Corporate Comeback with IoT: Reinventing Nokia… again

Nokia went from being the global leader in cell phones to a company which has been split up and could have become just another has-been. But the 152-year-old business chameleon could make a comeback over the next few years with a sound IoT strategy.

There are few companies that can manage to reinvent themselves when faced with fundamentally changed market conditions. In fact, companies often die because they fail to recognize life-threatening change until it is much too late to take remedial action. Not so with Nokia. In its long life, it has been many things. It started as a pulp mill, then produced tires, and moved to selling TV sets and other electronic devices. In 1987, Nokia released its first portable phone. The Finnish company was early in the game and got better at producing cellular phones until, in 1998, it became the best-selling cellphone manufacturer in the world.

Old economy: Nokia was originally founded as a wood pulp factory in 1865. The company has been forced to reinvent itself numerous times since then.

It would hold this crown until Apple’s iPhone took pole position during the smartphone revolution. Like all the first-generation cell-phone companies, Nokia foresaw the rise of the smartphone to replace feature phones. The global leader joined with Ericsson, Motorola and Psion to set up a consortium company, Symbian, to build and establish an advanced operating system for smarter cell phones. This didn’t lead to the success the consortium was hoping for and, 10 years after its conception, Symbian was wholly acquired by Nokia in December 2008. At that time, the iPhone 3G, Apple’s second iteration smartphone, had already debuted. Although the introduction of a multi-touch interface was revolutionary, what really ushered in the smartphone revolution was the arrival of app stores for iOS and Android. For Apple, this introduced ‘permissionless innovation’ to the mobile apps market. Prior to this, developers needed good connections with the right people in manufacturing and the mobile operator companies to get their apps distributed. Markets, as a result, were highly inefficient. The app stores changed things. Apps, much more than multi-touch screens, turned iPhones and Android phones into general-interest pocket computers capable of serving an ever-growing number of tasks through the versatile flexibility of software. It is here, where the sad demise of Nokia as a phone manufacturer started.

Keeping dry: At one point in its history, Nokia made its money by producing rubber overshoes.

The longer it took for Nokia to find an answer to this new model, the fewer the choices the company had. Mobile app stores experience two-sided indirect network effects, as economists call it, characteristically this means the more end-users an app store has, the more potential customers there are paying the developers. Consequently, the greater the number of apps developed for an online store, the more likely it is the user will find the kind of apps they’re looking for.

Doomsday duopoly

In short, each of these distinct actors (end-users and developers) creates value for the other. This is why Nokia’s Symbian, and other manufacturers’ mobile operating systems, were pretty much doomed once the duopoly of iOS and Android gained momentum. After attracting a critical mass on both sides, the two principle smartphone platforms created a lock-in for their users who invested heavily in buying apps. Large to mid-range developers had time to support two dominant platforms, but how could they justify supporting a third code set if it only accounted for just a few percent of total market share? Windows Phone, the third smartphone OS, reached around three to five percent in 2014 until it started to decline again. Nokia knew early on that it needed to sell smartphones, too. Had it then moved in the right direction at the right time, it could have done what Samsung achieved in becoming the largest Android OEM, crushing its competitors with sheer scale. Nokia lacked the core competencies to compete with Apple and Google at the software and operating systems levels. The main question in 2010 for Nokia was which OS to choose. Perhaps Nokia’s gravest error at that time was the appointment of Stephen Elop. Elop, a Canadian manager who came from Microsoft, was appointed on September 21st 2010 as the first non-Finnish CEO of Nokia. Under his leadership Nokia effectively became the number one manufacturer of Windows Phone devices – a big fish in a small pond. It was Nokia’s Lumia line that defined the Windows Phone from the hardware side, but no matter how great the Nokia hardware was, its phones were destined to fail. With today’s smartphones, customers are not only looking for great cameras and other hardware features, they want their favorite games and services to be available. Most of these never made it onto Windows Phone because of the low uptake by end-users. What made Windows such a phenomenal desktop business in the 90s, failed Windows Phone in the mobile space. Few end users meant few developers, and vice versa. This is what former Microsoft manager Elop did not seem to understand. If Nokia was to become just a hardware manufacturer using someone else’s OS, and pinning its existence on this strategy, it made no sense to go with the number three instead of with Android, the number one mobile OS by market share.

What Elop missed

Worse was to come. Windows Phone was starting to look like a clear flop for Microsoft as well. What Elop had missed, Microsoft’s then-CEO Steve Ballmer also seemed to overlook. Not accepting the possibility of a lost cause, Microsoft bought the cell phone and devices business of Nokia, and its renowned mobile business became part of the US giant in April 2014, with Elop returning to the Microsoft fold as vice president of its Devices Group. The split in 2014 meant almost everything relating to the manufacture of Nokia’s phones went to Microsoft. What remained was Nokia’s Solutions and Networks Division, along with a big portfolio of patents.

In a voice-first world, your own voice is the API.

_{Brian Roemmele, voice recognition expert}

In July 2014, Satya Nadella, Ballmer’s successor at Microsoft, announced the axing of 18,000 jobs across Microsoft, 12,500 of which were in its new Nokia division. This hit Finland hard. Microsoft had axed 2,300 of its 3,200 employees there and closed a whole plant in the Finnish city of Salo. This added more misery after a loss of 24,500 jobs worldwide announced by Nokia between 2012 and 2013 before the takeover. In retrospect, this was probably a mixed bag for Finland. On one hand, the country lost its internationally acclaimed giant, and with it a lot of jobs. But even before Microsoft’s intervention, Nokia was losing its mobile crown to Apple and Google and its future was in the balance. On the other hand, out of Nokia’s ashes startups rose like phoenixes and Helsinki’s Slush conference has become one of the main events for startups in Europe with more than 10,000 attendees. Some of the Nokia startups have made large exits to companies like Google and Facebook. The largest Finnish exit to date is mobile game developer Supercell (Hay Day and Clash of Clans) which sold a 51% stake for €1.3bn to Japan’s SoftBank. Another popular mobile game maker Rovio, the company behind Angry Birds, is staffed with former Nokia employees at all levels. It became a trend and, since 2009, Finland has seen 200 gaming startups emerge and other companies from abroad have started to take advantage of the country’s legacy of former Nokia developers. For example, Zalando, the large online fashion retailer, opened an office in Helsinki focused on mobile tech in 2015. The next stage in the Nokia story started in earnest in April 2015 when the company announced plans to buy the telecoms equipment company Alcatel-Lucent for $16.6bn. Nokia’s sale of its Here maps service was a direct consequence of this as it sought to bring in the necessary cash. At the announcement of the acquisition, the company said its intention was to build “an innovation leader in next generation technology and services for an IP-connected world.” In other words, Nokia wanted to be a serious contender in the emerging IoT.

Back in business: Nokia’s Impact platform supports 80,0000 different types of devices, enabling them to connect securely anywhere in the world with IoT.

Nokia’s Alcatel-Lucent is the global number two in the mobile equipment market, behind Ericsson and ahead of Huawei. Following the acquisition in 2016, Nokia cut over 1,000 jobs but its R&D division swelled to more than 40,000 employees with a spend of €4.7bn, based on 2014 figures. Nokia’s gamble is that this will position the company as a major force in enabling the IoT, as well as supporting the industry-wide move to the cloud.

Nokia: Heading back to B2C

This strategy is just one part of Nokia going deeper into network technology. Back in 2013, the company bought Siemens’ stake in a joint venture in network equipment for €1.7bn. This may sound like the new Nokia is becoming a B2B company that helps to build the network infrastructure in the background. But in April 2016, Nokia announced it was buying a company called Withings for €170m. Over the past few years, Withings has turned to producing health-focused, connected devices, such as smart weighing scales and activity trackers – very much a B2C company. This returns Nokia to the consumer gadgets business – but as a company also strongly positioned in networks and cloud-based services. With this acquisition, Nokia might be able to build a profitable, health-oriented, connected devices business that is highly integrated on the backend. In June 2016, Nokia brought everything together as a new IoT platform called Impact, an acronym for Intelligent Management Platform for All Connected Things. From launch, this already supported over 80,000 device types, with the company’s broadband and home routers among them. Nokia hopes to persuade enterprises and governments to use Impact for secure management of connected devices. Being a large network equipment provider, Nokia can make a good case for this strategy.

Speeding things up Nokia is working with Vodafone and Tellit on Narrowband-IoT (NB-IoT) technology as a way to make 4G networks better for energy efficient data transfer.

Consider also, that in October 2016 Nokia bought Eta Devices, a small 5G semiconductor company. Eta was working on Etadvanced, a technology that enables the development of energy efficient radio transmitters. This initiative could increase the battery life of smartphones, not to mention the Withing’s smart scales and trackers.

Nokia is also working on NarrowbandIoT (NB-IoT) technology, a way to make 4G networks more suitable for energy efficient data transfer by small connected devices. It is collaborating with Vodafone and Telit on this. Nokia has already run a first trial using NB-IoT over a commercial 4G network and is building a network in Singapore with local operator M1 which is set to be ready by the first half of 2017. Nokia, as a brand name, is also getting back into the smartphone market. In 2016, Microsoft sold most parts of its Nokia interests to Foxconn, the Taiwan-based contract manufacturer of the iPhone and other smartphones, and the rest to HMD Global, a new Finnish company founded by former Nokia employees. Foxconn got the sales, manufacturing and distribution operations. HMD got the Nokia brand. In February of this year, HMD Global will unveil the Nokia 6 smartphone as its frst Android product, and made by Foxconn. Nokia, the company, will get royalty payments for all of HMD’s Nokia-branded phones. In another move, Nokia has trademarked the trademark ‘Viki’ for a new product: a smart, voice-based assistant like Apple’s Siri, Amazon’s Alexa, or Google’s Assistant. Nokia describes Viki as “software for the creation and monitoring of mobile and web digital assistants working with knowledge and combining all data sources into a single chat and voice based interface.”

IoT is still waiting for voice

It was apparent at January’s CES conference in Las Vegas that Amazon Alexa integrations seem to be springing up everywhere. The Internet of Things, especially the smart home branch, has been waiting for voice interfaces that will empower it so it makes sense that Nokia wants to build a voice product. Voice input is an emerging platform and network market and Alexa has 7,000 English-language-based “skills” (Amazon’s term for app integrations) available. This poses the question of whether the cell phone multi-touch/app story will repeat itself or if Nokia will emerge as a major player in the voice-platform world. Nokia’s dilemma is that the dominant narrative in this developing field of voice recognition is the need for a lot of input data to make it work. This data, in combination with machine learning, leads to better outcomes which, in turn, attracts more users to the voice interface which further increases the available input data – it’s a virtuous cycle. Will Nokia be able to compete against Amazon, Apple and Google? Brian Roemmele, a leading expert on voice recognition and smart assistants, is optimistic about Nokia’s potential. He believes that Nokia is quietly getting itself into the right position because the company has realized that devices are getting less relevant themselves in a ‘voice-first’ world. Roemmele doesn’t believe the lock-in for users of Amazon Alexa, for example, will be big enough for Nokia not to have a chance in the market. “Your own voice is the API [application programing interface],” he says, meaning that no one can restrict the use of voice interfaces which may lead to abstraction layers above. Roemmele thinks Nokia, like many companies, has a true shot at this and, if it can succeed at voice, it could see itself become relevant again. In 1992, Nokia established the slogan ‘Connecting People’ – and this claim still matters for Nokia today. It may have to be expanded to ‘Connecting People, Devices and the Whole World’ because this is certainly the goal of today’s Nokia. Whether the strategy will succeed is an open question. Nokia is up against tech industry giants. In Q1 of 2016, it saw a net loss of €613m put down to the acquisition of Alcatel-Lucent. In Q2, Nokia made a profit of €332m but then reported a loss of €125m in Q3. Nokia still has to fight for its existence – but never count out a 152-year-old business chameleon.

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