a few tasks simply – take note of the Magners TV ad which now singles out flash smartphones that are impossible to use. Nokia has inched towards better usability with the E71 and the 5800, but this needs to be a company-wide goal. Showing photos on the family TV, sharing photos with a small group – all much more useful than the 2.0 guff.

And finally, the managers responsible for putting together the Ovi Store should be put on Nokia’s naughty step – and left there for the Finnish winter.

And Nokia’s richest partners aren’t interested in helping out.

But it’s a radical and interesting offering that merits some serious analysis: certainly, much more than Nokia’s other Dad-at-the-Disco attempts to get down with da yoot.

As we wrote last December – Comes With Music is much more subtle and interesting than most people gave it credit for. There are strings attached, but fewer than with any such previous bundling promotion.

Nokia has been inhaling Chris Anderson’s “Freetardonomics,” and this is what comes out when it exhales. ..

The idea behind Comes With Music is to make Nokia’s handsets more attractive by giving away music – unlimited for one year, which the punter can then keep. Two or three particularly newsworthy aspects have emerged from the formal announcement today.

Unlike MySpace Music, Nokia has signed deals with (real) indie labels. The Beggars Group (representing 4AD, Matador, Rough Trade, and XL), Pias, and Pinnacle (representing hundreds more) have signed up – as well as the big four labels: Universal, Sony, Warners, and EMI. The major publishers are also on board, too, says Nokia. Although MySpace is a site with an “indie” audience, News Corp. seems to think that serving them the music they want is supernumerary.

In addition, Nokia has confirmed that users will be able to keep the music they download in the first year indefinitely (which we knew) and move it around different devices (which we didn’t). However, there is DRM involved, so devices must be “authorized,” or approved against a central authentication server. That might prove too freedom-inhibiting for many. And thirdly, CwM users will be able to exchange songs with other CwM users. Sort of.

The operators snub Nokia

The real deal, as sold through Carphone Warehouse – the bit you sign your name to – looks less attractive than the general concept. While CwM will be offered to pay as you go customers, it requires a £129.95 upfront payment. And for that, you merely get a year old 2G handset, the 5310 XpressMusic phone.

This tells us that the mobile operators have again kicked sand at the Finns, blocking Nokia’s traditional route to the mass market. We’ll see why this is important in a moment.

What it means is that in practice, the business end of Comes With Music is neither “free,” nor particularly cool. Since the big selling point is that it “feels like free” – apparently viewed as necessary to compete with free downloads – you may wonder what the point is. This is more a case of clumsy and slightly deceptive marketing, rather than a lousy product.

So right away, Nokia badly needs more CwM devices and more partners. But without the might of the mobile operators – their ubiquitous high street presence and deep subsidies – free won’t look or feel like anything but an expensive, upfront music subscription program.

Maybe Nokia took one inhalation of Freetardonomics too many? Well, maybe it doesn’t need to offer a free service, just one that’s convenient and cracking value? That’s where CwM’s rival thinks it has the edge.

Omnifone’s rival MusicStation offering is also unlimited – but the idea is that instead of “free,” it’s two quid a week. For this, you can chat and exchange playlists with other subscribers, grab music over the air, and crucially, you’re not tied to any particular handset or manufacturer. It’s won widespread praise for its user interface, and as an instant gratification “personal radio on demand,” people love it. Having used it, I can quite see why.

People paid astronomical amounts for SMS once, because it offered such value. The legal P2P file-sharing services – coming soon to the UK – are also making the same bet: people will pay for something of great value. Just make sure it’s insanely great. Research tentatively offers some encouragement.

Now Omnifone is spreading its wings a little. Significantly, Sony Ericsson became the first OEM to bundle a white-label version of MusicStation under the name PlayNow Plus last week – and unlike Nokia, it’s actually got the operators on board, doing what Nokia wished they’d do for ComesWithMusic and put their hands in their pockets. Well, one operator at least: Sweden’s Telenor will bundle MusicStation at no cost for the first six months. Sony Ericsson also won a concession on how much music you can keep at the end.

Omnifone’s Rob Lewis welcomed the Nokia move in a prepared statement.

“The music lover… will be able to expect unlimited music downloads as a fundamental part of their everyday mobile experience,” he said. Both Nokia and Omnifone both have that part of the proposition right. However, only one of them looks like a real business. And the problem is the ideology of “free.”

People don’t simply value free stuff that they know should come at a price. The fatal missing chapter of Freetardonomics (and its semi-respectable cousin, “Two Sided Business Models”) is that as punters, we just don’t respect stuff that’s given away – and we don’t really respect the people who give it away either. We’ll graze and move onto the next chump with a “free” offer. By contrast, we expect far higher standards of service from something we’ve paid money for. And persuading punters to pay for something they value is what reaps lasting loyalty for a service company or manufacturer.

That’s a lesson from another age of marketing, and one that Nokia in its rush to embrace the Californian Web 2.0 snake oil merchants, seems to have forgotten.

All this can be remedied by turning Comes With Music into an attractive music subscription service, dropping the false “free” claim that makes it look like a bit of swindle (when it shouldn’t), and gently showing the consultants the door. The only question is not if Nokia adds a modest price tag, but when – and turns it into a real business proposition.

©Situation Publishing 2008.