Microsoft Buying Nokia Reminds Us That Dominant Tech Companies Can Disappear Quickly

from the bye-bye dept

Tue, Sep 3rd 2013 1:37pm — Mike Masnick

So, yes, everyone in the tech world is talking about Microsoft finally buying up the key parts of Nokia for $7+ billion a couple years after Nokia basically wed itself to Microsoft anyway. There's all sorts of good analysis about why Microsoft is doing this and plenty of snark as well about two also-ran companies trying to come together to revitalize damaged brands (including some folks pointing back to the infamous "two turkeys do not make an eagle" quote once uttered by a Nokia exec).

But here's the thing that I find most fascinating about this: it's a reminder of just how quickly and completely a "dominant" tech firm can almost disappear off the face of the earth. Go back to 2007 (also known as The Time Before The iPhone) and Nokia absolutely and totally dominated the mobile phone market. In fact, I remember making a joke around 2005 or so mocking another company for suggesting that it could pass Nokia in the market (I can't remember which company, but it may have been Samsung) and a telco analyst much wiser than myself scolded me, reminding me how quickly the market can change -- and he was totally correct. Two quick images tell the story. The first, put together by the Guardian using Gartner data, shows how Nokia (via Symbian) basically owned the smartphone market for quite some time. And then its lead disappeared:

Or, if you look at it from a profit share realm by vendor, as Asymco did last year, you get an even more dramatic story, where Nokia's ability to profit from mobile phones went away.

Even its overall lead in selling all kinds of phones (going beyond the smartphones and into cheaper phones around the globe, a market that it absolutely dominated) was lost a bit ago to Samsung. Just a few weeks ago, Mobile Unlocked put together an astounding interactive chart showing overall mobile phone sales quarter by quarter going way back. This static image below doesn't do it justice. Check out the full thing:

No matter how you slice the data, it's undeniable that Nokia absolutely and totally dominated the market. Plenty of people (as noted, myself included) thought that lead was more or less insurmountable. While many may argue otherwise today, at the time it was very, very difficult (unless you were that prescient analyst I talked to) to envision a world in which there was such a major market shift that would take Nokia off its game so totally. And then, along came the iPhone. And Android. And the world changed. And Nokia clearly wasn't ready for it, didn't recognize where the world was heading and was unable to respond in a timely fashion. It tried to shift much later in the game, but it was way, way, way too late.

In fact, it could be argued that its own success was part of the problem. Nokia was heavily invested in Symbian and had committed to following that path. This is actually something that's not uncommon with dominant players. In some ways, they're a victim of being there first. When a disruptive innovation comes along, they can't shift on a dime, and the innovations effectively leapfrog right over them. Yes, you can ride out cash cows for a long time -- and Nokia has done so (as, it appears, has Microsoft...) but eventually the music stops.

I bring this up because we seem to go through this quite often -- with people fretting about certain "dominant" tech firms, and how something has to be done to stop them or they'll have too much power. But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.

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Filed Under: competition, disruptive innovation, dominant firms, innovation, mobile phones
Companies: microsoft, nokia

39 Comments

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Anonymous Coward, 3 Sep 2013 @ 1:48pm

I believe it was a google exec (Vic Gondotra) that said "two turkeys do not make an eagle." *insert nerd rage at Mike for not getting this correct*
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Mike Masnick (profile), 3 Sep 2013 @ 2:04pm

Re:
I believe it was a google exec (Vic Gondotra) that said "two turkeys do not make an eagle." *insert nerd rage at Mike for not getting this correct*

Read the link. Vic was quoting a Nokia exec...
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BentFranklin (profile), 3 Sep 2013 @ 2:05pm

Graph fail: The first graph should not have any white space in it. The left axis is in percent, and there is an "Others" category. I'm sure it doesn't change the story, but hey, what is the math equivalent of a grammar nazi? That must be what I am today.
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Anonymous Coward, 3 Sep 2013 @ 2:06pm

Yup. It's called "disruptive innovation" (book: Innovator's Dilemma, which I'm sure Mike read), which tends to hit incumbent leaders in an industry out of the left field, and by the time they realize it, it's too late, and they either decline fast and fail, or get acquired (like Nokia).
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anonymouse, 3 Sep 2013 @ 2:15pm

Well
Why dont the massive Internet companies start buying the movie studios, so that they can supply all movies free online for all to watch , maybe with a subscription, get rid of this damn copyright nonsense.
It would be so amazing if Google and Amazon and Microsoft and Yahoo and a few others put their resources together and purchased all the big ones and pool their resources to supply every movie and video ever made in one place.Just imagine the money they would save not having to pay license fees and releasing the movies after they have finished in the Cinemas.
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jupiterkansas (profile), 3 Sep 2013 @ 2:25pm

Re: Well
They would only have to buy one major studio, and all the others would be forced to follow their lead.
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PaulT (profile), 3 Sep 2013 @ 2:28pm

Re:
It just means that the article's central point is so solid that not even ootb has bothered trying to attack it. That's good going today, so you can be excused for addressing technicalities.
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Jim G., 3 Sep 2013 @ 2:29pm

Re: Innovator's Dilemma
What you say is correct, but there's an important detail which makes it even more difficult for incumbent leaders. Their own customers usually say they have no intention of adopting the new technology, right up to the moment they change their minds and say "Wow, these smart phones really ARE cool" or whatever.
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Anonymous Coward, 3 Sep 2013 @ 2:34pm

Now if only Facebook died :)
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Mason Wheeler (profile), 3 Sep 2013 @ 2:55pm

You know what's the funny thing about all this?

The CEO of Nokia, Stephen Elop, used to work at Microsoft. He left to go work for Nokia, and ended up tying Nokia's fate solidly to Windows Phone technologies, which sent the company into a tailspin.

Now Microsoft is not buying Nokia; they're buying a few pieces of Nokia that are still valuable, and leaving the rest of the company to rot. And what they're paying for it is much, much lower than what they were looking at buying Nokia for a few years ago, the proverbial "pennies on the dollar." And meanwhile, Stephen Elop is being welcomed back to Microsoft with open arms, and rumors are circulating that he's a strong candidate for the new CEO.

Does this all seem just a little bit too convenient to anyone else? When I found out he came to Nokia from Microsoft to begin with, I couldn't help but wonder if this might have been the plan all along...
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Loki, 3 Sep 2013 @ 2:58pm

Re: Well
Because the movie and music industries, via the RIAA and MPAA have invested a lot of time and money in building copyright to protect these industries from just this sort of disruption (often by working deals with services like MySpace or eMusic where they can force their wares to the forefront while pushing potential competition to the back, forcing restrictions - like overly burdensome fees - on disruptive services that thereby hobble them, or tying them up in court until the run out of money and go under). And they have enough resources and capital of their own to strongly resist anyone who might acquire one or more members of their respective "collective" and make substantial change to their business.

In fact, there has been a substantial push in the other direction - via patents - to do to the tech industry (with much less success) what the movie, music and book industries have been doing for decades with copyright.
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John Nemesh, 3 Sep 2013 @ 3:33pm

Re:
Remember a teensy little site called "myspace"? It WILL happen to Facebook...just watch. Someone will come up with a better "social" site, and POOF! Facebook will be gone like that.
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Anonymous Coward, 3 Sep 2013 @ 3:35pm

Re:
Burning platform, man.
The guy completely screwed Nokia by sending that memo less than half a year after joining the company.

Windows phone and its several fundamental flaws were just icing on the cake. Elop has been an unmitigated disaster for Nokia and its rapid demise has a lot to do with his strategical decissions. Probably more than competitors. Why a company the size of Nokia didn't buy up more patents or harrassed competitors more is a mystery. They could easily have stalled the market for years if they needed to.

I would suggest some of Tomi Ahonens writings. The guy knows the company well and is very honest.
http://communities-dominate.blogs.com/brands/2013/09/the-full-story-of-nokia-and-microsoft- how-we-got-here-and-why-microsoft-will-fail-with-nokia-handset.html
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PRMan, 3 Sep 2013 @ 3:56pm

Re: Re: Well
Nice story, except the market cap of the tech companies is about 10x that of the entertainment companies, which means they could buy them and shutter them and people would barely notice on their bottom line.
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John Fenderson (profile), 3 Sep 2013 @ 4:22pm

Re: Re:
It doesn't even have to be "better", it only has to be trendier.
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out_of_the_blue, 3 Sep 2013 @ 4:43pm

Microsoft is approaching FORTY: when it's going away, Mike?
Man, this is boilerplate: Oh, look. Atari once had nearly the whole games market, now where is it? Capitalism is good, see? So don't worry about corporations having too much power, they'll soon be gone.

'people fretting about certain "dominant" tech firms, and how something has to be done to stop them or they'll have too much power.'

The world would be far better off right now if Microsoft had been strictly limited in the 90s, instead of at the height of consolidating its power. Just in time wasted maintaining its crapware, it's among the worst disaster ever to hit humankind. Its prices for facelifts plus deliberate incompatibilities is outrageous when its costs approach that of the distribution media (proving effective monopoly). And now that it's crushed nearly all rivals and is more dominant than ever despite the rise of even worse corporations not directly competing with it, Mike still isn't concerned that ONE corporation controls 90% of the world's operating systems.

Corporatism is indoctrinated in Ivy League schools, but no one who's ever had to labor is for it. Mike has only seen the up side of capitalism. -- He took yesterday off but you can bet your last paper dollar that he never gave a thought to laborers.

Mike is unconcerned by the Microsoft monopoly!
http://www.techdirt.com/articles/20130814/17501024181/microsoft-uses-dmca-to-block-many-l inks-to-competing-open-office.shtml#c150
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SpaceLifeForm, 3 Sep 2013 @ 4:50pm

All part of the plan
Note that Microsoft is "not buying" Navteq and their IP portfolio.

Yet.

If the regulators let this get thru, within a year,
Microsoft will buy up the rest. Microsoft is just
trying to be sneaky, so that can get away with it.

This "deal" should be fought strongly at every angle.
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Anonymous Coward, 3 Sep 2013 @ 5:55pm

New lawsuits for Microsoft?
I wonder if this opens up Microsoft to lawsuits from Nokia share holders? After all a case could be made that Elop went to Nokia simply to tank the company to make it cheap enough for microsoft to buy what they wanted and to give Nokia little choice in the matter. Or even some SEC investigations.
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Anonymous Coward, 3 Sep 2013 @ 7:40pm

Re:
Re-check your axes. That was back in 1Q 2007... obviously the smartphone market hadn't made it to 100% yet!
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Anonymous Coward, 3 Sep 2013 @ 8:19pm

But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.

Unless the giant decides to stop trying to compete and start buying political power. Just shift your budget from R&D to lawsuits, and you can keep raking in cash decades after you stop being relevant. It hurts the economy and stunts technological progress, but it keeps the shareholders happy, so who cares?
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Anonymous Coward, 4 Sep 2013 @ 12:54am

You forgot
IBM, Novell, Wang to name but a few.

And if Microsfot is an 'also ran' who did they 'also run' with ?
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Not an Electronic Rodent (profile), 4 Sep 2013 @ 1:49am

Well there you have it
But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.
Which I suppose explains why those companies spend so much money buying laws that prevent competition. Those laws seem to be easier and easier for corporations to buy so I have to doubt how much longer that statement will be true for.
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Richard (profile), 4 Sep 2013 @ 2:21am

Re:
Now Microsoft is not buying Nokia; they're buying a few pieces of Nokia that are still valuable, and leaving the rest of the company to rot.

Not quite right - they're buying the mobile phone business and a limited licence to use the Nokia name. Nokia is one of those companies that shifts its business interests around and has a history of selling off declining businesses for cash and then re-investing ion something new. This is actually a very smart move for Nokia (and a bad one for Microsoft). The "rump" of Nokia will not rot - it will re-invent itself with a new product - maybe in a different field.
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Eldakka (profile), 4 Sep 2013 @ 4:30am

Significatn flaw in first graph....
Android is built on Linux. It uses the Linux kernel.

Therefore an Android phone IS a Linux phone.

Therefore the graph should have merged the Linux and Android segments.
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CopyAndPasteProgrammer (profile), 4 Sep 2013 @ 5:22am

Microsoft
Microsoft brought us plug and pray. How many hours did you spend to get your computer to work again after a software update?
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nasch (profile), 4 Sep 2013 @ 6:28am

Re: Significatn flaw in first graph....
Therefore an Android phone IS a Linux phone.

Therefore the graph should have merged the Linux and Android segments.

Either way would be correct, they just labeled one segment "Linux" rather than "non-Android Linux" for brevity.
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Anonymous Coward, 4 Sep 2013 @ 8:23am

""I remember making a joke around 2005 or so mocking another company for suggesting that it could pass Nokia in the market (I can't remember which company, but it may have been Samsung) and a telco analyst much wiser than myself scolded me, reminding me how quickly the market can change -- and he was totally correct.""

That is why I read your articles.
Most of the time you see the errors of your judgements and opinions when pointed out or proven wrong.
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Anonymous Coward, 4 Sep 2013 @ 8:39am

Most key thing that I see is that "others" is growing in Phone Sales. It's may end up similar to what desktop PC's went through.

Branded Systems >>>>>> OS dependent Systems >>>>>>>> (now) Pick your own hardware, run any OS

Would love to go shopping for phone components as I do for desktop components.

Phone with intel cpu/ati gpu/ good motherboard/ good psu/ 16gb ram / 3" screen/ average camera/ basic speaker +mic /aluminum case / qwerty keyboard

That would be awesome
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Derek Kerton (profile), 4 Sep 2013 @ 9:43am

Re:
"[Elop] sent the company into a tailspin."

If you think Nokia wasn't in a tailspin when they brought Elop in, you're ill-informed.

"[MSFT is] buying a few pieces of Nokia that are still valuable"

Really? You think the handset business is more valuable than the Intellectual Property? Sadly, I think that's up for debate. But more importantly, you seem to think the handset business is more important than the cellular infrastructure business?

"[MSFT bought Nokia] much lower than what they were looking at buying Nokia for a few years ago"

Well, yeah. That's what happens when the stock goes down. In fact, generally, it's when a stock goes way down that a company becomes a M&A target, so, duh? Also, you seem to be suggesting that MSFT strategically wanted Nokia to fail so they could buy them. On the surface, today, that even seems plausible. But that implies that MSFT didn't want to sell lots of Windows Phone devices starting in 2011. Do you really think that? It's nonsense. Of course, MSFT would be better off if Nokia had succeeded - they would have some mobile market share, and the MSFT market cap would be substantially higher.

"Does this all seem just a little bit too convenient to anyone else?"

You are seeing patterns that are obvious, but are not actually correct.
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Derek Kerton (profile), 4 Sep 2013 @ 9:47am

Re: Microsoft is approaching FORTY: when it's going away, Mike?
"When is MSFT going away?" I dunno. But why not ask:

When is Internet Explorer going to lose dominance?

When is the desktop PC going to lose dominance?

When is WindowsNT going to lose dominance in the datacenter?

When is Office going to have competition?

Oh, wait...that's already happened.
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Derek Kerton (profile), 4 Sep 2013 @ 9:50am

Re:
Yeah, but who was the analyst?
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Mike Masnick (profile), 4 Sep 2013 @ 1:33pm

Re: Re:
Heh. I believe it was you...
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Derek Kerton (profile), 5 Sep 2013 @ 3:35pm

Re: Re: Re:
Good. I wasn't sure.

Either way, I win that one, you win DRM sucking. Took me until 2002 to get on board with that.
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Derek Kerton (profile), 6 Sep 2013 @ 12:00pm

Re: Re: Microsoft is approaching FORTY: when it's going away, Mike?
Forgot the obvious:
Surface computing.
Zune
Windows Mobile (the prior smartphone OS)
The Microsoft Kin phone
Hotmail
Why don't you "Bing" this issue?

And my point is, while the company has not gone away, it has not exactly won every battle, nor every product category it's tried to win.
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Anonymous Coward, 10 Sep 2013 @ 10:22pm

Re: Re:
Please look up the definition of normalised and then think about your comment.
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nasch (profile), 11 Sep 2013 @ 6:28am

Re: Re: Re:
Please look up the definition of normalised and then think about your comment.

Please look up the definition of humor and then think about your comment.
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tracyanne (profile), 24 Sep 2013 @ 3:50pm

Re: Significatn flaw in first graph....
I was about to make the same point.

Android is a Linux based Operating System - just as the desktop systems such as Fedora and Ubuntu and Mandriva are, and just as the generic/unnamed (in the graph) Linux Phone Operating systems are - so therefore the Linux and Android sections should be merged. Either that or they should be placed closer together with an explanation of their shared heritage.

When that is done one gets a truer picture of the rise and fall of phone operating systems.
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FRank Nurock, 21 Nov 2013 @ 9:39pm

Microsoft is admitting its devies are not top grade
Due to the power of Apple and Google, Microsoft is letting us know that it needs a top class phone experience for users to compete, suggesting that its portfolio of devices isn't quite there yet.
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Steve Smiths, 5 Jan 2019 @ 12:38am

The CEO of Nokia, Stephen Elop, used to work at Microsoft. He left to go work for Nokia, and ended up tying Nokia's fate solidly to Windows Phone technologies, which sent the company into a tailspin.

Source : https://www.inthow.com/1337x-proxy-mirror-sites/
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