Chapter 1

Risto

Listen: Risto Siilasmaa was excited about my phone. He had been quiet and calm as I set up my things across the table from him, but as soon as I absently pulled the phone from my pocket he became quite animated.

“What?” I asked absurdly. “My phone?”

“Yes, the N900,” Risto answered, his eyes glancing up to mine before dropping once again to the thick black device in my hand. “The operating system in that was supposed to become MeeGo for all our smartphones. That was before we moved to Windows Phone.”

I was embarrassed, as if I had unthinkingly mentioned babies to someone who just had a miscarriage. Risto didn’t seem upset, though. He was quite interested in my phone. I hadn’t bought the N900 because of the operating system or Nokia’s smartphone strategy or anything of that sort. I bought it in early 2010 because it was purportedly a glimpse of their future. At that time I was still loyal to Nokia. It was as simple as that.

To me, a mobile phone was a simple everyday object. It was something a person carried everywhere, to work or out to dinner, from bedroom to kitchen. It was like keys, a wallet, or eyeglasses. It was a part of normal life and completely unremarkable.

It was different for Risto. He had been elected to Nokia’s board of directors a couple of years previously and had been involved in the fierce internal discussions about the future of their operating systems. Without thinking, I had pulled a device out of my pocket which brought all those memories back to him.

“Ah, yes,” I said, turning the phone over in my hand, looking at it anew. “I like it. It took a while to get used to, but now I really like it.”

Risto nodded. I didn’t tell him I had needed help from a Nokia employee to learn how to put the N900 on silent mode, or that I was disappointed in the dearth of good applications for it. But I wasn’t lying to him. I really did like the phone. I was so fond of it that I kept using it for years, long after it had become obsolete. It was a museum piece, an object of ridicule for technophiles who always had to have the newest and hippest and best. It did what I wanted so I used it anyway. So?

This meeting with Risto was in late August 2011, some six months after Nokia’s chief executive officer Stephen Elop began to move their smartphones to the Windows Phone ecosystem. I wasn’t meeting Risto to talk about Nokia, though: I was interviewing him for a book I was writing about something else. But here was an opportunity to engage him. At that instant in time, he was clearly more interested in my old Nokia N900 than my new book.

“I like the full keyboard,” I told him, wishing I could think of something more profound to say.

I laid the phone on the table and pushed it equidistant between us. I wasn’t handing it to him. I just wanted it between us so we could both look at it. But Risto leaned over the table and picked it up.

This was a breach of etiquette, because you are not supposed to touch someone else’s phone without their permission. The mobile phone has become an intimate, personal thing, almost an extension of the self, and it is impolite to intrude upon another’s private matters. I was surprised that he touched it, but I wasn’t troubled. People had a personal relationship with their phones because, in part, of what Risto’s company had accomplished over the years. I figured if Risto Siilasmaa wanted to touch my phone, Risto Siilasmaa could touch my phone.

In a way, it was as if the intimate and private connection was not between the device and me, but between the device and Risto. It was like I was dating his ex-wife and we ran into him in a restaurant. Even though I was now with her, the glances between him and his ex-wife would communicate a deep past and private relationship I couldn’t begin to understand.

Risto didn’t open up the N900’s keyboard with that satisfying industrial thunk I enjoyed so much. Sometimes I did it just to hear the sound and watch the screen light up, but Risto didn’t bring the device to life. He just idly turned it over in his hands, looking at it from different angles with a wry smile.

At that moment, I could have asked Risto what he was thinking. Only he and I were in the room, his public relations face was gone, the privacy walls around him had crumbled. He was peculiarly contemplative. If I had asked him, he might have said something very revealing. Who knows? But I couldn’t ask him. It was a private moment for him, and I was content to merely witness it. I might have received a quote or an insight from Risto if I had interrupted his reverie, but I would have lost that tiny moment to watch him think and remember as he looked at my old, out-of-date phone.

It was over within three seconds. He set my phone down on the table and pushed it back to me. He leaned back and pulled his arms close to his body. He was finished with the phone, done with his private thoughts, and ready to move on.

“Tell me about your book,” Risto said.

 

Almost exactly two years later I watched Risto Siilasmaa once again. This time he was sharing his private emotions not just with me, but with the whole world. It was September 3, 2013 and Risto was about to give a press conference to talk about the sale of Nokia’s handset business to Microsoft. He was tired and grim, and his characteristic crooked smile was absent.

Much had changed for both of us in only two years. Risto had replaced the irreplaceable Jorma Ollila as chairman of Nokia’s board of directors and now bore an enormous responsibility. As the transaction was being completed he was interim CEO. Risto was the steward of billions of euros, thousands of careers and millions of memories. The book he had helped me with had been published in Finland to generally positive reviews, and I had written a novel which was about to be published in America. But there was something else coming that once again brought my memories back to Risto and the time he had thoughtfully held my phone. For the past several months I had been working on my third book. This one was about Nokia.

“Like most entrepreneurs I have gone through a lot of different phases in my career,” Risto said during the press conference. “And it is clear that this has been the most complex decision I have ever been involved in making. This transaction makes all the sense rationally, but emotionally it gets complicated.”

I agreed with him on both counts. Microsoft would pay €3.79 billion for Nokia’s Devices & Services business. Nokia would keep most of their valuable patents, and Microsoft would license the relevant ones for another €1.65 billion. Separately, Microsoft would offer Nokia €1.5 billion in cheap financing. If you run through discounted cash flow calculations – as I have a habit of doing – Nokia and their owners seemed to be getting a good price compared to their value in the open market. It was a rational transaction.

But emotionally it was indeed complicated. Nokia meant so much to so many people. Nokia was deeply important to the entire country of Finland, to many of the people who used their devices, and to the thousands of people who worked for the firm. I had known this for years, but the true extent of people’s emotional attachment to Nokia was only becoming apparent to me as I interviewed them for the book.

Some people I had talked to had been in the lofty upper reaches of Nokia’s hierarchy. Others held entry-level positions. All of them were invaluable to me so I could learn about what happened, when it happened, why it happened, and other pieces of dry information. But what I had not initially expected is the emotion that came out of them. They spoke of the joy and triumph of the good years and the terrible pain of the bad years. They told me of friendships and practical jokes with smiles on their faces, and of bitterness and fear with stony thousand-yard stares. I watched current and former Nokia employees weep, laugh, and bang fists on tables. Sometimes they praised me for my interpretation of events, and sometimes they yelled at me because of something touchy I asked. It all happened, and don’t think it doesn’t affect you.

Very quickly I learned to change my approach during interviews. At first I had been stoic and business-like. I asked for dates and numbers and names and explanations. This was completely wrong, and luckily I soon realized it. Facts were necessary for the narrative, but what was most important was the emotion they felt and shared with me. This was the story.

I had never been a Nokia employee, but I had written editorials and news stories about the company and the industry for years. When I first started writing this book I approached the story similarly, like a withdrawn observer reporting about a company. But the literary director at my Finnish publisher can sense things behind the written word, and he wanted more of what he instinctually knew to be there.

“Tell me your experiences, your opinions, your feelings,” he said. “Tell me Nokia’s story through your eyes.”

So I am.

I felt Risto’s emotion as I watched him during the press conference, much as I had felt his emotion that long-ago day when he held my old N900. He was in great pain to talk of the end of Nokia’s grand mobile phone era. I don’t believe anyone knew precisely what was going through Risto during that press conference, but we could catch a faint impression of it, like the after-image in your closed eyes after glancing at the sun.

When the CEO of Microsoft Steve Ballmer took the stage he behaved in an appropriately reserved manner. He spoke with confidence of the future, as he should have, but he also respected the national agony Finland was going through. He was like the calm, understanding and reassuring uncle at a funeral. Stephen Elop, former CEO of Nokia and current head of Devices & Services, came across as being a bit too happy for the occasion. At times his demeanor felt jarring and odd for the hushed and sepulchral atmosphere.

Elop was looking forward, and he had good reason to do so. He would lead Devices & Services under Microsoft with vast new resources. He had a bright future with the handset division and perhaps beyond, because pundits were already speculating he could succeed Ballmer and become the next head of Microsoft.

But while Elop was looking forward, Risto – along with most of Finland – were looking back. We were thinking of the melancholy ruins of a once great corporate entity. It was like being in the deserted Coliseum at nightfall, seeing the weeds growing up between the crumbling stones and hearing the long-dead souls of a lost age cheering in the enormous silence.

In such circumstances you are supposed to be like Stephen Elop at that press conference on September 3, 2013. You are supposed to look with optimism towards a bright and hopeful future. You are not to look back. When Lot’s wife looked back at the devastation being wrought upon Sodom and Gomorrah, God turned her into a pillar of salt. When Orpheus looked back as he escaped from the underworld, the god of the dead Hades snatched his true love Eurydice away from him forever.

Deities may warn us against looking back, but humans do it anyway. We are rebels, even turning against our gods. We look down after we climb a mountain. We read history books, marvel at old pyramids, scrape away earth to find broken pieces of pottery. Nature has given us forward-facing eyes, but it has also given us a neck so we can turn our head and look over our shoulder. Looking back is part of what it means to be human, even if we risk being turned into a pillar of salt.

Chapter 2

Confusion and Convergence

Competition in the mobile device industry is methamphetamine-paced gang warfare. It is a world of brass knuckles and Tommy guns, not a genteel meeting of foes like 18th Century dualists following a chivalric code. It is chaotic, it is bloody, and it is dirty.

In 2006 Nokia was the lord of the mobile phone industry. Sales were not only up overall, they were up everywhere, from mature and developed markets to those countries who were just beginning to adopt mobile phone technology. Nokia’s share of the global market climbed from 33 per cent in 2005 to 35 per cent in 2006.

Motorola was the deposed American king, having lost its position as the world’s largest mobile phone company to Nokia in 1998. Edward Zander, CEO since 2005, led Motorola’s counterattack. Helped by the phenomenal success of the super-thin clamshell Razr, Zander pulled Motorola’s market share up from 18 per cent in 2005 to 21 per cent in 2006.

The South Korean Samsung was the third claimant to the throne. Where Nokia had retreated out of the conglomerate life under Jorma Ollila, Samsung was a diversified multitasker and proud of it. Samsung Electronics, led by Jong-Yong Yun, produced a plethora of products, from vacuum cleaners to semiconductors. They sold a company record 118 million mobile phones in 2006, but this was not enough to keep up in the fast-growing industry and so their market share fell to 12 per cent.

Other companies such as Sony Ericsson, LG, Sagem and BenQ jostled around the margins and held only small percentages of the market. They fought to survive as they desperately tried to produce giant-killing technology which would give them an advantage, at least for a time.

Events in the industry happened so quickly that a company’s market share could almost double or halve within a twelve-month period. A sudden technological leap or clever ad campaign could slingshot a company forward, while glitches in a user interface or design missteps would set them back for months. The market rewarded and punished immediately.

This was not the Siege of Troy, where nothing happened year after year and the combatants were locked in a stalemate. This was chariot warfare on the plains, as when Achilles and Hector chased and fled from each other, hundreds of heroes battled across the field, and the divine whim of capricious gods could award disaster or victory to any individual warrior.

A durable competitive advantage was elusive because the technology changed so rapidly. Every six months or so one of the combatants released the most advanced phone in the world. Nokia had the closest thing to a lasting advantage in terms of their size and superb logistics. They were able to produce mountains of devices astonishingly quickly and remarkably cheaply, a feat none of their enemies could match.

“According to our estimates, we have about a 20 per cent cost advantage compared to our competitors,” Jorma Ollila said during his last annual meeting with shareholders as CEO. “This is due to our continuous and determined development work, which has been going on for years.”

“We had a goal of getting our logistics as good as Michael Dell and Dell Computers,” says a former top executive. “We met that objective and then even got better. We figured we would have ten years to hold a durable competitive advantage.”

But this was not a strength which would last consistently for generations, such as that wielded by Coca-Cola. A fizzy drink remains unchanged for decades, but a new mobile phone becomes obsolete within months. Nokia’s excellent supply chain was no advantage if they produced inferior products which no one would buy.

In their attempt to maintain a durable technological advantage Nokia spent an enormous sum of money on research and development. In 2006 the company spent almost €4 billion on R&D, putting it among the top private researchers in the world. The hope and the expectation was that they could simply outspend their enemies, like Ronald Reagan’s plan to beat the Soviet Union during the Cold War.

Yet there were other competitors besides the traditional mobile phone companies. They had previously been brawling over their own sector but gradually merged into the greater conflict. These were companies such as Palm, Hewlett-Packard, Research in Motion and Sharp, who created devices sometimes called palmtop computers or personal digital assistants. This was a tough segment of consumer electronics which claimed a number of casualties. Apple had once competed in this industry, before finally euthanizing its ailing and comical Newton in 1998. These devices were marketed to business executives, who used them to schedule appointments, keep track of contacts and create documents, among other things.

Originally these machines were in a completely different category of consumer electronics than mobile phones. Early PDAs didn’t make phone calls, and early mobile phones couldn’t store and organize information in the same way. One of the first products to bridge the gap was the IBM Simon Personal Communicator in 1994. This was a device that combined the functions of a personal digital assistant with a mobile phone and threw in email capabilities as well. Other companies were attentive to the potentials of this new device, including Nokia, who followed with their famous Communicator two years later. The Communicator line was a modest hit with consumers and gave a glimpse of the future.

Different machines were coming together into one device, and were hence called converged devices to define their new and hybrid role. Yet “converged devices” was a terrible, awkward, unfriendly phrase that sounded as if it had been dreamed up by overpaid consultants and probably was. Luckily, someone at Ericsson dreamed up a better term, and they were subsequently called smartphones.

The merging of personal digital assistants and mobile phones into smartphones was just one tiny aspect of the phenomenon termed “convergence.” It was and remains a nebulous and ill-defined concept, where information technology, telecommunications, consumer electronics and entertainment came together in a myriad of ways.

Convergence was two separate devices coming together into one, such as navigation systems and mobile phones. Computers were used to watch videos and read news stories, bypassing television and newspapers. The line was blurred between hardware manufacturers and software producers. It was a unification of communication technologies, where telecommunications – the industry which strung up telephone lines and erected cellular phone towers – was merging with computer networks.

Nokia approached convergence from multiple angles. When they became interested in GPS technology, they were not content with putting it into phones. In 2006 they sold the touchscreen Nokia 330 Auto Navigation device, competing directly against other manufacturers like Garmin. When they began to put more emphasis on the mobile internet, they released internet tablets in addition to putting internet capabilities into phones.

Nokia had an audacious goal. Convergence was a chaotic phenomenon, but Nokia’s teleological vision was to pull it all together into one unified structure. They would build a grand arch, using things such as consumer electronics and music and email as separate building blocks. The keystone would be mobility, which would hold this diverse edifice together as one entity.

A person would have one device which she could take anywhere. She would use that device to take a picture, email it to a friend, call that friend to get her opinion about the picture, post it on the internet, and then go to the webpage to see what others were saying about it. She could use that device to find her way when she was lost. She could use it to wake her up in the morning and tell her what appointments she had that day. She would use it to listen to music and pay her bills. That device would do everything. It would be at the center of her life.

“In the early stages we looked at convergence from an engineering perspective: can it be done?” says a former executive. “For instance, when we put different functions into one device it was an engineering challenge to get enough memory. But very quickly we moved to the user experience. For example, if someone is listening to music and the phone rings, what happens?”

This was not a simple endeavor. The entire structure had to be built methodically, and each block in the arch had to be carefully placed. Nokia accomplished some things relatively easily, such as putting digital cameras on their phones. In other areas they were less successful. Since the 1990s they had planned for mobile access to the internet, but this was delayed by overburdened infrastructure, high costs and slower-than-expected advances in mobile technology. When access to the internet via mobile devices did begin to catch on, the early adopters were corporations who could afford to pay the fees and who were primarily interested in mobile email. Research in Motion beat Nokia in this segment, not necessarily because the BlackBerry devices were superior, but because the BlackBerry email service was.

“Some of our earliest services were aimed at businesses,” says Gerard Bruen, who spent most of his twelve years with Nokia in business-to-business sales. “We tied services with the Communicator models, for instance. The Enterprise Solutions unit, and even the Nokia Business Center before that, was to compete against RIM. I had a background in financial services, so I took the old 8110 banana phone and said to my bosses ‘Traders need data! They need to access prices of financial instruments anywhere.’ It was hard to get this moving forward because our core audience was so targeted; all our marketing targeted young people. But they gave us a chance.”

Research in Motion’s lead indirectly caused countless hours of meetings, brainstorming sessions and silent musing at Nokia’s headquarters in Espoo. The lesson learned was that convergence could not be achieved by simply hammering different pieces of hardware together. BlackBerry had claimed supremacy in the corporate mobile email market because of their services. The block labelled Services had to fit into the arch correctly or else the entire structure would crumble.

Every industry combatant was fighting over these convergences. The companies that could control the commercialization brought about by these systemic changes would prosper, while those who failed would perish.

“Sometimes it worked well, and sometimes we overshot ourselves,” says Jonas Geust, who started working at Nokia in 1994. “We pushed the industry and we pushed ourselves. I think the best devices commercially were balanced. It was like in the decathlon: you might not be the best in any one category, but you would win if you were the best overall.”

Convergence was happening in traditional dumb phones as well as in smartphones, but so far such changes were relatively minor and slow, involving modest services or features. The huge changes were happening in smartphones. This segment was growing quickly, and the potential profit margin was absurdly high compared to simple mobile phones. Technology typically becomes cheaper the longer it is used, and this combined with fierce competition eroded margins and hammered the average selling price. Feature phones were becoming cheaper and more common, but smartphones were the fast-growing, high-profit product companies dream about. They were hardened steel swords in an era when everyone else was swinging brittle bronze knives. They were so different, in fact, that many people in the mobile phone industry considered them a conflict apart.

Nokia approached the mobile wars as methodically as possible under the confused and fast-changing circumstances. Each market was different. Technology standards might change between different countries or different operators. Some manufacturers were traditionally dominant in one market but completely absent from another. Consumers in developing markets demanded cheap handsets with long battery life. The youth in the West used their phones to listen to music, take pictures and send text messages. Nokia attacked these different problems point by point, as long as it made financial sense.

Nokia introduced thirty-nine new mobile phones in 2006, aimed at everyone from first-time phone buyers to the fashion-conscious, from music-lovers to active sports enthusiasts. They offered color displays and sleek designs and stainless steel cases. In some markets they were so identified with their product that the term “Nokia” was synonymous with mobile phone. By almost any conceivable measure, the overpower-with-sawed-off-shotguns approach succeeded admirably for a time.

When it came to smartphones, Nokia dominated the market like a bull elephant dominated a water hole during the African dry season. By some estimates, half of all smartphones sold were Nokias. However, Nokia did not call their popular Nseries devices smartphones. Somewhat missing the point of having a catchy name, Nokia evidently let a flustered engineer call them multimedia computers without any input from the marketing department.

Although the name was terrible, the devices were not. The Nseries devices had zoom cameras and FM radio receivers and integrated music players and boasted something fresh and exciting with every new or improved model. The Eseries were similarly impressive. These devices were for business users and featured email services, web browsers, full keyboards and Bluetooth connections. They could be insanely profitable, too: the N73, released in 2006, holds the record for the best gross operating margin for any Nokia device. Three new Nseries and five new Eseries devices were shipped during the year.

The people at Nokia were happy with what they accomplished in 2006, but they were not satisfied. Their strategy was evidently working, as reflected in their soaring sales and lofty profits. But the old era of mobile telecommunications which coincided with the widespread use of second generation technology was coming to an end with Nokia as undisputed victor. The new 3G age was just beginning. This next great epoch would be built around convergence and open up previously undreamt-of possibilities. Best of all, Nokia planned to dictate how convergence would happen.


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About David :


David J. Cord spent fifteen years in the investment industry, as salesman, administrator and hedge fund manager. He has been published in nine languages. David is the author of three books: Mohamed 2.0: Disruption Manifesto, Dead Romans, and The Decline and Fall of Nokia.

An American by birth, David moved to Finland in 2005 and lives on the shore of the Baltic Sea in Helsinki with his water rescue dog Freyja.


David