Nokia was once the world’s largest mobile phone manufacturer. At its peak in the early 2000s, Nokia accounted for over 40% of global mobile phone sales and had a market capitalization of over $250 billion. However, the company suffered a dramatic decline in the late 2000s and was eventually sold to Microsoft in 2013. So what led to the downfall of this once mighty tech giant? There are several factors that contributed to Nokia’s decline:
Complacency
Nokia was the clear market leader in the mobile phone industry in the early 2000s. It had innovative designs, a strong brand, and great success with its early smartphones. This success made Nokia complacent. The company failed to respond quickly enough to the rapid pace of innovation in the mobile market. While competitors like Apple and Android pushed forward with capacitive touchscreen phones and app stores, Nokia was slow to move beyond its aging Symbian operating system. By the time it partnered with Microsoft to launch Windows Phone devices, it was too little too late.
Failure to capitalize on software
While Nokia excelled at hardware design, it failed to give software the same priority. The Symbian OS struggled to compete with iOS and Android as a platform for mobile apps. Nokia also failed to create any successful mobile services and apps of its own to drive demand for its devices. At a time when the iPhone experience was being defined by apps like Maps, Calendar, and iTunes, Nokia didn’t have compelling software to match those offerings.
Internal turf wars
As Nokia struggled to respond to the competitive threats, organizational infighting hampered its efforts.Different teams within Nokia fought for resources and disagreed on priorities. For example, some executives opposed partnering with an external OS like Android, while others saw it as necessary for Nokia’s survival. These turf wars slowed decision making and strategic shifts at a time when Nokia needed to be agile.
Leadership changes
Between 2007 and 2013, Nokia changed CEOs four times as the company continued to decline. These frequent leadership changes brought shifting visions and strategies, leading to organizational chaos. Without stable leadership and direction, Nokia drifted. Each CEO tried turning things around with major strategic overhauls—moving between Windows Phone, Android, and finally selling the phone business to Microsoft. The constant pivots were disruptive and prevented the implementation of any long-term vision.
Arrogance
Some accuse Nokia’s leaders of arrogance and denial during the iPhone era. They believed Nokia was too dominant and innovative to be displaced by Apple. This arrogant mindset made them downplay the competitiveness of iOS and stonewall emergent threats. Even as they saw their market share decline sharply, Nokia execs were slow to make major strategic changes. They failed to recognize the speed and severity of the iPhone disruption.
The Rise of the iPhone and Android Phones
Nokia’s decline corresponds with the rise of the iPhone and Android smartphones.
When the iPhone launched in 2007, its capacitive touchscreen, desktop-class web browsing, iPod music integration and apps ecosystem were revolutionary compared to existing phones. The iPhone introduced a slick multitouch UI that made Symbian look dated. Android phones like the HTC Dream in 2008 offered a similarly advanced touch UI combined with openness and Google services integration.
Both the iPhone and Android phones leapfrogged Nokia’s products through superior software and services. Where Nokia relied primarily on hardware innovation, Apple and Google focused on total user experience. Nokia got caught flat-footed by the software and ecosystem aspects of the iPhone revolution.
Between 2007 and 2013, global smartphone OS market share shifted rapidly:
| Year | Symbian (Nokia) | iOS (Apple) | Android (Google) |
|---|---|---|---|
| 2007 | 63.5% | 13.9% | 0% |
| 2008 | 52.4% | 16.6% | 3.9% |
| 2009 | 44.6% | 14.4% | 3.9% |
| 2010 | 37.6% | 15.7% | 22.7% |
| 2011 | 19.9% | 18.8% | 46.9% |
| 2012 | 5.9% | 21.0% | 69.3% |
| 2013 | 1.5% | 13.2% | 78.6% |
In just 6 years, Android and iOS erased Nokia’s decade-long dominance in mobile OS market share. As Nokia failed to match the app ecosystems of iOS and Android, developer support and customer enthusiasm shifted decisively toward those platforms. By 2011, Android phones were outselling Nokia smartphones, and its global market share declined below 20%. Nokia’s Symbian devices looked dated and uncompetitive in the face of modern iOS and Android phones.
Microsoft Partnership Flops
In February 2011, Nokia announced a partnership with Microsoft to use Windows Phone as its primary smartphone OS, ditching Symbian and MeeGo. Microsoft paid billions upfront to incentivize and promote Nokia Windows Phones.
This move was meant to modernize Nokia’s software by tapping into Microsoft’s expertise and apps ecosystem. However, Windows Phone failed to gain significant traction. App support and customer enthusiasm lagged far behind iOS and Android. Many customers saw Windows Phone as lagging the competition in features and slickness. Switching to an unproven OS disrupted Nokia’s product roadmap and alienated Symbian’s remaining developers.
By 2013, Nokia Windows Phones had only captured 10% global market share, far below iOS and Android. The Microsoft partnership failed to turn around Nokia’s fortunes.
Acquisition by Microsoft
In September 2013, Microsoft purchased Nokia’s smartphone business unit for $7.2 billion. This gave Microsoft control of phone hardware design and manufacturing. Nokia had now become a captive ally to Windows Phone rather than an independent manufacturer.
Microsoft continued releasing Lumia smartphones under the Nokia brand. But these failed to gain traction, and Microsoft took huge write-downs on the Nokia business in 2015. Windows Phone OS was simply too far behind iOS and Android by this point.
In 2016, Microsoft largely exited the phone manufacturing business, bringing Nokia’s run as a major phone brand to an end. Microsoft shifted its mobile focus to developing apps for iOS and Android rather than trying to compete directly in phones.
Key Takeaways
Here are some key lessons from the decline of Nokia:
– Don’t become complacent and arrogant. Nokia failed to respond quickly enough to disruptive threats like the iPhone.
– Software and ecosystem are critical. Nokia fell behind in creating compelling, integrated mobile software experiences.
– Organizational dysfunction sinks companies. Infighting and lack of leadership stymied Nokia’s attempts to change course.
– Radical strategic shifts rarely succeed. Microsoft deal disrupted Nokia’s product roadmap and wasted time on another failed OS.
– User experience trumps hardware alone. Apple and Google focused on total user experience beyond just hardware specs.
– Platform markets have fierce network effects. Once Android and iOS pulled ahead, developer support and customer adoption snowballed.
– Disruption can happen rapidly. In just 6 years, Nokia collapsed from industry leader to also-ran.
Nokia’s decline offers cautionary tales for other tech giants facing massive market shifts today. It shows how quickly missteps can erode competitive advantages, especially in fast-moving software-driven businesses. Nokia’s rise and fall illustrates the precariousness of tech leadership in times of disruption.