So an era duly came to an end when 99% of Nokia’s shareholders agreed to the sale of the devices business to Microsoft (though there are still some regulatory hurdles to leap). The approval was hardly unexpected of course, but it still carried a heavy weight of significance for the mobile industry, epitomizing the shift of mobile power from hardware to software platforms, and even from Europe the US. Of course, Microsoft is far from guaranteed to benefit from either of those shifts. Like Google, it has decided that it needs actual devices to strengthen its mobile OS and services, but success will still depend mainly ‘ as Nokia learned too late ‘ on consumer and developer love for the software platform.
Ironically, having blundered many times in mobile and web software, Nokia should see its highest growth, among its remaining businesses, coming from this very area, in the shape of the Here mapping business (see separate item). And even on the infrastructure side, NSN has recognized that future success will rely on reinventing itself as a software company, as mobile broadband hardware commoditizes, and differentiation shifts to network intelligence and, in future, SDN.
In fact, Nokia has not been the lame duck in software that many have portrayed. It has a long history of innovation in mobile user interfaces and applications, and this continued even in the Windows Phone era, notably on the Asha ‘smart featurephone’ platform, with its resource efficient, cloud-based browser. The penultimate CEO of the unified Nokia, Olli-Pekka Kallasvuo, will be seen by historians as the leader who failed to build on the foundations laid by his illustrious predecessor Jorma Ollila, and paved the way for Stephen Elop, the Windows Phone deal and ultimately Microsoft ownership.
However, Kallasvuo saw the need to become a mobile web and software company years before many rivals ‘ certainly long before Samsung, which is only now articulating software goals which Kallasvuo was outlining five years ago. He engineered the Navteq acquisition, hugely expensive at $8.1bn, but the foundation of Nokia Here. And he approved a host of innovations in Linux, app stores, widget-based UIs, cloud services and so on. The mistakes were mainly in the hardware that should have showcased these developments. Hardware was Nokia’s strength, but it also led to an inbuilt pride which also afflicted Motorola, and made these two venerable icons unwilling to learn from upstarts like Apple. Nokia did not accept the touchscreen quickly enough, and as long as it failed to do that, all its new inventions were out of step with new consumer expectations. Nokia failed to integrate its software and hardware innovations, and while its control over its supply chain was legendary, it did not have the same ability to steer its entrenched channels and internal structures so flexibly in the direction of the web.
Yet Nokia retains a belief in its own inventiveness. The third element of the rump of Nokia is the R&D and patents arm, which should ‘ given the firm’s rich store of IPR ‘ be a significant profit engine, especially as the big contributors to 3GPP efforts get more aggressive about milking their patents for cash rather than just influence. Nokia already has a licensing deal with Microsoft, of course, and free of the need to license technologies for its own devices, it will be freer to assert its IPR against its former rivals. Considering it has been one of the few firms to score a decisive win against Apple in this respect, other smartphone vendors should be worried.
So should infrastructure rivals, though these players often have plenty of IPR to cross-trade. However, they are all redoubling their efforts to monetize these assets, as their traditional revenue streams come under pressure. Ericsson created a new organization around licensing last year and this week, ALU’s CEO Michel Combes said the firm was on track to meet its target of generating €100m ($135m) a year from licensing patents, many of them originating with Lucent’s Bell Labs R&D powerhouse. He commented: ‘There’s a strong, solid portfolio of patents within Alcatel-Lucent. It’s fair to say that it probably has not been a strong area of focus and monetization in the past. That doesn’t jeopardize the quality of our patents.’ The company initially tried to use a third party, RPX, to manage its licensing but has now brought the activity inhouse. In the third quarter, it raised €28m ($38m) from patents, though it is still well behind Ericsson, which is estimated to take in up to €800m ($1.08bn) a year in this way.
So there are future markets to go after for these old giants, and Nokia, as it loves to remind people, is a master of survival and reinvention, coming through world war, occupations, civil conflicts and near-bankruptcy, and with a 150-year history of business transformations. Against that backdrop, this latest dismantling looks like just more of the same for the company, and for Finland, propelled to an unlikely world leadership in cellphones by the accident of Nokia’s birth as the offspring of a rubber firm, a paper mill and a cable works.
These were the company’s founding businesses and the firm was a century old before it produced its first electronics product, a pulse analyzer for use in nuclear power plants, in 1967. It launched its first mobile phone in 1981 and it was not until 1992 that then-new CEO Olilla made the crucial decision to concentrate only on telecoms and close or sell off all the other host of businesses. Handsets, then, may be seen as merely an episode ‘ if a particularly successful one ‘ in the history of Nokia, while its defining characteristics have been adaptability and calm under crisis. It remains to be seen whether those will persist in its latest format, but it is certain that it has succeeded in transferring its greatest challenges to Microsoft, the biggest offload of headaches since it persuaded Finnish Rubber Works to rescue its electricity generation business all the way back in 1922.