Strategic Options at Nokia

Strategic Options at Nokia Nokia Faces A Major Transition Performance Selling products Selling (parts of) interconnected systems Time ƒ Selling Products ƒ Selling Interconnected Systems ƒ Customers who care about products “on their own terms”: is this the right product for me? ƒ Customers who care about the total system experience: will this connect with the rest of my world? ƒ Build the “best” product ƒ Control the architecture Or Influence the architecture and build the best products within it – Best designed – Lowest cost – Most reliable ƒ Such a transition raises both organizational and strategic questions What strategy should we pursue? Performance How do we execute it? Time Our Agenda: Thinking through Nokia’s strategic options ƒ Mapping the terrain ƒ Competitive views and likely actions ƒ Nokia’s options The Current Ecosystem Market Share Service Provision T-Mobile Orange NTT DoCoMo Vodafone Network Operation Applications Series 60-90 Value Share UI Nokia Motorola Chipset Design TI Symbian Siemens Samsung EMS Players Device Manufacture Chipset Manufacture UIQ Microsoft SavaJe Microsoft Linux Symbian Symbian Symbian Operating Systems Device Design Series 60-90 Vodafone Live!Live! Sony Ericsson Motorola Infineon I-250 and beyond Windows Microsoft Windows Clones and Asians BREW W-CDMA Qualcomm Will the market tip? Tipping dynamics differ with the strength of network effects Products with extensive N.effects Value to consumer Products with “threshold” network effects Conventional product Actual (or anticipated) size of the installed base With no network effects, market share tracks consumer preferences 1 Probability the next consumer chooses to buy A 30% of the population Likes cornflakes Cornflakes gets a 30% share 0 0 A’s share of installed base 1 Tipping with moderate network effects 1 Probability the next consumer chooses to buy from Firm A 0 1 Firm A’s actual or anticipated share of installed base Tipping with large network effects 1 Probability the next player chooses to buy from Firm A 0 0 1 Firm A’s (actual or projected) share of market The world seen from Redmond, WA (1) PDAs Palm Business PCs IBM Linux Servers SmartPhones Sun Home PCs Games Consoles Sony Nokia Symbian The world seen from Redmond, WA (2) Apps Apps Linux XP XP Symbian Cash $ Nokia Cash € The Nightmare: Market Share Service Provision NTT DoCoMo Network Operation T-Mobile Orange Vodafone Applications Series 60-90 Value Sahre UI Operating Systems Device Design Linux Symbian Nokia Device Manufacture Motorola Siemens Samsung Sony Ericsson EMS Players Chipset Design Chipset Manufacture Microsoft Qualcomm Motorola I-250 and beyond TI Infineon Clones and Asians Exploring Nokia’s Options Nokia’s options: Key Questions ƒ Competing as a vertically integrated firm in a systems business – How costly will it be to build every element of the offering? – How aggressively does Nokia need to play? – Will other players embrace MS/Q standards? ƒ Competing as a set of “horizontal” firms: – How many businesses to play in? – How much control to retain over IP? » Software stack & OS? » Chipsets? What has to be true for the fully vertically integrated firm to succeed? ƒ Either Nokia must be able to drive competition – e.g. the Chinese, Motorola, Siemens, Microsoft to a relatively small share – Can Nokia gain this much share this fast? – How will competition react? ƒ Or multiple systems must be able to coexist – Will Nokia be able to set the architectural agenda competing against a MS/Q block? Or will competitors remain fragmented: go to eg Linux/Palm, Symbian etc – If not, can Nokia continue to successfully differentiate itself? Horizontalizing the technology: The key strategic decision The technology is: Open Public Control is: Private Closed Software & Chipsets Software In public domain Those adopting software must use proprietary chipset: no integrated offering: who do others buy chipsets from and which s.w. will those sets be optimized for? Encourages others to build on Nokia IP: keep control of architecture Value capture through superior devices, systems offering enabled by superior knowledge of architecture, low costs, scale & execution Chipset design proprietary Chipset design Licensed widely Will players who buy Qualcom chipsets port Nokia software over MS? Must spinout software Co: but standalone software company may not be credible: Palmsource? Those adopting chipset must use Microsoft, Nokia, Linux or Palm: Why do third parties choose Nokia over others? Will MS let the market tip to Nokia? Software Mostly proprietary (Nokia APIs, Nokia control) A Decision Tree Tip Nokia and its ecosystem win, value preserved for devices, Microsoft <10%, Qualcomm <10%, operators aligned No Tip Nokia leads, market split across standards, some margin foregone for higher share No Tip Nokia OK, market split across standards Market Share Horizontal Profits Tip Nokia marginalized playing catch up, Microsoft wins in OS and apps, Qualcomm wins in chipsets One Vision: Market Share Service Provision T-Mobile Orange NTT DoCoMo Vodafone Network Operation Applications Series 60-90 Value Share UI Microsoft Operating Systems Device Design Symbian Symbian Nokia Motorola Siemens Samsung Sony Ericsson Clones and Asians EMS Players Device Manufacture Chipset Design Chipset Manufacture Series 60-90 Nokia Motorola Infineon I-250 and beyond TI TI Qualcomm