Nokia's Burning Platform: Which Ecosystem will be Best for Nokia's Customers?

On February 8, Endgadget published a memo that was sent from Nokia’s CEO, Stephen Elop to all of Nokia’s employees. In this “Burning Platform” memo, Elop sets the stage for the announcement he’ll be making on February 11th, 2011, about Nokia’s shift in strategy. I believe that Nokia will jump into the arms of Microsoft (Elop’s most recent former employer) and that this was probably in the wind when he was recruited from Microsoft’s Office division to become Nokia’s president and CEO in September 2010.

Microsoft badly needs a strong mobile device partner to make Windows Phone 7 viable. Since October 2010, Windows Phone 7 has been available on phones from Dell, HTC, LG, and Samsung from 60 carriers in 30 countries. But all of these phone providers also support Google’s Android OS. It may be that Nokia will espouse the Microsoft OS and eschew Google’s Android. Nokia may well walk away from its own software technology to become a Microsoft-only phone supplier. In order to do something this radical, Elop has to convince his Nokia employees to throw away their own intellectual property and to follow his lead into Microsoft’s arms. Hence his already famous “Burning Platform” memo.

What interests me about this move by Nokia is not just the likely Microsoft/Nokia alliance, but the assumption that Elop makes that, in order to be successful in mobile phones, you have to be part of a winning ecosystem.

Nokia’s Burning Platform

In case you haven't seen this memo yet, here's an excerpt of the EndGadget article, "Nokia CEO Stephen Elop rallies troops in brutally honest 'burning platform' memo":

“There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.
…….
In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.
……

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.
…..

Nokia, our platform is burning.

We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Stephen.”

What’s Required for a Winning Ecosystem?

It’s clear that Nokia’s Elop understands the importance of a having a vibrant ecosystem surrounding your products in order to ensure success. He describes an ecosystem as having “not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things…” What Elop doesn’t say (and may not realize) is that creating a vibrant ecosystem also requires that it be a customer-centric ecosystem. A customer-centric ecosystem delivers a consistent, seamless and enjoyable customer experience. It feels like a single environment, not a group of separate entities. The ecosystem partners aren’t just providing applications that work together; they’re also intent on providing a cohesive end-to-end experience for customers. A customer-centric ecosystem self-organizes to deliver both the experience and the results that customers need and want. That’s why Apple’s ecosystem has worked. It’s not just because there are hundreds of thousands of apps in Apple’s App Store, but also because customers love the iPhone experience—the combination of features and functions that makes it an iconic Apple experience. In fact, the weakest player in the iPhone ecosystem in the US has been AT&T—because of that carrier’s network congestion issues for customers in major metropolitan areas. In short, if the ecosystem can’t deliver a great experience to the end-customers who are at its core, then it’s not viable, and it won’t grow. Or, if there are partners who can’t meet the “whole is greater than the sum of its parts” customer experience, those partners will be marginalized. 

Right now, the Apple iPhone ecosystem is winning because it is well-aligned to support the things that customers want and need to do. It fulfills customers’ needs while surrounding us with a high quality, easy-to-use customer experience. The Android ecosystem is not doing as well, in my opinion, because it provides a less compelling and a more difficult-to-use end-user experience, and it is less unified: there are many different versions of Android being promulgated by each of the different carriers/device maker combos. Windows Phone 7 will have to prove itself to be both well-loved by customers and really attractive to developers.

Here are some of the ingredients for success that the Nokia/Microsoft ecosystem would need to have:

From the customers’ point of view:

• All the players I interact with through the ecosystem provide a consistent, pleasant, easy and seamless experience  
• The device and the applications are really easy to use and to understand
• I experience great quality audio, graphics, and video
• There are millions of excellent, free and affordable applications.
• I can create and share my own content and applications.
• It’s really easy to find, purchase and download applications, music, and content
• There’s excellent and open social media connectivity
• I have automatic back up of all my stuff in the cloud
• I have secure, trusted communications

From the developers’ point of view:

• There’s an easy to use Software Development Kit (SDK)
• It’s quick and easy to get my applications and/or content approved and deployed
• There’s a single deployment platform across different carriers and phones; I don’t have to develop apps differently for different phones or carriers.
• There’s an attractive revenue-sharing business model
• My wares are easy for customers to find and use
• It’s easy for us to provide a consistent, seamless experience to customers, just by plugging into and using the ecosystem’s shared services
• We can tell how well our application/content/game is being received because we can see what people are doing (or trying to do) with it.

It’s too soon to tell how much of these requirements the Microsoft Windows Phone 7 environment actually provides. But if you want to read a thorough review of the WP7 customer experience, I recommend Endgadget’s review. Here’s author Joshua Topolsky’s bottom line (as of October, 2010):

"…there's a lot to like or even love in WP7. Microsoft has done an outstanding job with lots of aspects of this UI, particularly when it comes to navigation and ease of use -- but there are holes here as well. It still feels like the company is a good year behind market leaders right now, and though it's clear the folks in Redmond are doing everything they can to get this platform up to snuff, it's also clear that they're not there yet.

But that isn't -- and shouldn't be -- a deterrent to taking a close look at the handsets being offered. Microsoft isn't walking away from Windows Phone 7 anytime soon, and the company has created an incredibly promising base set of features to build off of. With terrific Zune and Xbox Live integration, a fast and smart method of getting around the OS, great Office and email experiences, and a genuinely beautiful and useful user interface, Microsoft has definitely laid the foundation for the next several years of its mobile play. Now it's time to get the upper floors finished.”

Joshua Topolsky, EndGadget

There's an update to Joshua's review here.

Perhaps a partnership with Nokia is just what Microsoft needs to get the “upper floors finished.” But what about Nokia? Will the innovative employees who have made Nokia what it is today be willing to abandon their brainchildren and follow Stephen Elop as he jumps off the burning Nokia platform into Microsoft’s lifeboat?

Comments

[Scott Jordan]

Patty, following our Pioneers discussion of Elop's remarkable memo, one thought burst on me as I was driving yesterday: the memo was in English.

I believe this detail is important in considering the final question you ask, "Will the innovative employees who have made Nokia what it is today be willing to abandon their brainchildren and follow Stephen Elop?"

For a newly-arrived, foreign-born executive (Elop is Canadian, not Finnish) to embark in his maiden rhetorical voyage in a company in his own language rather than that of the vast majority of his employees is either rude or a signal. I expect Nokia's organizational center-of-mass will shift Westward, either because Elop grapples it there or through attrition of Finnish employees whose contributions to Nokia's success have been denigrated and their culture subtly dissed by their new CEO.

It's a dangerous but probably necessary game that Elop is playing. He first must break the bucking bronco of the organization and bring it under his firm control. Hence a turnaround CEO's first message must be a harsh one. But this memo may go beyond that: Certainly, he needs human capital. He may be signalling that he's not looking for it in Finland.

One thing is certain: Elop's memo will be enshrined in the annals of change management forevermore.