The Phone Giant's Platform
You have just become chief executive of the world's largest mobile phone maker by volume. Your own smartphone software is losing ground fast, your next-generation software is late, and two rival ecosystems are pulling away.
Which software platform should carry your smartphones into the future?
The situation
It is February 2011. Your company has been the world’s largest mobile phone maker for more than a decade. Its phones dominate emerging markets, and its smartphone software ran most of the smartphones sold before 2007. You took over as chief executive a few months ago, the first from outside the company’s home country.
The position is collapsing. A rival’s touchscreen phone, launched in 2007, redefined the smartphone, and your company still has nothing comparable in experience. An open-source platform introduced just over two years ago has been adopted by manufacturers across the industry and has just overtaken your smartphone volumes. Your own platform is hard for developers to work with. Your next-generation platform, intended for high-end phones, is late. Low-cost manufacturers are attacking from below.
What you know
The industry is shifting from a battle of devices to a battle of ecosystems: apps, developers, services and platforms. Two ecosystems lead. One is closed and controlled by a single company. The other is open and used by most manufacturers, who compete on hardware and price.
A large software company with a new phone platform has offered an exclusive partnership. Its platform is well reviewed but has small market share. It offers substantial financial support, services such as maps and search, enterprise relationships and the chance for your company to be its leading partner and shape its direction.
What you don’t know
You do not know whether a third ecosystem can still be built, or whether the market will tip permanently to two. You do not know how fast your existing customers will abandon your current platform once you announce a change. You do not know whether, on the open platform, your company could differentiate enough to sustain its margins.
The voices in the room
Some argue for joining the open platform: it is where the developers are, and your hardware, design and distribution would let you compete. Others warn that you would become one of dozens of manufacturers on the same software, controlled by a company that also competes with you in services. Some engineers believe your own next-generation platform could still succeed if given time. Others want a dual strategy.
What happened
The company was Nokia, and the new chief executive was Stephen Elop. Days before the decision, his internal memo describing Nokia as standing on a “burning platform” leaked. On 11 February 2011, Nokia announced a strategic partnership with Microsoft to make Windows Phone its primary smartphone platform and to phase out Symbian.
Symbian sales fell sharply after the announcement, while Nokia waited for its first Windows Phone devices, the Lumia line, which arrived late in 2011. Windows Phone never gained a large share. In September 2013 Microsoft agreed to buy Nokia’s devices and services business, and in July 2015 it announced a write-down of about $7.6 billion related to the acquisition.
Judging the decision apart from the outcome
The outcome was poor. The process is genuinely debatable, which makes this case valuable. The reasoning for the partnership was serious: on Android, Nokia risked becoming one manufacturer among many, competing on thin margins with Google controlling the platform and its services. Microsoft offered differentiation, money and a central role. The other options carried large risks of their own: Nokia’s own next-generation platform was late, and a dual strategy would have divided limited resources. That is why the grade is Sound rather than Weak. This is a tragic choice in the precise sense: every option sacrificed something important.
The clearest flaw lay in execution, specifically in announcing the end of Symbian before replacement phones were available. Telling customers that a platform will be phased out depresses its sales immediately, a well-known effect that was foreseeable. The decision also underestimated the strength of path dependence: two ecosystems already had the apps and developers, and a third faced a self-reinforcing disadvantage.
What a good process would have weighed
A good process would have weighed differentiation against momentum. The partnership maximised differentiation and gave up momentum; Android maximised momentum and gave up differentiation. It would also have planned the transition to protect existing sales, perhaps by delaying the announcement or keeping Symbian alive longer. Whether any option could have preserved Nokia’s position is unknowable. Some analysts argue Android would have saved it; others point to Android manufacturers who also struggled.
Sources and limitations
Dates and figures are from the companies’ announcements and the related memo on this site. Assessments of whether Android would have been better are counterfactual and contested. The judgement of the process grade is the author’s; reasonable observers grade it lower.
The reveal
Nokia, February 2011
Form an exclusive partnership with a large software company whose new phone platform is struggling, with substantial financial support and room to differentiate.
Backfired
The company chose the exclusive partnership. Its existing smartphone sales fell sharply after the announcement, and phones on the new platform never gained enough share. In 2013 it agreed to sell its phone business to its partner, which later wrote down most of the value.
Sound
Judged on what could be known at the time, separately from the outcome. See moral luck.
The forces pulling at the people deciding
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The new chief executive described the company's position as standing on a burning oil platform, choosing to jump rather than face certain loss. Framing staying put as the certain loss made a risky move feel necessary.
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Joining the open platform meant competing with every other manufacturer on the same software. The partnership offered differentiation, a way out of a crowd of near-copies.
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Announcing that the old platform would be phased out, before replacement phones were ready, made the decision effectively irreversible and shrank the company's existing sales while it waited.
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Apps and developers had already concentrated on two ecosystems. A third had to overcome the self-reinforcing advantage of platforms that already had users and software.
Signals that were visible at the time
- The two leading ecosystems already had most of the apps and developers.
- The partner's platform had a small market share and few apps.
- Telling customers that a platform will be phased out typically depresses its sales immediately.
- On the open platform, many manufacturers were competing on thin margins.
When joining a crowd means losing your edge and standing apart means losing the market, ask which loss you can survive, and do not announce the end of the old before the new is ready.
Follow the thread
Connections
- Loss Aversion and the Pull of the Status QuoHow minds decide
- Why Rivals Become CopiesHow systems shape choices
- Irreversibility and the Value of WaitingHow systems shape choices
- Path Dependence and Lock-InHow systems shape choices
- Moral Luck and Outcome BiasJudging decisions
- Tragic Choices and What RemainsThe one who decides
Where this comes from
Sources
- Nokia and Microsoft, joint announcement of strategic partnership (11 February 2011).
- Microsoft, announcement of write-down related to the phone business (July 2015).
- Risto Siilasmaa, Transforming Nokia (McGraw-Hill, 2019).
Teaching this case? The teaching note has learning objectives, a 60-minute session plan, discussion questions and the key facts on one page.
Shrikant Kumar. “The Phone Giant's Platform.” Decide case, Telos. https://shrikantk.com/decide/the-phone-giants-platform/