Why Nokia Missed the Smartphone Shift

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0:00Nokia didn't lose the smartphone war overnight.

0:06At its peak, it was the world's largest mobile phone company.

0:10Its devices were everywhere.

0:12At its height, Nokia was a force to be reckoned with in the mobile phone industry.

0:16For millions of people, Nokia wasn't just a brand. It encapsulated the mobile phone.

0:22So, how does a company like that lose its lead? The answer isn't

0:26just competition. It's that the rules of the industry changed.

0:29It was difficult for top managers to understand and accept the capabilities

0:34that Nokia had were no longer optimal in the new conditions.

0:40Phones were no longer just hardware. They were becoming software platforms

0:44built around apps, developers, and ecosystems.

0:47And Nokia didn't just fall behind. It misread where the value in the industry was going.

1:03I'm Arjun Kharpal and in this episode of Built for Billions, we're looking at how Nokia went

1:07from dominating the mobile phone industry to losing its lead in the smartphone era.

1:14At the turn of the millennium, Nokia mobile phones were everywhere.

1:20At its height, Nokia was a force to be reckoned with in the mobile phone

1:24industry. Customers would walk into stores and just say, "I want a Nokia."

1:28Nokia wasn't the market leader to start with. I remember the times when it was just a competitor

1:33and wanted to become even serious to be considered within the market leaders.

1:37In the beginning, it was definitely just a way to try and make products or

1:41ideas and concepts that would make sense and would, you know, become as good as possible.

1:46Just a decade earlier, Motorola dominated the market with bulky,

1:50expensive devices like the DynaTAC.

1:52But Nokia took a different approach.

1:55Its devices were smaller, lighter, with longer battery life,

1:58and designed for everyday use. That shift helped redefine what a mobile phone could be.

2:04Bear in mind, in the early 1990s, all you did with a phone was actually held it to your head

2:08and talked to it. They moved to this transition where we went from a voice interaction with a

2:14mobile phone, to a visual interaction with a mobile phone. The way we use phones today,

2:18they saw the potential of mobile data and internet connectivity. And then they

2:22started to build out this incredibly highly segmented product portfolio catering for

2:28lots of different personas of customers with phones at every single price point as well.

2:32As demand for mobile phones grew,

2:34Nokia made a critical strategic shift. In the 1990s, it became a leader in GSM,

2:40the global standard that allowed mobile phones to connect across networks and countries.

2:46That gave Nokia a powerful advantage, allowing it to scale production,

2:50expand globally, and bring mobile phones to the mass market.

2:54GSM arrives and opens this multitude of opportunities for Nokia. This particular product,

2:59the Nokia 2110, was a device which I think is the genesis of the modern mobile phone.

3:05This device, I think they had an estimate of selling something like 400,000 units,

3:10they went on to sell 20 million. Absolute powerhouse of a device

3:14and also it had the iconic Nokia ringtone on it as well...

3:21NOKIA RINGTONE PLAYS

3:21Which was very, very important.

3:22As bandwidth grew it was possible to send like an image or something like that,

3:27then of course you can start creating the opportunities around it as well. So,

3:30you need to create the need slightly before you can deliver, but also you may need to make

3:35sure that you can produce it so that you can deliver by the time someone wants it.

3:38Nokia wasn't just building phones. It was building a business around volume, efficiency,

3:43and global scale. That strategy reached its peak with devices like the Nokia 3310.

3:49Simple, durable, and affordable - it became one of the most successful phones ever made.

3:54"Introducing the Nokia 3300 series wireless phones."

3:57At that moment, 126 million devices sold, the population of Japan. It

4:03blew people's minds. And I think for many people of a certain age,

4:08this device was their first phone. It's synonymous with what a phone is. And this is

4:13the device that meant that the phone was always going to be a part of people's everyday lives.

4:18If you look at the Nokia design philosophy with the eyes of today,

4:23I would say that it was also very diverse. So,

4:26it was different kinds of solutions and products for different kinds of people.

4:30So, there wasn't an assumption that you know something would be okay for everyone,

4:34rather trying to understand what would be particularly for that user group good.

4:39So, if you had a fashion range for example, it would design-wise be very bold.

4:44Or if you would have something that was more of an entrepreneurial or enterprise solution,

4:48it would be a lot more timid, and not so flamboyant, maybe.

4:52You could see the results also in how the understanding of humans and their

4:57needs go all the way to the end products too.

5:00That strategy drove explosive growth.

5:03Nokia was worth more than $290 billion at the time, making it the most valuable company in

5:08Europe, and it continued to dominate the market by producing dozens of different phones each year.

5:14Devices like the Nokia 1100 became global hits,

5:17selling more than 250 million units and becoming the bestselling mobile phone of all time.

5:22It was a huge shift from having a technical device to actually having something that's part of you.

5:29It became a lifestyle tool, I'd say, when it became more accessible, when more people

5:34could afford to get one and it wasn't only businessmen in a tie who would have them.

5:40And that's where it became more of a way to express who you are,

5:44rather than just a functionality.

5:46Phones were getting more affordable and they were going to the masses,

5:49and they also started to embrace the services that would go around phones.

5:53At their peak, you know, 40% market share, an unthinkable chunk of a

5:58massive market. You had to wonder, well, how could anyone get to that stage again?

6:03Nokia's strength was its ability to build and sell phones at massive scale across every price point.

6:09That model made it dominant, but it also meant Nokia was focused

6:12on hardware at a time when the industry was about to change.

6:17"And we are calling it...iPhone."

6:23In 2007, Apple introduced the iPhone.

6:26When the iPhone came out, Nokia's top management had very good understanding

6:32of its specifications and potential impact on Nokia's market share and it put a huge

6:38pressure on the middle management. Top managers were constantly under the

6:43illusion that Nokia's response to the iPhone is almost ready for launch,

6:49and they therefore didn't make any bigger changes in the processes and structures of Nokia.

6:56It kind of quickly became clear that this was something.

7:00No one could really see it. So, Nokia initially was like, "Yeah,

7:03we get it. It's kind of interesting, but we're going to be okay."

7:06The iPhone wasn't just another handset. It turned the phone into a software platform

7:10built around apps, developers, and a completely different user experience.

7:15Meanwhile, Nokia software, Symbian, had been built for an earlier generation of phones,

7:19and as smartphones became more complex, it struggled to keep up.

7:23They created this operating system together with Ericsson, Siemens,

7:28Motorola and even some of the Japanese, for example.

7:31Symbian was a great success. This cooperation between manufacturers,

7:34all these different brands, but of course ultimately if you're trying to do something

7:37as a committee, and you've got time-to-market pressures, you've got competition pressures,

7:42you want devices to look different, it starts to become very, very difficult.

7:46For years, Nokia had optimized for hardware - design, engineering and scale.

7:51But now the value in the industry was shifting from devices to ecosystems.

7:56Nokia's philosophy of a mobile phone was a device that was totally

8:02utterly optimized for performance.

8:04If you're trying to compress stuff all of the time, as they were with Symbian,

8:07and you've got years and years of code that you're working with, you kind of push one

8:12thing and another thing pops out, and they were starting to find that they were getting lots of

8:16challenges with the operating system because it just wouldn't scale the way they needed to.

8:22Although it took them a step forward, I think ultimately it did hamstring

8:27them a little bit because of the fact that they were always having to work

8:29cooperatively and try and address all the needs of all the different manufacturers.

8:34Software people had very limited visibility to the end customers because top management

8:40would have their visibility to the customer, they had market intelligence who communicated to the

8:46product units, and then the product units sent requirements to the shared software platform.

8:52So, it created a lot of internal complexity and very limited visibility to the end customer.

9:00When the iPhone launched in 2007, Nokia was still reporting strong sales. But over the

9:05next few years, its position as the world's leading mobile phone maker began to slip.

9:10iPhone created so much anxiety among Nokia's board members and top managers

9:16that they practically forbade Nokia people from using the iPhone. They said,

9:23"don't even mention that word in this building."

9:26Stephen Elop was the first one who actually brought iPhones to the product development

9:32and compared them to Nokia phones and was saying look how far behind we are,

9:37and this is how he woke up the organization.

9:40But the problem wasn't just the product it was how decisions were made inside Nokia decades

9:45of dominance had created a culture where bad news didn't travel and critical decisions were delayed.

9:50When you grow really big, it might also be difficult to do really sharp decisions.

9:56Nokia's failure was ultimately about emotional dynamics in decision making

10:02and how they shaped Nokia's technology choices.

10:06In 2011, Nokia made a decisive move. It partnered with Microsoft,

10:10abandoning its own software and betting on Windows phone.

10:15I believe the strategic decision to go for Microsoft and for Windows phone was

10:20because of the fact that Nokia believed that it had to do something different and

10:24believed that it had the skill set internally. They had this very nice

10:28Metro user interface with Smart Tiles which looked quite interesting.

10:33So, initial excitement, people really liked it, but then perhaps that slight

10:37disappointment that once you picked up the phone, the whole app ecosystem wasn't there.

10:42So, all of those apps that we were seeing on Android and iPhone,

10:44although some anchor apps were there, they were just kind of missing.

10:48Windows Phone failed to attract developers and without apps,

10:51it couldn't compete with iOS or Android.

10:54In 2 years, those two ecosystems dominated the market and Nokia's value collapsed.

11:00Nokia underestimated the importance of external developers and how to work with

11:08external developers. So, in iPhone, Android, they really invested heavily to attracting

11:17the developers. Nokia was actually paying to developers so that they would develop

11:22apps for Nokia phones, because no one wanted to do it on their own.

11:27In 2014, Nokia made its final move. It finalized the sale of its mobile phone business to Microsoft

11:33for 5.4 billion euros, bringing an end to its decades of dominance in the industry.

11:39The company that once defined the mobile phone era had exited it.

11:43But that wasn't the end for Nokia. In the next episode, we look at the part

11:46of the business that survived, and how it became the foundation for Nokia's comeback.

11:51The whole future is AI native networks. It's going to be,

11:55we think, fundamentally different than what has been delivered with the prior generations.