Sunday, June 19, 2011

The Nokia Way vs The Microsoft Way

Has Nokia been hit by the "Osborne Effect" with its transition from the Symbian smartphone OS to Windows Phone 7
One false step and you're dead. Or worse: You're the walking dead. This is what awaits CEOs who mismanage a product transition and allow the existing revenue stream to run dry before the promising new product shows up.
This is known as the Osborne Effect, named after Adam Osborne, the prolific inventor, entrepreneur and writer, and founder of the eponymous Osborne Computer Corporation. In 1981, Osborne introduced a machine that was, in effect, the first commercially available portable computer, the Osborne 1:
Sales took off, reaching 10,000 units per month. This might not sound like much by our smartphone standards, but 30 years ago it was a truly phenomenal success.
This wasn't enough for our fearless entrepreneur. In 1983, he told anyone who'd listen: Just you wait! I have two superior models in the works, the Executive and the Vixen.
Customers took his advice. They stopped buying the current model and waited ... and waited. In 1985, the company ran out of cash and went bankrupt.
Hence the verb: To osborne one's product is to kill the current model, and its revenue, by prematurely announcing a more attractive replacement.
(Some, such as the redoubtable Robert X Cringely, contend Osborne wasn't osborned, but merely outcompeted. I was at Apple in Cupertino at the time, and have a clear recollection of our collective gasp of surprise when Adam Osborne started touting the unavailable products that killed the Osborne 1 revenue.)
With this in mind, let's turn to Nokia's latest wave of troubles: the transition from its old Symbian smartphone OS to Windows Phone 7. (We'll also look at Microsoft's very cautious approach to its own perilous transition to the next generation of Windows and to another attempt at securing a position in the tablet market.)
Last Monday, Nokia issued yet another profit warning. Blaming "competitive dynamics" and "pricing tactics," the company declared its previous revenue forecast invalid and shed doubt on its ability to generate a profit in its Devices business. It also flatly told Wall Street it would no longer "provide annual targets for 2011".
Translated into plainer English: We expected Android and Apple to take the high-end business while we're working with Microsoft on our Windows Phone 7 devices, but we were surprised by a the swarm of low-cost Android phones. We don't know how bad it will get, but ... Just you wait! ... we have "increased confidence" in our ability to deliver Microsoft-powered Nokia smartphones sometime "beyond October". And we might be working on a MeeGo device as a "research project".
The stock peaked on 8 February, just days before the 11 February announcement of the MicroNokia "strategic partnership". Summarising the corpospeak:
* Nokia adopts Windows Phone 7 as its smartphone OS;
* Nokia gets unspecified customisation and financial advantages;
* Microsoft gets the world's largest mobile phone maker as an OEM.

And with the announcement, CEO Stephen Elop osborned Nokia. Customers and, more important, carriers were told the legacy OS was dead and a Nokia Windows Phone 7 device was 10 months (or more) away.
No one on the street believed Nokia's assurances that the company's "traditionally strong carrier relationships" would guarantee continued sales of Symbian devices. The 31 May profit warning confirmed investors' fears. Nokia had run straight into an army of handset makers who offer a wide range of devices powered by Android, a platform with a virile present and an exciting future.
In the now famous 8 February Burning Platforms memo, Elop tipped his hand. Yes, he makes a valid point: This isn't a platform war, it's an ecosystem war. But he also makes two crucial mistakes: He blames Nokia employees ("we have lacked accountability and leadership"), and then he implies that Nokia is open to all possibilities as they enter a domain that is forced upon them by the competition ("Our competitors ... 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").
A mere three days later, Elop stands on stage with his former Microsoft boss and tells the world that Nokia has joined the Microsoft ecosystem. Elop's puzzling and undiplomatic behaviour doesn't sit well with observers and drives some to conspiracy theories.
How about another approach? Make the Microsoft deal, work on a couple of devices, and keep it a secret. Even, perish the thought, subcontract development to an enterprising Asian OEM in order to ship the next generation devices ASAP. From the memo:
"Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, 'the time that it takes us to polish a PowerPoint presentation'. They are fast, they are cheap, and they are challenging us."

When everything is ready, announce it and ship it with appropriate bombast.
In the meantime, rumours would have swirled: What are they up to? A new version of Symbian? A MeeGo tablet? We all expect a new CEO to kickstart new and exciting projects.
So what really happened?
I think the explanation is simple: Microsoft demanded an immediate announcement. They needed a PR coup. With no Phone 7 OS sales to speak of, Microsoft had no revenue to lose and the perception of adoption by the biggest cell phone maker to gain. (After the NokiaSoft announcement, Microsoft got an instant boost of phone credibility.)
How did Ballmer convince Elop to expose Nokia to the Osborne Effect? Was it the "worth billions" concessions? Given the depth of the hole Nokia now finds itself in, the number must have been a large one.
Contrast this with Microsoft's careful previews of Windows 8. You can see a "canned" demo here, and, from last week's D9 Conference, a "live" version here. Very nice UI, clearly drawing inspiration from the innovative Windows Phone 7 work.
I also encourage you to watch
Steven Sinofsky interviewed on stage by Walt Mossberg and Kara Swisher (video here).
Beyond the slick demo, what do we hear? Continuity.
Sinofsky, the Windows Division President, repeatedly reassures us:
Underneath Microsoft's new touch-enabled tablets, we give you the tried and trusted Windows that hundreds of millions of customers rely upon: Office apps, networking, an approachable file system (a subtle dig at the iPad), a mouse and keyboard if desired. Everything.
This gets roundly criticised by MacWorld's Jason Snell and Daring Fireball's John Gruber. They see Windows 8 as fundamentally flawed because it hasn't learned the from-scratch lesson of the iPad. Windows 8 brings old baggage into a new world. It'll be complicated, slow, and eat batteries while the "fresh" iPad is simple, pristine, fast, fluid and offers great battery life.
As expected, our two critics are taken to task by Jared Newman:
Microsoft doesn't have to copy Apple's strategy for Windows 8 to succeed. In fact, copying Apple would be a fatal mistake. Instead, Microsoft should be charting new territory with Windows 8, and that's exactly what's happening. What Microsoft demonstrated on Wednesday is exactly what I want in a computer - a lightweight tablet UI that's meant for casual computing and a powerful, classic Windows that allows me to work. I'm tired of carrying around my iPad and laptop together. I want one device that does everything.
This is exactly the Microsoft party line: The best of the PC and the tablet in one device.
I have sympathy for both sides. Yes, Microsoft could do well by following the iPad lead ... but there's no way Microsoft can take the plunge into a really different platform. (They did it for Windows Phone where there's no legacy business to protect, but they can't with the "real" Windows.)
Microsoft knows better than to osborne itself. The company has consistently stuck to its "Windows Everywhere" mantra and, no less consistently, has made sure that every new version of Windows offers strong backwards compatibility. It hasn't always work perfectly - see Windows Me or Vista - but the Windows + Office business has been Microsoft's golden goose for decades.
For Microsoft, there is no post-PC market. As Ballmer insisted when asked about the iPad: It's a PC - minus the mouse and keyboard!
Grand strategic considerations aside, there is, of course, the small matter of implementation - and what Android and iOS will do next. Sinofsky has promised more details at Microsoft's Developer Conference this coming September, we'll have to wait until then.
And while we wait, we'll watch how Elop gets Nokia out of its self-inflicted osborning.
Asymco's Horace Dediu isn't optimistic about Nokia's prospects. In a recent post titled "Does the phone market forgive failure?", he lists the handset makers who "hit the rocks", in terms of profitability. None seem to have recovered. Let's hope Nokia is the exception.

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