Switching Suppliers at Nokia

About Nokia

Nokia was founded originally as a paper factory in Finland, by Fredrik Idestam, an engineer, in 1865. Nokia became
involved with telecommunications in 1970s, after it formed Nokia Corporation. Nokia acquired a considerable share of market,
after its success in their first mobile phone Mobira Cityman 900. In 1992 Nokia decided to focus exclusively on
telecommunications, and was one of the key players in developing the Global System for Mobile communications (GSM) standard.
They also contributed towards Wireless Application Protocol (WAP) as one of the founding companies. By 1998, Nokia became
the world leader in mobile phones, and increased the revenue from €6.5 billion to €31 billion, between 1996 and 2001 (Case
Switching Supplies at Nokia, Figure 1).

Product

Nokia being the leader in the mobile phone market wanted to extend its lead with the strategy of a new service which
would enable everyone to share media with friends and family. Allowing even those users who do not have multimedia phones.
Multimedia Messaging Service (MMS) allows people to send pictures, videos, audios over cellular network. MMS can be used to
share media content not only from phone to phone, but also as an email attachment.

When a user sends an MMS, the first step is for the sending device to encode the multimedia content. The message is
then forwarded to the carrier's MMS store and forward server, known as the MMSC (Multimedia Messaging Service Centre). If
the receiver is on a carrier different from the sender, then the MMSC acts as a relay, and forwards the message to the MMSC of
the recipient's carrier using the internet. Once the recipient's MMSC has received a message, it first determines whether the
receiver's handset is "MMS capable", that it supports the standards for receiving MMS. If so, the content is extracted and sent to
a temporary storage server with an HTTP front-end. An SMS "control message" containing the URL of the content is then sent to
the recipient's handset to trigger the receiver's WAP browser to open and receive the content from the embedded URL. If the
receiver's handset is not MMS capable, the message delivered to a web-based service such as e-mail from where the content can
be viewed from a normal internet browser. The URL for the content is sent to the receiver's phone in a normal text message.
(Wikipedia - MMS)

John Ellenberger is the manager of Nokia’s engineering team, which handles the message service organization. He is
concerned about the future of the product as a new issue has been reported which could possibly put down all of their work on
the new MMS service in a huge risk. As Nokia moved into design and construction of their new MMS service, a crucial problem
has been brought into attention regarding the vendor of their message store software.

Problem

For the first version of message service, Nokia had been using a server to store and forward the messages. The message
store software and the server were licensed from the message store vendor, Critical Path. It was reported late in 2000, that
Critical Path was going out of business and Nokia had to decide whether to wait and watch if things turn around, or to start
searching for a new vendor. There were other issues in finding the new vendor which would affect the schedule.

Challenges

There were serious risks depending on Critical Path, as it might cause issues in future due to their financial problems
which would eventually cause them going out of business. The possible alternatives in the market were pretty less at the time,
and more limited to IBM and Microsoft. But even though working the big companies ensured higher technical and product
qualities, it also brought up the questions about the operational costs and licensing fee. These additional costs will affect the
production costs, and will add up on the product cost. Oracle being the leader in the database market, is less expensive compared
to IBM and Microsoft. Since Nokia was already dealing with Oracle, it can be expected that the licensing fee would be substantially
less compared. But, choosing the less expensive vendor always brings up the questions about the technical compatibility of the
product. Apart from the costs, there was this technical risk in changing the vendor in such a short time.

The first issue would be that the engineers would have to work with a new technology which they are not familiar with.
This would delay the release. Even the access to source code would not help much the engineers, as the code would be huge and
complex, and also because they weren’t part of it from start. Then there is the challenge in data migration and scalability of the
servers.
Analysis

A scenario analysis would help us guide what Nokia should do. It will also give a more effective decision support.
However, scenario analysis is not predicting the future, but it is rather than a way of projecting possible outcomes of the decisions
we take.

Scenario 1

If John and his team decided to go on with Oracle database. The switching costs are very important as it will affect the
cost of goods. Also, being the market leader in the database market, Oracle brings in diversified portfolio for their database
management. This also ensures that being such a strong company Nokia will not have to face the issue they had with Critical Path.
Having a reputation of being a stable company, Nokia can count on Oracle to be up for the challenge to handle the traffic and
data usage of the new product. But this decision also brings the risks and troubles to the team such as migration to new
technology, data migration etc. The estimate shows that it would require 6 months each for 4 technical software engineers and
3 database engineers to complete the migration from Critical Path to Oracle. This calls for the additional workforce for the
development. 1 technical Full-Time Equivalent (FTE) costs about $150,000 annually (Case Switching Supplies at Nokia, p7). So this
migration puts the costs at around $525,000 for this switching.

Scenario 2

Choosing Oracle, engineering team might have to work with technology unfamiliar to them. This would in turn result in
the delay in development and deployment of the product. As the telecommunication market is rapidly growing, new technologies
are brought in everyday, Nokia have to be very quick in releasing their product into the market, while ensuring that the current
service is not disturbed. The engineers have to make sure all the data migration is happened without any loss of the data. This
has to be completed, without customers noticing there was a change in the backend. If the transfer process does not run
smoothly, it will lead to increased down times, resulting in poor customer satisfaction. But eventually Nokia will pick up the pace
with new technology and start regaining the customer reputation. However, the profit margins may decrease year on year as
there will be new players in the market.

Scenario 3

Staying with Critical Path, but the company goes down shortly after the decision. Nokia’s messaging service also goes
down, along with Nokia’s reputation, and leadership in the market. Even though Nokia has access to the source code, they
wouldn’t know what do with the huge unfamiliar complex codes. It would take at least a year for Nokia to launch the product.
This causes customers to lose the trust on Nokia and they start getting frustrated on the unreliable MMSC. This will prevent Nokia
from using the opportunities to develop and implement new and innovative ideas in market, which result in losing the market
leadership.

Scenario 4

Nokia decide to stay with Critical Path, and the business does not go down. As the development team does not have to
do any additional work, Nokia launches the product as per schedule. With the revenue generated from the MMS service, Nokia
will be able to hire new engineers, and invest more time on developing new and innovative features for MMS. This also creates
a recurring revenue for Critical Path, which help them to recover from their previous financial issues, and also enabling them to
invest more on the database infrastructure with new scalable and high performance servers. This will help Nokia and Critical Path
to address the growing market of MMS users.

Recommended Action

By taking the above scenarios into consideration, it is suggested that Nokia should choose Oracle as their new vendor.
As the future of Critical Path is very critical, the possibility of Nokia losing their vendor is more. As the MMS market is rapidly
growing, and it has demanding customers this is very critical to Nokia’s future as well. Taking the facts into consideration, Nokia
should migrate to Oracle which ensures a long term success and profit, however at same time supporting Critical Path as much
they can.