Thursday, September 05, 2013

The planned IBM-ification of Nokia is almost complete. So, who's next to be Sega-fied? Get ready for the dance.

Sometime in 2011 I predicted that Nokia would exit the handset business within three to five years. I just didn't think it would be Microsoft which bought the unit. Not that it matters. (I had been thinking Huawei, ZTE, or maybe even Foxconn.)

The writing was on the wall. To me, the pattern was clear: Nokia execs had the historic experience of picking up and leaving a business when all the lower-lying fruit had been picked. When the margins begin to fade, it's time to move on. Take for example, the set-top box business. Nokia was a top vendor of equipment to television broadcasters (and the world's #1 supplier of digital set-top boxes for a while), but when most of the profitability evaporated, Nokia picked up and left the industry altogether. Computers, displays, televisions. And there are other examples. Push aside sentimentality and adjust to the realities ahead.

Let's consider for a moment what IBM achieved under Louis Gerstner, as this was a big influence on Nokia. For many Nokia executives, IBM was not just a case study, not just an example, it was an idol. When IBM picked up and left the commoditized hardware industry in 2005, selling the ThinkPad and related sub-brands to Lenovo, IBM proved that it was possible to re-invent and refocus a company. Elephants could indeed dance. Old business models and ways of working would have to be placed to the side to make way for change.

IBM placed more emphasis on services leading up to and after the end of the IBM PC era. And Nokia executives realized that the same changes which took place in the PC industry would smack the handset business within a few years as well. It was time to prepare the company for similar changes. Nokia executives talked more and more about software and services. The company was reorganized adn re-reorganized. An "S&S" unit was created, service related companies were acquired. Maps, music, money, and more. Acquired growth. Organic growth. All options were on the table. The checkbook was out. Employees were shuffled around.

So now it appears that the IBM-ification of Nokia is nearing completion. While I had predicted that a large Chinese vendor would likely buy Nokia's handset business when the time came, Microsoft serves the same purpose: one potential Nokia strategy is complete. I'll even offer some conjecture now and say that Microsoft will further sell off much of what they are buying from Nokia, getting rid of factories and logistics and perhaps even the feature phone unit altogether.

There is already some speculation that Nokia proper might re-enter the smartphone business with Nokia-branded Android devices in 2015. I'm not buying that unless there is some fantastic value-added they can discover. By 2015, smartphone ASPs and margins will have slipped further down toward the bottom of the consumer electronics life cycle. With luck, Nokia will be deeply busy with services and solutions, working with hardware and platform vendors of all sorts: smartphone manufacturers and auto makers, cloud-based internet services and big-data gatherers.

Next on deck is BlackBerry, a company I already predicted would soon leave hardware behind for services of some kind. Perhaps some vendor looking for a world stage will license the BlackBerry brand.

And prepare for more placement changes from vendors such as Apple and Samsung. As any fund investor knows, past performance is no guarantee of future results. When the company that completely dominated an industry only a few years ago essentially exits the business, it's time to get ready to jump to the next hot thing.

I think about the recent news articles covering a potential strategy shift at the world's largest shipping company, Maersk, where executives talk about moving away from the shipping business to more profitable services. I commend their foresight. I've heard Maersk described as the IBM of Denmark, and that Danish elephant is getting ready to dance. And more.

You see, elephants have to do more than dance these days: they have to reach new heights.

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