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The theory of disruptive innovation says

smaller players get to spot disruptive
opportunities, and new value chains,
before their bigger brothers. Entrenched
companies by way of contrast look to
protect the cash they enjoy from their
dominant position. Heres why I think
that is wrong and how we need to rethink
disruption (and innovation!).
First lets rephrase the theory big
companies are comfortable with smaller
players taking a small bite out of their breakfast. What they fail to realize is
that the nutrition gained at the outset will prime that small critter to take a
chunk of their lunch and then to push them out of the way at dinner.
Often, and more and more often, this is not what happens. Nokia is a case
study in modern disruption.
Lets go back to 2006 to review the essentials of why.
Apple was about to launch a phone that nobody in the mobile world thought
they had much of a chance. The company was just being too ambitious. They
were calling it the iPhone and it was due soon.
Nokia sold phones in the hundreds of millions, controlled supply chains and
had the tightest relationships with carriers. Customers meanwhile had to do
mobile computing on a screen the size of their thumb.
While Apple was designing the iPhone and Nokia was selling half a billion
phones each year, Google bought a company called Android and announced
an Open Handset Alliance, a grouping of industry players who would come
together to build an open source OS for smartphones. Nokia was invited to
join but refused to demean itself.
Soon afterApple launched an Apps Store that began to take off, attracting tens
of thousands of developers, and then customers.
Within two years of these events Nokia was already in crisis. In 2007, Nokia
had a market capitalization of !110 billion; by May 2012 this had fallen to
!14.8 billion. Those figures illustrate the extent of the decline over 5 years,


TECH | 3/08/2013 @ 10:44AM | 13,496 views
Apple's Rise and Nokia's Fall
Highlight Platform Strategy
Essentials
Haydn Shaughnessy, Contributor
I write about enterprise innovation.
years in which Apple and Android came to dominate smartphones.
So what are the lessons here for innovation? The first is that neither Apple nor
Google were small players. They were hardly start-ups. They are both highly
accomplished.
But they were making adjacency moves of a very radical nature and at that
time no company in their right mind made big adjacency moves likes this into
totally new markets, like from ads to mobile and computing to mobile.
With the iPhone and Android, a new kind of adjacency was born, one I have
called elsewhere radical adjacency. But so too was a new kind of platform
business.
Apple had no inkling that its Apps Store would be so successful but it had
experience of scaling a platform, with iTunes. That content platform already
had the major ingredients for success for all types of platform businesses
intellectual property protection, seamless commerce, great content ingest,
high scalability, attraction.
Google too had a platform, with Android, and has evolved it over time into
Play. Apple had gone from devices to platforms and ecosystems and Google
arrived at the same place, by way of its dominance in search and advertising
and a punt on mobile open source.
Nokias response is where the innovation case study becomes very interesting.
Nokia open sourced its own operating system Symbian or at least it tried to.
In effect it tried to do an Android, grouping together major players like Texas
Instruments, Motorola and Samsung in an open source project to develop the
Symbian OS as a mutual, open asset.
There were problems an unwieldy governance structure that left decision
making opaque, if you were a developer. A sense that these structures were
great for big companies but that as a developer you were in the cold.
Nokia/Symbian also launched an Apps Store, Horizon, now happily forgotten,
and after six months it had the sum total of 60 apps in it.
And Nokia launched its own Apps and Content store Ovi, in 2009. But
Nokia had no real platform experience to compare with Apples. The platform
was shaky and it tried to launch simultaneously in 35 countries because
thats what dominant players do. It was a disaster and the tech press called it
out as such. Nokia was faced with a gale of criticism for the first time.
Within two years they closed down the Symbian open source project. Symbian
had been rushed into the public domain months ahead of schedule. But so
what? It didnt have support. It was soon gone and Nokia went looking for a
new alternative (even though it had one in its labs). Of course, we now know,
it chose windows.
The lessons from this though are that Nokia ignored threats to its business.
They are that it made the wrong OS choices and the wrong platform choices.
It lacked experience in the latter and it is still faltering over the former. It did
not ignore the dangers. It simply did not understand the new skill sets it
needed.
One of its key deficits was a lack of experience in platform development a
great engineering company but in 2008 few people had what Apple had
experience through iTunes.
So here is where we need to rethink disruptive innovation.
Disruption comes from the need of companies to make radical adjacency
moves especially in areas of convergence like computing and mobile. Your
business is at risk from companies who are not now competitors. Thats what
the theory of radical adjacency tells you.
The disruptive weapon can be a design or a device but the business will be
sustained by good platform choices. And acquiring skills in developing
platforms is a must, as central to management as opening an office each
morning.
In platform economics, the most important asset is being able to attract other
groups and individuals to the platform. Leadership needs to re-orientate
around attraction, giving it the same importance they place on investment.
That means attracting people, resources and commitments to your project,
your platform. Thats the same whether you are out on Kickstarter or
competing with Apple.
In the case of Nokia, then, disruption was no real surprise. They knew what
was coming because they saw it (Apple and Android) and they were
countering it (with Symbian open source) but nobody could foresee the rapid
evolution of platform economics, nor the skills needed to make platforms
work.
This as much as the absence of a good smartphone to compete with the
iPhone sank Nokia. In fact with its QT interface it could well have produced
phones to compete with the iPhone what it did not have was the Apps Store
platform, a factor critics continue to ignore when assessing Apples durability
and strength.
Since then Nokia has still struggled to make good OS and good platform
decisions. As one reader puts it:
There are plenty of OS options out there for Nokia but it has embraced a
company whose culture it understands, as a former gorilla in its own right,
and, sadly, it lost confidence in its judgment to go it alone.
That is the effect of this kind of disruption. It fillets confidence as well as the
share price. But in Nokias case nobody can say they didnt have a chance to
take the same ride that Apple, or indeed Samsung, did. It was there to be
taken.
Follow me on Twitter @haydn1701 or join me on Facebook I am
here on Google.
Nokias All-Screen N9 Phone
This article is available online at:
http://www.forbes.com/sites/haydnshaughnessy/2013/03/08/apples-rise-and-nokias-fall-
highlight-platform-strategy-essentials/

Microsoft saw Nokias weakness, and gave them what they wanted: a robust OS but with
some stipulations. The greatest stipulation was that the raw kernel of Windows 8, the
Windows NT kernel, which is the sweet-spot for true innovation, would not be accessible to
Nokia. Microsoft carefully controls access to this kernel. One must remember that, when
Nokia had their piggish Symbian, Nokia had full control over the OS. Not so with Windows
Phone 8. Its locked down.
Nokia is like the desperate home owner who is behind on mortgage, needs cash fast, finds a
generous benefactor, only to discover that they have embraced a loan shark.