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Nokia 8There’s a Nokia 8 phone vibrating on the desk in front of me. Soon I’ll write a potted review of my experience with the phone. For now, let’s tease you with this: My first impressions are favourable.

Nokia’s new phones use Android. It makes sense. The phone operating system is popular. Android runs on about four out of five phones.

Android’s popularity brings two things to Nokia. First, it means familiarity, at least for most customers. There’s still a little learning to do, but not much. It’s not like, say, the jarring switch from iOS or Android to the Blackberry 10 operating system.

Or the less jarring but still non-trivial move from Android to iOS or vice versa.

It’s about the apps

More important, Android means Nokia phone buyers get access to a huge phone app library. Almost every important phone app is available on Android.

So from day one you can Facebook, Tweet or Instagram to your heart’s content. You can also do important or useful things.

Nokia last phone series used Microsoft’s Windows Phone operating system. The first rebooted Microsoft phone operating system was Windows Phone 7.

As phone operating systems go, Windows Phone 7 was brilliant. We can argue whether it was better or worse than Android and iOS. At the time it was at least on a par with the two more popular OSs for operating a handheld device.

Windows Phone 8 wasn’t quite as good. But then nor was desktop Windows 8 as good as Windows 7. By that time Microsoft lost the plot and added unnecessary complexity and flexibility. This may have appealed to geeks. For the rest of us it made an otherwise simple, elegant user interface harder to understand and use.

Momentum

The fatal flaw with Windows Phone wasn’t technical. It was that it never gathered enough momentum for take off. There were reasons for this. Not least Microsoft charging phone makers for the software. Google’s Android was free.

This lack of market momentum meant fewer app developers got behind Windows Phone. And when they did, they didn’t prioritise updating, refreshing or even fixing apps.

The lack of apps lead to a vicious cycle. It was a reason not to choose a Windows Phone, which made the pool of app customers smaller again. And so on.

Nokia’s parent company sold the phone business to Microsoft. That did little to change things.

Microsoft failed to capitalise on the excellent integration between Windows Phone and desktop Windows. This integration is something that continues to sustain the iPhone even though Macs are far less popular than Windows PCs.

Microsoft failed Windows Phone in many other ways. It failed to invest in development and seed third-party developers — something it did to great effect with desktop Windows.

The rest is history.

At the time Microsoft was still selling phones in reasonable numbers some argued a switch to Android could save the phone business.

That was never going to happen at Microsoft. For a variety of reasons, some good, some bad.

Putting aside politics and pride, there’s one overwhelming reason why Android was a bad idea.

Money

No-one at the time was making money from selling Android phones. Every Android maker other than Samsung was losing vast sums. Samsung was making a tiny margin and didn’t manage that every year.

That’s changed. Samsung now makes better margins on Android phones, although they are still small compared to Apple iPhone margins. Sony trimmed its Android business to the point where it is profitable again. At least two other Android phone makers, Huawei and Oppo appear to be making money selling phone hardware.

How about Nokia’s new owner, can it make a profit selling Android handsets?

It’s too soon to say for certain. As suggested at the top of this post, the phones are more than good enough. They cost somewhere between the middle and premium part of the Android phone market. They should sell.

Nokia passes the product quality test, but that’s not enough. Its Lumia phones were great quality yet didn’t sell in big enough numbers.

Whether they sell in profitable volumes is another question. The Android phone market is beyond saturated. They are still too many brands chasing customers. Samsung, Sony, Huawei, Oppo and a handful of Chinese brands and non-brands fight for every dollar.

Almost every 2017 midrange or premium phone is good. I can’t think of a single bad one. So Nokia’s prospects come down to things like its brand cachet, its distribution channels and its marketing. All these have to hum for the comeback to work.

Nokia Android phones

Nokia and Blackberry showed new phones this week at Mobile World Congress in Barcelona.

The familiar, but faded brands pin their hopes on cheap novelty phones and Android.

Nokia played the retro card with a revamped 3310. It’s an expensive novelty for indulgent spendthrifts. There are also three ho-hum conventional Android models.

A Finnish start-up made the phones under license.

Low-cost

Nostalgia aside, the only remarkable feature is that they all cost well under €299. That implies they could land in New Zealand for less than NZ$500.

BlackBerry’s once prestigious brand and signature qwerty keyboard turned up on the Keyone phone.

Both phone makers are recent converts to Android. That is not going to save them. Gimmicks aside they are ordinary phones drowning in a sea of Android handsets.

At least half a dozen brands are now ahead of Nokia and Blackberry in the Android queue.

nokiaSpark is using Nokia kit to roll out New Zealand’s first 200Gbps wavelength network link.

The link connects Spark’s core network node at Papakura with the Southern Cross Cable Network landing station about 45km away at Takapuna. It was a 100Gbps link.

Powering the link is Nokia’s PSS1830 Optical Transport Network. It uses Nokia’s PSE–2 photonic service engine and two digital signal processors.

Nokia says the PSE–2 is: “A programmable platform with coherent support for 100Gbps and 200Gbps single carrier wavelengths with different modulation schemes”.

The company says this means Spark can get the most bandwidth over the greatest distance.

Spark says it needed to upgrade the link to support the growing data demand from customers as streaming video becomes more popular.

Colin Brown, Spark networks GM says: “Nokia has helped Spark NZ reach a new milestone with our world-class optical transport network, achieving our vision of a data-driven future for New Zealand and underpinning an integrated network including fibre, 3G, 4G, 4.5G, wireless broadband and wi-fi.”

This kind of upgrade involves installing new hardware at both ends of a cable so a carrier like Spark can double capacity without a major capital investment. The new kit effectively lowers the cost per bit travelling through the link.

Microsoft SurfaceTwo years ago Microsoft was staring down the barrel of disaster. Today it looks stronger than it has in a decade.

In April 2013 IDC research reported second-quarter PC sales were 14 percent lower than the year earlier. The firm’s analysts had previously forecasted falling sales. They got that much right, but their earlier forecast said PC sales would drop just seven percent.

Something happened between the forecast and the quarter: Microsoft launched a new version of Windows.

Windows 8 failed to revive hardware sales

Until 2013 the usual pattern was for PC sales to pick up as users upgraded their hardware when a new version of Windows arrived.

Instead, observers saw Windows 8 as one reason for the accelerated drop in PC sales.

Windows 8 was a flop. More than a flop. It hurt the entire PC industry.

Microsoft had banked on PC users shifting away from keyboards to tablet-like touch-enabled Windows.

Fear of tablets

In 2013 this made sense. Tablet sales were growing fast at a time PC sales were falling. It looked as if PCs would be eclipsed by a newer, lighter in both senses, style of computer.

Microsoft came up with a touch version of Windows that included a radical new user interface optimised for fingers, not keyboards and mice.

Along the way ditched the familiar start button and confused everyone with constant yet inconsistent switching between a familiar Windows desktop and the tablet-like Metro interface.

Things got even more confusing when Microsoft had to change the name of Metro to Modern.

Little love for Windows 8

Windows 8 had a tough time from reviewers. That was nothing compared to the market reaction.

Customers hated Windows 8. Or at least vocal customers did. Word quickly got around that this was another version of Windows to skip, like Windows Vista and Windows Me.

If anything computer makers were less happy with Microsoft. Not only had Microsoft put a brake on sales with an unpopular Windows release but it had also recently entered the hardware market with the first generation of Surface tablets.

No margin boost from touch screen hardware

There was something else. Microsoft made Windows 8 for touch screens. In theory the extra hardware needed would put more pressure on customers to upgrade to get all the promised benefits of the new technology.

At the same time it pushed up the average selling price of a laptop.

This might be good news for computer makers if it meant better margins. Typically a hardware maker earns a single digit profit from laptop sales. Higher prices for adding touchscreens might improve margins if enough consumers considered touch to be worth a premium price.

They didn’t. Instead the market was confused about what to buy. When that happens customers often keep their money in their pockets until clear patterns emerge.

Users voted with their wallets

And anyway higher prices for touchscreens meant many users opted to stay with their existing hardware for longer than they otherwise might have done.

It is possible Microsoft’s misjudged move to touchscreen technology paved the way for a surge in Apple Mac sales.

Apple’s third quarter of the 2015 year shows 33 percent year-on-year growth in Mac sales. In that quarter Mac sales were up nine percent while overall PC sales fell 12 percent.

This didn’t happen in a vacuum. Apple makes exceedingly good computers. There’s a halo effect from iPhone sales and let’s not underestimate the brand strength.

Microsoft’s loss was Apple’s gain

Yet despite all this, logic says that Apple has wooed many customers away from Windows. This trend stepped up a gear soon after Microsoft launched Windows 8.

Today Apple’s market share by unit is about 50 percent higher than it was before Windows 8 launched. The company’s share of PC sales revenue and profit is also much higher.

Slow selling Microsoft Surface

Surface sales got off to a slow start.

During the first quarter of 2013 Microsoft sold 900,000 Surface tablets. Apple sold 20 million iPads during the same period and Samsung shifted 9 million Android tablets.

The first Surface models came with a cut-down version of Windows known as Windows RT. Rationally or otherwise the market never warmed to RT. [1]

Microsoft could have done better. It had a long head start. Remember it was Bill Gates, not Steve Jobs, who first pushed the idea of tablet computers.

Remember Slate computers?

Microsoft had been pushing slate-like devices for a decade before the iPad arrived. Sure, those stylus controlled devices were different, heavier and more sluggish than iPads, but the idea was a good one.

To be fair to Microsoft, Surface devices are excellent. [2] If you use Windows, have an investment in Microsoft products and services, they are a great, albeit expensive choice.

The Surface brand has a fiercely loyal following. Yet, I’ll stick my neck out and say if you should look around at this week’s Microsoft Ignite event, you’ll see almost as many Apple logos as Surfaces.

And then there was Nokia…

Microsoft’s other touchscreen blunder was buying Nokia’s phone business.

When Microsoft acquired the Nokia brand in 2013 it was clear what had been mainly a software company was now up to its neck in a strategy revolving around hardware.

Microsoft spun the acquisition as a triumph. That’s not how it looked to anyone outside the Microsoft bubble.

Buying a failed business

Yet here was a phone maker that had, in effect, picked a failed strategy. Perhaps Nokia’s biggest failure was choosing Microsoft’s phone operating system.[3]

Windows 8, Surface hardware, the Nokia acquisition were all strategic moves made when Steve Ballmer was Microsoft CEO.

History paints Ballmer as a general who, having learned how to fight in the last war, was leading his troops into a new style of conflict without any maps.

There’s something in that, but it isn’t the whole story. A lot of people misread the signs at that time.

If we extend the metaphor, Ballmer had the wit to go out and buy his troops modern weapons. He got Microsoft into the tablet and smartphone business at a time most people saw these technologies as the logical successors to personal computers.

Far from simple

Some people still see them that way. I don’t. Things aren’t that simple.

Three years ago the PC market peaked in unit sales and revenues. They took 30 years to reach their peak. The tablet market, at least the first wave of the tablet market, peaked in three years.

At the time of writing smartphone sales still haven’t peaked. Maybe they have and we don’t know it yet.

Either way they will peak soon.

Mature markets

From that point on the hardware market — PCs, tablets and phones — will be a mature market. Sales may grow in line with overall economic growth. There may be excitement as new geographic and submarkets open up. But the glory days are over.

Where things go next is interesting because as computer hardware markets mature, the focus switches from selling devices to software and services. That’s where Microsoft has always been strong.

If you like Ballmer sent his troops to fight the last war, when, in fact, they were always better equipped to fight the next one.

Ballmer’s value destruction

On one level Ballmer’s investments in Nokia, Surface and touch Windows were disastrous. They may have cost the company more than US$10 billion.

Yet those moves helped push Microsoft to the position it is in today. The company is now better positioned to dominate the markets supplying software and services to every type of computing device.

It won’t be easy. Apart from anything else, Microsoft is entering uncharted waters as far as making money is concerned.

Functional, free software

Customers are used to getting a lot of software functionality for free. Microsoft’s biggest rival, Google, operates a free model with customers trading their privacy for software or having to accept advertising as part of the deal.

Microsoft’s strategy is to offer some free services and free tiers of products like OneDrive and Office. Customers pay more to get more or a better experience. Microsoft is generous to consumers while recovering revenue from business users.

Microsoft remains a solid business. It is still the market leader in many areas. The company has remarkable resilience, there can’t be many businesses able to waste $10 billion or so chasing a dead end strategy and still come up smelling of roses.


  1. Surprising given the affordable price and the popularity of Microsoft Office which was included as part of the deal.  ↩
  2. If I didn’t need a solid, laptop-style keyboard for touch typing I’d be happy to use a Surface instead of a MacBook as my everyday computer.  ↩
  3. I don’t buy that theory. Nokia would have been even more screwed if it had gone with Android.  ↩

Steven Elop Nokia Microsoft lumia phones

Things got crazy towards the end of Steve Ballmer’s time as Microsoft CEO. One of his dumbest moves was buying Nokia.

Some say the decision cost him his job. That wasn’t all. Last month the software giant wrote down US$7.6 billion it spent buying Nokia.

Until the acquisition, Google, Facebook, Amazon and, most of all, Apple dominated technology news reports and discussion.

Microsoft relevant

They still do. Yet Microsoft is relevant again. In a way the Nokia episode helped the company get back on track, in part by being the catalyst for a much-needed change of leadership. It also helped the company’s top brass focus on where the business is and where it can go.

From the sidelines Ballmer saw Apple win revenue, margin and respect while Microsoft appeared to drift towards irrelevance[1].

His last roll of the dice was an ill-judged attempt to remake the business in Apple’s image. Hence the talk of “software and devices”.

In itself that was not a stupid strategy. But it ignored Microsoft’s strengths and weaknesses.

Great phones, late to market

Buying Nokia was meant to catapult Microsoft into the phone market. The company’s phones are great. In many respects the Windows Phone operating system is better than Android[2]. I used one for a couple of years, but they were too late.

It then bet on phone and tablet-like touch screens being dominant. It went too far too fast.

Instead of a steady-as-she-goes update to Windows 7[3] Microsoft went in boots and all with tablet-like touch screen technology for Windows 8.

Microsoft disrupted

Microsoft intended the move to be disruptive. In the event it was disrupted.

Buying Nokia was a disaster. Many of the 25,000 employees at the phone maker have lost their jobs. There are empty factories and ghost towns in Nokia’s native Finland.

It didn’t go any better for Microsoft. Almost every dollar it spent has gone down the gurgler.

However, Microsoft was big enough to weather that storm. A new boss, a new direction and a new confidence mean any lasting damage is now safely behind the company.

Destroying value

Microsoft should have known better. Large scale technology company mergers seldom deliver the promised gains. Most destroy value. There are as much about ego or distracting attention with big gestures as about creating fresh opportunities. Savvy investors run a mile when they hear the term synergy.

Microsoft’s Nokia acquisition is the latest in a long string of large-scale technology deals that failed to deliver on promised benefits. Think Oracle and Sun Microsystems.

This year Microsoft wrote down US$7.6 billion on the deal. In effect that means the Nokia mobile phone business is now worthless, a decade ago dominated the market. Blame the iPhone.


  1. There was some truth in this, but CEO Satya Nadella has Microsoft back on the Cluetrain.  ↩
  2. Lots of users are unhappy about the holes in the Windows Phone app store. Too many “must haves” are either not there, woefully out-of-date or poorly supported.  ↩
  3. Windows 7 was itself a rescue job after the horror of Windows Vista. There’s a lot of truth in the idea that every second version of Windows is a clunker.  ↩