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Executive Summary
During the year 2007, Nokias mobile phones division was at its peak and the company stock
was trading as high as $ 40 (NYSE), along with a market capitalization of $ 116.8 billion. The
immediate events that followed included the launch of the Apple iPhone in 2007 and Googles
Android in 2008. What came next was a downward landslide for Nokia which eventually
ended with the acquisition of its Devices and services division by Microsoft in 2013-14.
There have been multiple opinions on why, despite being the market leader, Nokia failed to
sustain its business. This case attempts to methodically follow the chain of events since early
1990s all the way to 2014, study the strategic decisions which were taken, decisions which
should have been taken, and analyze their impact on its business.
The case categorically addresses these approximately 25 years as three distinct phases,
critical in themselves as they were milestones in Nokia gaining and, consequently, losing
competitive advantage. It concludes by stressing upon the absolute importance of sustaining
competitive advantage, once acquired, through internally generated value.

*For the purposes of the study, the scope of the exercise has been limited to developments
within the smartphone market (and associated software developments)

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1. General Introduction
While its a relatively less known fact, Nokia has been a company thats even made paper,
tires and rubber boots. However, what made Nokia a household name across the world has
been its mobile phones.
During the year 2007, Nokias mobile phones division was at its peak and the company stock
was trading as high as $ 40 (NYSE), along with a market capitalization of $ 116.8 billion. Apple
launched the first iPhone in mid-2007 (Exhibit 1). The first Android device was launched in
mid-2008. By early 2009, the stock price had dipped close to $ 9. In 2011, the company
announced its plans to collaborate with Microsoft on the software front and switch to
Windows Phone as its primary OS. By 2012, the stock price had touched a record low of $1.71.
The same year itself, Nokia announced to lay off 24,500 employees. On September 3, 2013,
Nokia announced a deal with Microsoft under which Microsoft would acquire Nokias Devices
and Services Division, along with a transfer of approximately 32,000 employees, for a mere
sum of approximately $ 5 billion (the total transaction amount was $ 7.12 billion for
acquisition of Devices and Services Unit and licensing of patent portfolio). The acquisition was
completed on April 25, 2014.
There have been multiple opinions on why, despite being the market leader, Nokia failed to
sustain its business. Some say it was because of Apple and its iPhone, others believe that it
was because of Android, yet another group of people believe that it was a result of Nokias
own inaction to the changing industry landscape. Hence, the study group aims, not to
conclude whether Nokia was right or wrong (which, in perspective, is conclusive enough) but
to analyze its course of action in the last 10 years and interpret the impact on its business. For
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the purposes of the study, the scope of the exercise has been limited to developments within
the smartphone market (and associated software developments).
What makes the study interesting is the fact that, while many companies have sold off parts
of their business in order to streamline, Nokia is one of the few examples of a company that
has sold its primary business in order to survive. Not only this, it is a classic case of derailment
at a company level.
2. Evolution of the Mobile Phone Market
The first call through a handheld mobile phone was made in 1973 through a Motorola phone
that weighed 1.1 kg, had a talk time of only 35 minutes and took 10 hours to recharge!
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The
first commercially available phone was the Motorola DynaTAC 8000x, in 1983. Nokia launched
its first commercial handheld phone in 1987, called the Mobira Cityman 900. Currently, any
typical smartphone, on average weighs 175-200 grams, can provide a talk time of upto 12
hours and recharges in about 3 3.5 hours.
The evolution of the mobile market can broadly be looked at in terms of hardware and
software changes that have come up on the last few decades
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.
2.1. Hardware development
From the earliest of mobile phones till the late 90s, mobile phones were operated through
keypads that comprised of a numeric pad and arrow keys (Exhibit 2). This was followed by
mobile phones with full QWERTY keyboards and trackballs. One of the most popular examples
of such devices are the Blackberry range. In the first decade of the 21
st
century, the focus
shifted to a more natural form of interaction that involved using a mobile device through

1
Source: http://www.cellular.co.za/cellphone_inventor.htm
2
For the study, hardware changes are limited aspect that involve direct user interaction and not cellular
communication technology.
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touch input. Touch screen devices have, till date, been based upon two technologies
Resistive and Capacitive. Resistive devices operate based upon input detected as pressure
applied on the screen, while capacitive screens operate through electrical charge
conductance
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and are generally agreed upon to be the better experience of the two for
commercial mobile phones. The early Nokia touchscreen devices were based upon resistive
technology while the iPhone was among the first to use the capacitive touch screens. In the
recent years, capacitive screens have become the industry standard.
2.2. Software Development
On the software front, mobile phones have broadly be categorized under three heads:
Dumb Phones Phones that can perform only basic tasks like make and receive calls,
send messages, etc. No internet connection. Eg. Nokia 1100
Feature Phones In addition to the dumb phone features, these phones provide basic
internet and multimedia capabilities. Eg. Nokia Asha series
Smartphones These devices provide advanced computing capabilities in addition to
the above discussed features. Eg. Nokia Communicator Series, Nokia Lumia Series,
iPhones, etc.
While dumb phones are essentially extremely low end hardware, feature phones and
smartphones often offer comparable hardware specifications. The key difference however is
in the devices operating system. For the purposes of the study, the group has focused on
smartphone devices and their respective operating systems.

3
http://techexplainer.wordpress.com/2012/04/02/resistive-vs-capacitive-touchscreen/
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2.3. Smartphones and the changing industry
Till the mid-2007, Nokia and Microsoft were the only two companies that offered operating
systems for smartphone devices. Symbian (owned by Nokia) was the OS of choice on all Nokia
Smartphones, while Windows Mobile OS (by Microsoft) was used by HTC in its smartphones.
In mid-2007 Apple launched its own version of smartphone OS called iOS. This was followed
by Google launching the Android mobile OS in 2008. Other OS entrants to the market also
included Bada by Samsung, etc. A flurry of OS options gave rise to intense competition in a
market which had earlier been primarily dominated by Symbian.
Simultaneously, on the hardware front, cellular technology had attained critical mass
resulting in commoditization of a major part of the industry, lowering of entry barriers to the
market, and creating immense scope for price wars. An analysis of the smartphone market
using the principles of Porters Five Forces
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is presented in the figure below.



4
http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
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Figure 1: Industry Analysis using Porter's Five Forces


As can be seen from the figure above, the smartphone market has evolved from one with high
entry barriers and monopolistic characteristics to being highly competitive, with low entry
barriers and almost inconsequential bargaining power of the supply side. The key
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transformation of the industry has been through entry of multiple players. However, the
industry has witnessed remarkable growth in the past two decades, with the trend expected
to continue in the coming future. The number of unique mobile phone subscribers has
increased from 12.4 million in 1990 to 4.5 billion
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in 2013. As per a study done by Gartner, in
2013 out of the total mobile phone sales, smartphones accounted for almost 58% of the sales
volume
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. Hence, while the profitability potential of the market has increased significantly, the
market itself has become relatively less attractive for the traditional players, viz. Nokia and
HTC.
3. Nokia Oyj
Historically, Nokia began in 1865 as a wood pulp mill in southern Finland and started
manufacturing paper. Subsequently, the company diversified into multiple businesses
including rubber tires, boots and eventually into telecommunications.
Nokias history for the last few decades (that relevant to the current case) can broadly be
categorized based upon its then leadership and its OS of choice. The subsequent sections
adopt a similar approach in studying Nokias history, identifying, for each period, the decisions
undertaken and the corresponding potential competitive gains or loss.
3.1. Pre-2007: Symbian S60 and Nokia as market leaders
In 1992, the then CEO, Jorma Ollila took a crucial strategic decision of focusing entirely on the
telecommunications industry. As a result, all other businesses were gradually divested. For
the rest of the decade the company focused aggressively on expansion in the
telecommunications industry, both through in-house development and acquisitions.

5
http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a#uniquesubscribers
6
http://www.gartner.com/newsroom/id/2665715
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During the last decade of the 20
th
century, smartphones were still a nascent market with
customers in the enterprise sector. In 2002, Nokia launched its first Symbian based
smartphone, Nokia 7650, for the mass market. The OS was called S60 and was a derivative of
Symbian. Being the first mover in the segment, the OS gained immense popularity. It was
among the first mass market phones that allowed users to install third party programs.
Keeping S60 as its software foundation and utilizing the expertise that it has gained in the
hardware segment over the years through R&D, Nokia subsequently introduced a wide array
of phones with multiple design languages and configurations. The worldwide popularity of
mobile phones, surpassing even Nokias most optimistic predictions, made the company the
worlds largest mobile phone manufacturer, a position it held until 2012. For the period from
1996 to 2001, based upon its mobile phone sales, the company increased its turnover from
6.5 billion euros to 31 billion euros
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. By the end of 2007, in the smartphone segment, Nokia
had gained a market share of 49.4% with retail sales of approximately 60.5 million (for 2007).
Its closest competitor, at the time, was Research in Motion (RIM) with a market share of 9.6%
and unit sales of 11.8 million (Exhibit 3). While Nokias focus has been primarily on retail
consumers, RIMs market share (through Blackberry) was based off its success with enterprise
users.
Hence, in the pre-2007 period Nokia had developed and gained a competitive advantage in
the smartphone market by,
Becoming a first mover in the smartphone OS market
Utilizing its hardware based R&D expertise to provide an integrated product
Other contributing factors detailed in the figure below:
Figure 2: Porter's Value Chain analysis for Nokia (pre-2007)

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http://www.nokia.com/about-nokia/company/story-of-nokia/mobile-revolution/leading-the-world
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Source: Authors Research
3.2. 2007-2011: The Burning Platform
While the company had been making record sales, not all was good. By the end of 2003-04,
touchscreen devices had become the latest fad and the company had hit the realization that
the existing OS, while highly versatile, was inept for use on a touchscreen device. At the time,
Nokia had been simultaneously working on a linux based OS, called Maemo (later renamed
to Meego)
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, which offered immense potential but could never gain traction due to the
companys leadership insisting to stay with Symbian. David J. Cord, in his book titled The
Decline and Fall of Nokia mentions that, major reasons for Nokia's decline include a
pervasive bureaucracy leading to an inability to act, destructive internal competition and the
failure to realize the importance of lifestyle products like the iPhone
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. As a result, while the
company was making gradual progress in attempting to modernize a grandfather OS, in mid-

8
http://taskumuro.com/artikkelit/the-story-of-nokia-meego
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Cord, David J., The Decline and Fall of Nokia, 2014
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2007 Apple caused a major disruption in the smartphone market by announcing the first
iPhone based upon its proprietary OS, called iOS. In the coming years, iPhone would prove to
be the first nail in the coffin of Nokia. In an interview with tech blog ZDNET, the then CEO
Ollila mentions, we knew what was happening, but our mistake was in not being able to
turn that into action.
In the next year, i.e. 2008, Google launched its own smartphone OS, titled Android. Being
open source in nature, Android adoption spread like wildfire. From being the only smartphone
OS for the mass market, Symbian had now been pushed to the number three spot in terms of
popularity and consumer satisfaction. By the end of 2009, Nokias stock price had dipped from
a high of $40, in 2007, to almost $9. By 2010, its market share (in terms of annual sales) had
been reduced to only 29%. Samsung, buoyed by the success of Android had captured 17.6%
market share (Exhibit 4).
In September 2010, when Stephen Elop became the CEO of Nokia, one of the most important
decisions he had to take was to decide on the future OS for Nokia smartphones. It was well
accepted had Symbian was past its prime. The other option the company had was to focus on
the development of Meego which would leave them with only one device in the near future.
While one device in itself was not insufficient, according to Elop an ecosystem to match and
compete with those built around Android and iOS would have to be built, which was not
possible at the time. In early 2011, Elop sent the famous burning platform
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memo to Nokias
employees, comparing the companys current situation to that of a man standing on an oil
rig, with jumping into water being his only options. By February 2011, the company
announced its plans to collaborate with Microsoft on the software front and switch to

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http://blogs.wsj.com/tech-europe/2011/02/09/full-text-nokia-ceo-stephen-elops-burning-platform-memo/
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Windows Phone as its primary OS. At its end, he said, the company would continue to focus
on hardware innovations. Another decision of importance was the focus that would be laid
on the US market.
Still, in 2011, Nokia launched its first and last Meego device, named Nokia N9 (Exhibit 5).
Despite the fact that the device won multiple awards for its design, and praise for user
interface interface and OS versatility, it was made clear that the device was Dead on Arrival
with limited market release and limited support. Subsequently, the design language from the
N9, called the fabula design, was passed on to the Lumia line of phones.
The first windows phone devices by Nokia were launched in late 2011. However, considering
that Microsoft itself was struggling with its OS at the time, the phone failed to gain much
traction, worsening Nokia financial woes. During Elop's tenure, Nokia annual revenues fell
40% from 41.7 Billion Euros per year to 25.3 Billion Euros per year. Nokia profits fell 92% from
2.4 Billion Euros per year to 188 Million Euros per year
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.
Hence, in a matter of 4 years, Nokia had lost the competitive advantage that it had built in
the last 15 years.
While it was still innovating at the hardware front, its own OS had become obsolete
Even after 2 years of its launch, Windows Phone had failed to gain significant traction
in the US, resulting in limited sales for Nokia devices.
It is important to note here that while the actual impact of a lack of viable OS option became
visible during Stephen Elops term, it was actually a result of lack of long term vision and
planning on the part of the previous leadership and their insistence on sticking with an
obsolete OS despite a viable alternative in the form of Meego. Hence, Nokia ended up losing

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Nokia Annual Reports 2010, 2011
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its competitive advantage due to its failure to capitalize on internal resources, misaligned
leadership, and its inability to adapt to a changing market scenario.
3.3. 2011-2014: The Microsoft years
For Nokia, the downward slide did not stop with windows phone. Despite being the leader
among windows phone manufacturers (76% market share in windows phone for 2012)
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, by
2012 the stock price had touched a record low of $1.71. The same year itself, Nokia
announced to lay off 24,500 employees. On September 3, 2013, Nokia announced a deal with
Microsoft under which Microsoft would acquire Nokias Devices and Services Division, along
with a transfer of approximately 32,000 employees, for a mere sum of approximately $ 5
billion (the total transaction amount was $ 7.12 billion for acquisition of Devices and Services
Unit and licensing of patent portfolio)
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. The acquisition was completed on April 25, 2014
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.
4. Closing Thoughts
In perspective, it is clear that Nokias competitive advantage during the 1992-2007 period was
built upon its first mover advantage, in conjunction with appropriate utilization of its internal
resources. Under a strong leadership, the company had generated value, in the form of
proprietary OS and supporting hardware, which was unique and difficult to imitate. One of its
key differentiating points was innovation on the hardware front that allowed it to fully exploit
value from its OS, even in the later stages.
However, along the same lines, reaping the benefits of being a first mover it became short
sighted and failed to plan for the long term, for a market that was evolving from a hardware
centric to a software (ecosystem) centric theme. As soon as the market opened up to new
entrants, in the form of Apple and Google, despite its hardware prowess Nokia failed

12
http://blog.adduplex.com/2012/12/adduplex-windows-phone-november-2012.html
13
http://www.microsoft.com/en-us/news/press/2013/sep13/09-02announcementpr.aspx
14
http://www.microsoft.com/en-us/news/press/2014/apr14/04-25nokiapr.aspx
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miserably on the software front. Despite internal availability of valuable software resources,
due to lack of appropriate leadership, the company lost its first mover advantage.
While Nokias decision to go with Windows Phone has been widely criticized, under the
prevalent circumstances, with Samsung already the leader in the Android market, the study
group feels that it was the most logical path to follow. Unfortunately, it did not turn out well
for them.
Therefore, the key learning from the case is the realization that while gaining competitive
advantage is critical, even more important should be the focus on and the efforts for
sustaining it. In the case of Nokia, internal value was the way to sustaining their leadership.
They had it all and still lost it.
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Exhibits
Exhibit 1 - Nokia: Timescale

Exhibit 2 Mobile Phones: Hardware Evolution

Nokia 1100 (left) Numeric Pad and Arrow Keys, Blackberry Curve (Centre) QWERTY and
trackball, iPhone 5S (Right) Touchscreen
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Exhibit 3 Smartphone Market Share 2007 (000 Units)
Company 2007 Sales Market Share 2007 (%)
Nokia 60,465.00 49.4
Research In Motion 11,767.70 9.6
Apple 3,302.60 2.7
HTC 3,718.50 3
Sharp 6,885.30 5.6
Others 36,176.60 29.6
Total 122,315.6 100
Source: http://www.gartner.com/newsroom/id/910112
Exhibit 4 Smartphone Market Share 2010 (000 Units)
Company 2010 Units 2010 Market Share (%)
Nokia 461,318.20 28.9
Samsung 281,065.80 17.6
LG Electronics 114,154.60 7.1
Research In Motion 47,451.60 3
Apple 46,598.30 2.9
Sony Ericsson 41,819.20 2.6
Motorola 38,553.70 2.4
ZTE 28,768.70 1.8
HTC 24,688.40 1.5
Huawei 23,814.70 1.5
Others 488,569.30 30.6
Total 1,596,802.40 100
Source: http://www.gartner.com/newsroom/id/1543014

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Exhibit 5 Nokia N9 (fabula design)

Source: http://everythingn9.com/n9-still-wins/

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Annexure: Research Question
Research Question & Why is it interesting/relevant:
Ever since Microsoft acquired Nokias mobile phones division there have been multiple opinions
on why, despite being the market leader in 2007, Nokias consequent strategy failed to sustain
its business. Hence, the study group aims, not to conclude whether Nokias strategy was right or
wrong (which, in perspective, is conclusive enough) but to analyze its course of action in the last
10 years and interpret the impact on its business.
The research focus, therefore, can be summarized as, The story of Nokia Things it did and did
not do.
What makes the study interesting is the fact that, while many companies have sold off parts of
their business in order to streamline, Nokia is one of the few examples of a company that has
sold its primary business in order to survive. Not only this, it is a classic case of derailment at a
company level.
Research Methodology: The research methodology will focus on identifying the companys
strategy in relation to key decisions and developments (internal/external) in the last decade and
the impact this had on its mobile phones business. The data required for this analysis will include
the companys financial performance, its performance with respect to competitors (market
share, etc.) and the companys approach to the mobile phone market in the last decade. Majority
of this data can be obtained from Nokias Annual Reports, along with other secondary sources
like financial databases, company website, technology blogs/websites, interviews and
statements of company officials, etc.