'Burning' memo from Nokia's Elop sets stage for OS shake-up

Nokia must go through radical changes to flourish in the smartphone sector, the CEO says

Nokia CEO Stephen Elop has compared the company's current situation to standing on a burning oil platform in the North Sea. Nokia must decide how it is going to change its behavior, or perish in the flames as its platform burns, Elop wrote in a memo to employees.

Two Nokia employees who asked that their names not be used confirmed the existence of the memo to IDG News Service. The website Engadget published what it says is the full contents of the memo, which pulls no punches about Nokia's dire situation and past failures.

Nokia hired Elop, its first non-Finnish CEO, in September 2010, luring him away from his job as head of Microsoft's Business Division. The company's board was widely seen to be searching for a turn-around CEO.

The memo doesn't explicitly say that Nokia will get rid of existing software platforms and adopt either Windows Phone 7 or Android when it announces its new strategy on Friday, but the writing is on the wall, according to analysts. Elop includes that possibility in a short list of alternatives he sees for Nokia.

"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," the memo says. "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, catalyze or join an ecosystem.

"This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time."

The memo opens with Elop recounting a "pertinent story" that is an obvious reference to the Piper Alpha oil platform explosion in the North Sea in July of 1988. A man awakes to a loud explosion and finds the "entire" platform on fire and must make the awful decision to either to be consumed by fire or plunge into the "dark, cold foreboding" waters. "We too, are standing on a 'burning platform,' and we must decide how we are going to change our behavior," according to the memo as published at Engadget.

Elop goes on to say that Symbian has proven to "be non-competitive in leading markets like North America." Also, the company is finding it difficult to rapidly develop new products with the latest hardware features. "As a result, if we continue like before, we will get further and further behind," the memo says.

Elop further seems unhappy with the progress made on MeeGo, the company's smartphone OS, which was announced last February and is supposed to compete with Android and Apple's iOS in the high-end market. But at Nokia's current development pace, the company might have only one MeeGo smartphone out by the end of the year.

If that's the case and the company doesn't embrace a different OS, it may as well pack up, Pete Cunningham, principal analyst at Canalys, said.

Nokia's alternatives are to adopt Microsoft's Windows Phone 7 or join the Android camp, while getting rid of MeeGo or Symbian, or both, over time.

Microsoft has done a good job of developing an OS that can compete with Apple's iPhone and Android, Cunningham said. That it hasn't seen a spectacular take-up is partly due to the fact that it isn't the priority for any vendor at the moment. Samsung, LG and HTC all focused on Android ahead of Windows Phone 7.

"It is in Microsoft's interest to attract Nokia, because it is the largest vendor in the world," Cunningham said, adding that Nokia has "a fantastic distribution and channel network, and great production capacity."

Carolina Milanesi, research vice president at Gartner, agreed that a Nokia-Microsoft partnership makes more sense than Nokia pairing with Google. While Google might be happy to join with Nokia to offer good hardware at lower prices, such a partnership makes less sense from a services perspective, she said.

Linking up with Microsoft wouldn't solve Nokia's problems immediately because Windows Phone 7 sales haven't been great. But a relationship with Microsoft would be a less drastic and risky move than a partnership with Google.

However, one issue with Microsoft is that it has tight control over its smartphone OS, which might not appeal to Nokia. But maybe Nokia could obtain concessions in that area, helped by Elop's history with Microsoft, according to Cunningham. There are also other connections: Microsoft's search engine Bing uses maps from Nokia-owned Navteq, he said.

And while Android may be the more popular smartphone platform than Windows Phone 7, if Nokia chose it, it would be two years behind the competition in terms of development experience, according to Cunningham.

Also, Nokia would have to develop its own addition to the Android user interface to differentiate itself. But it's doubtful it would be any easier for Nokia to develop a good user interface on Android, compared to Symbian, which has been held back because of its subpar UI, Milanesi said.

Whatever Nokia decides to do, there is no easy fix for the company's current situation, according to Milanesi.

One thing working in the company's favor in the immediate future is the timing of its strategy announcement, just before the Mobile World Congress opens in Barcelona on Monday. With the announcement Friday and then a scheduled Nokia press conference on Sunday, the focus will be on Nokia, which hasn't been the case for a long time, Cunningham said.

When Nokia announces its new strategy on Friday, it will be the start of a huge effort to transform the company, Elop said in his memo. He ends on a positive, encouraging note, saying that the man on the burning oil platform seized the opportunity to change his behavior "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."

Send news tips and comments to mikael_ricknas@idg.com

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Mikael Ricknäs

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