The company has gone down alarmingly in the last 2-3 years making it a classic B-School case study of how not to run a company. Nokia’s market capitalization has gone down by around 95% from a $100 billion to around 5-6 billion now. There are many reasons which have contributed to this downfall, the biggest of which was the advent of the iPhone which completely changed the mobile phone market on its head. The entry of another tech giant Google through its Android O/S further brought a paradigm change to the smartphone industry. Nokia, the market leader in all segments of the phone market suddenly found itself panting to keep up. It has made many blunders since then and tried numerous new strategies, management changes, job firings but all to no avail.
Like other technology companies, one of the reasons for Nokia’s decline is its focus on research rather than marketing. One of the reasons for the stunning success of Apple, the world’s biggest multinational corporation is its relentless focus on the consumer needs and marketing. Nokia failed on both accounts. The company spent $40 billion on R&D in the last 10 years compared to around $10 billion for Apple. Nokia managed to develop all the new features much earlier than its competitors but it failed to move the products from the lab to the market. One of the reasons is that as Nokia became big and sprawling, internal politics ate more of the management time than focusing on what consumers wanted. The company seemed to play catch up to all the new changes in the market like flip phones from Samsung and thin phones from Motorola rather than focusing on its core strengths. The story of Nokia is like that of many other empires which grow too big for their own good, losing out to external competitors.
More importantly its share in the lucrative high end smartphone market is falling faster. It looks with the hypercompetition in the smartphone market, Nokia has an extremely low chance of regaining its lost profits and margins. It is concentrating on the other segments of the mobile market to defends its units where it is also getting hammered by competition from Samsung, LG in the middle segment and local players at the lowest segment. The main problem is its very unsuccessful R&D which despite its long history in the mobile market and huge amount of dollars spent, has failed to compete against much smaller rivals like HTC. Nokia forms a classic cases study of a Technology Company which failed due to failure of its R&D though Marketing also played a Role.
Nokia Fails in Indian Markets too
Nokia had lost a big chunk of marketshare in 2009 to local competitors like Micromax, Lava, Spice and MNCs like Samsung, LG and others. In 2010, this trend accelerated with Nokia losing an astounding 18% marketshare in the first 6 months of 2010. The company’s marketshare has been whittled down to just 36% from 54% earlier with local Indian mobile makers gobbling up a 33% marketshare. For Nokia, this was another resounding defeat as its Indian Fortress crumbles. Nokia is getting squeezed both on the high end as well as the low end. Local Indian companies are coming up with better features at lower price points and beating Nokia black and blue. Despite huge R&D, manufacturing strengths and an enviable distribution network, Nokia lost the pulse of the Indian customer. The smaller Indian companies like Micromax are receiving Private Equity money to expand faster given their huge success. Nokia clearly needs to change the whole culture and DNA of the company like IBM in the 1990s.
More than seven years before Apple Inc. rolled out the iPhone, the Nokia team showed a phone with a color touch screen set above a single button. The device was shown locating a restaurant, playing a racing game and ordering lipstick. In the late 1990s, Nokia secretly developed another alluring product: a tablet computer with a wireless connection and touch screen—all features today of the hot-selling Apple iPad.
The impact was evident in Nokia’s financial report for the first three months of the year. It swung to a loss of €929 million, or $1.1 billion, from a profit of €344 million a year earlier. It had revenue of €7.4 billion, down 29%, and it sold 82.7 million phones, down 24%. Nokia reports its second-quarter results Thursday and has already said losses in its mobile phone business will be worse than expected. Its shares currently trade at €1.37 a share, down 64% so far this year.
Instead of producing hit devices or software, the binge of spending has left the company with at least two abandoned operating systems and a pile of patents that analysts now say are worth around $6 billion, the bulk of the value of the entire company. Chief Executive Stephen Elop plans to start selling more of that family silver to keep the company going until it can turn around its fortunes.