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.

Is Google’s acquisition of Motorola Mobility is good for Android, or an expensive mistake for Google, made in a moment of irrational panic. Columnist Matt Asay thinks it “spells iPhone doom“, and he’s not alone. John C Dvorak thinks it’s “pure genius“. This supposes that Google performed a cost-benefit analysis and calculated that the cost of not buying Motorola’s phone and set-top box division was greater than $12.5bn.

I beg to differ. Not all business decisions, made in the pressure cooker, are as rational as they should be.

On Monday, I explained that Google hadn’t bought what it thinks it has bought. Since then some very interesting new detail has come to light. This suggests that the Chocolate Factory really doesn’t understand the value of its proposed acquisition, and snapped up Motorola not merely in a hurry, but a blind panic. Pulling out of the deal may now be sensible – but also costly for Google. The deal carries a $2.5bn break-up penalty, which is smaller than AT&T’s penalty for failing to complete its acquisition of T-Mobile US, but is still a hefty sum of money. Should this happen, Google will have paid almost as much to buy nothing as it did to buy Doubleclick, its largest ever acquisition.

Let’s look at some evidence.

Bidding against The Beast

Two separate reports are suggesting that Google entered negotiations to buy Motorola Mobility only after it heard that Microsoft was talking to the company with view to an acquisition. This may give you deja vu. Remember that four years ago, Microsoft was about to acquire DoubleClick for about $2bn, which a lot of analysts thought was too much money.

Then, late in the day, Google joined the bidding war and sealed the deal for $3.2bn. (Google has only just updated the creaky Doubleclick infrastructure, much of which was a decade old.) So both rivals have form here. Microsoft knows how to raise the price of an acquisition target, and Google has form for paying over the odds for something it thinks it needs, but might actually be able to build better and more cheaply in-house.

Google spurned the chance to acquire up to 18,000 relevant mobile patents by acquiring InterDigital. Reports said the two were in talks last month after Google lost the Nortel auction.

Now these really are worth something: In 2005, InterDigital took Nokia to the cleaners for over $252m in a favourable patent settlement. To get one over on Nokia is quite an achievement – and not something Apple was able to do; Apple’s settlement of outstanding litigation saw it pay money to Nokia. InterDigital’s IP was apparently for sale for $2bn – $10bn less than Google wants to pay for one of America’s oldest manufacturing companies. And there’s a lot less baggage, of course. That would certainly have made sense.

The other area, explored in great depth by Florian Mueller at FOSSpatents, looks at the relevance and therefore competitive value of Motorola’s IP. Florian knows how many beans make five.
Feel the quality, not the weight

Patents are often compared to nuclear deterrents: something you need to have to avoid aggression, but don’t ever want to use, if at all possible. You build up your deterrent by building up IP. But as Florian (and others) point out, the volume of one’s patent arsenal becomes irrelevant once the shooting starts.

Patent litigation isn’t won by weight: the war is not one of endurance, with one side running out of bombs to throw. Patent disputes are fought over small numbers of infringing claims, rarely more than a few dozen patents. So the deterrent value is already gone once you’re in aggressive patent litigation. It is nice to have something to throw back, of course, but it merely has to be relevant. It matters far more how deep your pockets are. Google has deep pockets. So again, InterDigital would have done Google just nicely.

Mueller emphasises some of the issues I raised earlier this week – that Motorola’s IP doesn’t help Google with the current litigation it faces from Apple and Oracle. He adds that this litigation is already well advanced, and will commence in earnest this autumn, before the acquisition has been completed. For legal reasons Google had to agree this week, the IP doesn’t come into play just yet. Mueller has also looked at the relevance of Motorola’s IP, and here it gets really interesting. It is much less scary than the mobile industry thinks.

Motorola’s IP has not deterred Apple from striking.

“Apple truly wasn’t deterred by Motorola Mobility’s grossly overestimated portfolio,” writes Mueller. How does he know? Because Motorola said so, in a move to get a declaratory judgment (a patent-holder’s pre-emptive strike) made last October.

“Motorola Mobility’s portfolio has failed to deter, and it has so far failed to make any meaningful headway in litigation,” he wrote. “Motorola Mobility is on the losing track against the very two companies Google says those patents will provide protection from.”

Wrong patents?

Motorola itself says its patent strengths are in “video compression, decompression and security tech”, which again have little deterrence value, as GigaOM’s Darrell Etherington argues. When the shooting starts, and Google finds itself facing retaliatory patent lawsuits, “video compression, decompression and security” could cause real harm to significant parts of its business. And several analysts have pointed out that Motorola’s IP is already broadly licensed, thus reducing its deterrent value. Doubtless there are trivial-sounding patents from which a resourceful legal team could create a feast, but retaliation simply invites more retaliation.

“Now that I see the break-up fee and have thought some more about the overall situation, I’ve reached the point at which I simply don’t buy the ‘protection’ theory anymore,” writes Mueller.

No, I don’t either.

Buying IP without buying Motorola Mobility was the rational thing to do for Android. It would have made sense. The risk of duking it out in court was risky, but might also have been plausible: patent settlements rarely go into the billions. So losing to Oracle may prove costly, but still cheaper than the acquisition cost and hidden opportunity costs (eg, losing Android partners) of acquiring Motorola Mobility. Google’s risks in many areas have just increased. What it has really done in this ill-advised move is grab the shooting target from the corner of the field and hold it over its heart, saying: “I dare you to shoot now”.

If this strikes you as a rational business decision, then good luck. ®

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

Is everything going touchscreen?

It’s evident that the effects of Apple’s dramatic entry into the mobile business are still being digested. The importance of the user experience is regarded as the difference between success and failure, and merely having a touch screen isn’t enough. Almost four years ago I expressed some reasons [1] why Apple’s entry into the business should be a Good Thing. The established players had become “lazy and complacent, [gone] down blind alleys, or [standardised] on horrible designs and feature sets.” The iPhone should raise the bar for design.

Well, there’s a rare mobile prediction that comes true.

Just as I’d hoped, the iPhone increased the standard of design and ease-of-use across the board. Along the way, not everybody had been able to keep up.

Not just a shiny new thing

Phone designer Nick Healey said he thought the iPhone was the first smartphone that people could actually use. He’d attended smartphone conferences for almost a decade. Until the iPhone appeared, people had always predicted a mass market was 18 months away.

As for the Android UX, views were decidedly more mixed. No one disputes Android’s phenomenal success. It has gone gangbusters throughout 2010, toppling Apple from No 1 spot in the UK in September, on one set of stats I saw presented. Symbian’s share has crashed from 40 per cent to 12.9 per cent – putting it in fourth place behind RIM. But you will probably have guessed that just from walking into Carphone Warehouse at any point in 2010. The figures are monthly, and may reflect an empty product pipeline – since refreshed with the new Symbian^3 devices.

But was the vanilla UI good enough? Some said it was good. Others said it needed the OEM-added layers such as HTC Sense. Others maintained that even with the manufacturer’s UIs it was still too “geeky” for the mass market. Healey gave me an example of HTC’s Sense UI.

“HTCs have a ‘Favorite people’ widget on one Home screen – you swipe up and down to scroll your list of people. Great. But if you tap on it, but happen to pause a fraction of a second before the swipe down – a normal user will be thinking ‘is Fred Up or Down, oh yes, Down <swipe>” – the widget itself vanishes.”

Ken Ken Johnstone from INQ said he really thought it a bit of shame that essential tasks – such as hanging up a call – were harder than they were 10 years ago.

What about other users?

There was much collective chewing of the cud over what would happen to the rest of the market – the 80 per cent of people who don’t buy flash touchscreen bling. This poses a bit of a problem for designers – these are really phones that also do a bit of data. (Or none at all). By contrast an iPhone or an Android phone is a computer that does a bit of phone. Would everyone succumb to the touchscreen? Not if they were only interested in making phone calls.

INQ’s Chat is already a Facebook phone, and bears the Zuckerberg seal of approval

INQ has been linked with reports that it would create “appliance”-style devices based around a particular service, or use. A few weeks ago it was Facebook [2]. More recently rumours have circulated that INQ is creating a Spotify phone. (Hutchison, which owns INQ, has invested in Spotify; INQ’s CEO sits on the Spotify board).

Ken Johnstone didn’t comment, but there’s a precedent. The Japanese market already caters to service-branded or appliance style phones, and a few attendees thought it might be tried here, to unlock a few more pennies of value from punters who are fans of a service, but find the mega-touchscreen devices overkill.

For my part I thought fashions might be cyclical. Today, there’s terrific consumer excitement about smartphones – so much so, that punters are prepared to overlook issues such as battery life and call quality. It’s all shiny and new. But I for one have forsworn the picking up any of the current generation of smartphones – amazing as they are – because of battery life and call quality issues. Not one model has a compelling feature over last year’s iPhone 3GS, and for phone calls I’ve reverted this battered old Nokia [3].

One participant quoted research which showed that 60 per cent of iPhone users never downloaded an app. If people get more stroppy about demanding the smartphones do the basics, things could get complicated (for the vendors, not for us).

Industry attendees agreed that battery life was only going to become more of an issue. The telcos had encouraged us to pick up cheap 3G dongles – only to throttle back when we actually started using them. One mobile network executive said games were the biggest sleeper issue. Games would only become more bandwidth-intensive.

At around this point Healey pulled out something from his pocket, as a reminder that network speed is every bit a “user experience” issue as eye candy.

His other phone was an iPhone, but because it was on the O2 network, and the O2 network sucked, the iPhone may as well be one of these half the time.

A UPG

This is a UPG created by Stuckist artist Richard Conway-Jones. UPG stands for useless palm gadget.

For all the talk of appliances, there are so many everyday things that are still impossible or really hard to do on a mobile. Like shopping, or sharing music legally. A bit more design effort to optimise the phone around one of these (say shopping) might pay dividends.

That’s if Apple hasn’t got to it first [4]. Apple does of course occasionally claim to have invented something that’s been around for ages – like video conferencing. But it also has a knack of cracking on, and implementing something the rest of the industry sits around and talks about for years. And Nokia, yes – I’m looking at you. ®

Links

1. http://www.theregister.co.uk/2007/01/10/iphone_where_is_the_market/
2. http://www.theregister.co.uk/2010/09/23/facebook_phone_again/
3. http://www.reghardware.com/2007/12/20/nokia_breakthrough_phone/
4. http://www.theregister.co.uk/2010/11/02/apple_nfc_again/

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.”

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

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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]

Apple will continue to rule the roost, dictating terms and charging eye-watering prices to punters. The punters will continue to be delighted with Apple, and will clamour for more; while BlackBerry has an ace up its sleeve – probably the biggest mobile sensation of the year.

When the crystal ball lies

But first things first. It’s sometimes useful to revisit why you’ve been wrong, because it can tell you a lot about the future.

Ten years ago, I thought the European advantage of GSM combined with the Nordics’ technological and market advantages would eventually result in a real shift in power away from the United States. Nobody dreamed that RIM and Apple would pocket most of the profits. Back then, RIM was a maker of ugly corporate pagers that depended on a complex and expensive proprietary messaging server. Surely Microsoft and Exchange would soon demolish that advantage. RIM had the added disadvantage of being Canadian.

Meanwhile Apple was a boutique, recovering computer company. Its first foray into mobile devices since Jobs returned came in late 2001, and was widely derided by lots of clever people. The iPod was hugely expensive (almost £600 here in the UK), and only worked with the Mac over Firewire.

In 2002, at the first of what became annual "Apple makes a phone" rumours, I pointed out that integration was extremely difficult – integrating the hardware, integrating the device to play nice with the networks. Creating a balsa wood mockup in the lab was easy, but in the wild mobile phones presented lots of complex challenges, and the Nordics’ experience would win out.

I also thought mobile data services would be hugely popular, with the established players learning from the WAP and walled garden mistakes. They never did, and must now join the queue to implement other people’s mobile-unfriendly protocols, such as the angle-bracket stew on offer from Facebook and Twitter.

The networks’ lack of innovation stands in stark contrast to their GSM glory years. It means they have little option but to deal with Apple and RIM on Apple and RIM’s own terms – this will become increasingly important, as we’ll see. In short, Apple and RIM have succeeded where Nokia and Sony Ericsson failed, in making mobile data popular.

Apple’s still got what everyone wants

Apple and RIM’s success will continue, and Android will march on, I believe – but the rhetoric doesn’t quite sit right. The mobile market is too diverse to see a replay of Microsoft and the PC. The triumphalism behind Android now reminds me very much of the Symbian-Microsoft smartphone wars a decade ago.

Android is new. It hasn’t experienced the problems that Symbian experienced, because manufacturers are throwing new models out of factories as fast as they can, and haven’t really noticed where they land.

My confidence in Apple rests on its comparative advantage in the user experience (UX) – it’s still streets ahead of the rivals in ease of use. If you don’t believe me, try a test with someone who has a new, rival touchscreen phone; invite them to change the wallpaper or the ringtone.

I’ve been actively using S60 for much of the past eight years, and I still had to consult the manual recently (when reviewing the X6) to find out where Nokia has stuffed a particular setting this year. I don’t think this is something a newcomer to BlackBerry or iPhone has ever had to do. Nokia and Sony Ericsson – the two dauphins of smartphones ten years ago – have cranked out some really impressive hardware over the past decade, which often succeeded in spite of the user experience, not because of it.

Android will fail to live up to the lofty expectations because the manufacturers are still at the "Wow!" phase with it, bless them. They think that by simply adopting Android and hiding some of the rougher edges of the UI, success will follow. That’s not the problem, and Android isn’t the solution.

The entire "platform" premise behind Symbian, and the many Linuxes such as LiMo, now looks (with the benefit of hindsight) extremely dubious. The idea was that you’d get a common standard, and a network effect. The idea behind Symbian was that the platform company would do the heavy lifting, and because it’s cheaper across a portfolio range, you could do lots of phones more cheaply.

The Android licensees think that today – but throwing out lots of mediocre products isn’t necessarily profitable. The lucrative end of the mobile device market is a product culture, and it pays to put more of your wood behind one arrow, or just a few arrows; the more you make, the less distinctive each one is. Android doesn’t really do anything to encourage the development and marketing of distinctive products, must-have phones that people talk about in the pub.

The economic consequences of the Android approach are also dubious, as Horace Dediu concisely pointed out. It leads to a low-margin, bargain basement culture.

I agree that the supply of Android devices to the market will increase, at least in the short term, and that the usability of the platform will improve. But demand doesn’t necessarily rise to meet supply. If it did, we’d still be WAP-ping away. Or… and insert your favourite technology failure here.

And in a scrap for the scraps in a bargain-basement fight, the winners can only be the companies with huge economy of scale advantages, which means Nokia, or ultra cheap, corner-cutting no-name manufacturers we’ve never heard of.

The BBM Factor

The perception of RIM has changed enormously here in the past five years. It’s a compulsory corporate item in the US, where it’s to the white collar cubicle dweller what the loin cloth was to the cave man. (I get all my history from Hollywood – in this case 1 Million Years BC; I challenge you to prove me wrong).

But in the US, as soon as the "cabin doors to open" announcement is made, out come the ugly, chunky BlackBerrys. Most of them are still monochrome. In Europe, however, a BlackBerry is now what you buy if you don’t buy an iPhone. (I know many people who have both.)

The BlackBerry isn’t the best voice phone in the world, but neither is the iPhone. It does have a reputation of getting one or two things done very well, and of handling the rest (photos and music, and a bit of web) adequately. RIM never skimped on high quality screens and keyboards; there’s a real assurance to that. As with the iPhone, its high word-of-mouth reputation does the marketing.

The ace that BlackBerry now has is BBM, the UI which for devotees is now the gateway to the entire phone. To see a BBM user in full flow, typically with a wired headset, scrolling away, is quite something. It makes you wonder why the phone giants have never done this properly, instead of focussing on all the cruft that comes with "personalisable Outlook screens". (Actually, the last few years of smartphone UI development pre-2007 were devoted to taking out UI features, and optimising one-handed use, which left the cupboard bare when Apple came along.)

While BBM was originally sold as a business tool, it’s the ordinary people who are now the greatest users. Even only using a fraction of features in RIM’s one minute demonstration video takes you quite a long way.

Ironically, Google sort of had the right idea with Nexus One, which was to make a stand-out product that got people talking. The error was insisting on doing Nexus One itself.

In short, Apple and RIM will continue to prosper because they focus relentlessly on user experience, and because they do one or two things well. This is a Good Thing.

One of the oldest mottos at Vulture Central is Show Us The Money. There’s one even better, I think, which is Show Us The Profits. Are there any? If there are, where are they going? At a stroke, this cuts through huge amounts of hype and puts entire industries (and, for good measure, almost anything WiReD magazine has ever endorsed) in a much clearer perspective. So have a gander at the following analysis of the mobile phone business – it’s quite startling.

Asymco is a one-man analyst company operated by Horace Dediu, a former Nokia manager in Helsinki, erudite and informative with a good eye for history. Earlier this week he looked at the profits of the largest seven manufacturers, responsible for 80 per cent of the phones sold, over the past three years. The trend indicated last year is now quite clear, with two North American companies capturing the lion’s share of the profits. In Q2 2007, Nokia pocketed 63 per cent of profits; Apple and RIM just seven per cent between them. Wind forward three years, and Apple and RIM snag 65 per cent of the profits, largely at the expense of Nokia, but helped by the collapse of Sony Ericsson and Motorola, who are a tiny shadow of their former selves.

There’s a conclusion to be drawn for Google and the Android licensees, thinks Asymco. None of the three leaders are likely to abandon their in-house platforms for Android, it’s either inferior (to iOS) or (as with BlackBerry OS, Symbian or Meego) switching simply isn’t worth it. So Android is left to target the very manufacturers who have been squeezed. And that in turn leaves them with some tricky choices to make. Android is becoming a commodity platform, so they need to differentiate themselves from the rest of the Android rabble: we’ve seen Sony Ericsson, HTC and Motorola invest heavily in their own UIs. But because Android is a commodity platform, this investment isn’t worth it.

Dediu reckons:

“The real challenge is that partnership with defeated incumbents whose ability to build profitable and differentiated products is hamstrung by the licensing model and whose incentives to move up the steep trajectory of necessary improvements are limited.”

Their fate, predicts Dediu, might mirror something quite familiar:

“Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most…the same lack of symmetry with licensed software vendor Microsoft is what led the failure of the same incumbents to make a dent in the industry with Windows Mobile [2003 to 2010].”

Ten years ago, this was always the fate that Symbian dangled in front of licensees tempted to follow the Microsoft path. Look at the PC business, they said, nobody makes any money. (Today, we know the PC business is an illusion, a polite fiction that behind the curtain is funded by Intel and Microsoft themselves.) Symbian’s proposition was that manufacturers could differentiate themselves at the UI level – similar to what Google preaches today. But this never really solved the profits conundrum either. Maybe no platform company can ever offer a solution – today’s bling, high-margin high-end phone will always going to be tomorrow’s throwaway low-margin commodity, and the only way to keep profits coming in is to keep creating cool innovative things people want to buy. Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most. An analysis of the smartphone business seems to put things in perspective quite nicely. Related Link : ‘Android’s Pursuit of the Biggest Losers’ – Asymco

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…