Nokia had succeeded in becoming the market leader by following a strategy of incremental innovation. It is constantly thinking about the future and is well known for its high levels of investment in R&D. The flag ship of this ongoing commitment is the Nokia Research Center a global research group that continues to work closely with some 100 universities around the global on R&D projects.
When it comes to world’s best design practice Nokia ticks all the right boxes. Collaboration is at the core of its approach to product design. For example Nokia sends design teams out to work with the locals to discover new ideas for mobile devices that would change the way people interact in the emerging markets. They run online conversations and collaborative workshops so their customers and developer community can contribute designs and ideas that will help to create the ultimate concept device. They have consistently been winners in the race to bring innovative new features like the web browser, MMS and video calling to the market (See Nokia and Apple Mobile Histories side by side)
The result of all this energy and investment are ground breaking concepts like the Nokia Morph, undisputed market leadership and an extensive product range that has earned Nokia the label of the General Motors of the Mobile Phone World.
What I find interesting about the Nokia story is that ten years after “Doing Business the Nokia Way” was published Nokia’s market value has fallen dramatically.
So the question needs to be asked how could this decade long investment in R&D and ongoing commitment to “Incremental Innovation” deliver an 80% loss in shareholder value?
The answer of course is the iPhone. In three short years Apple has disrupted Nokia’s market and redefined its future.
Ironically, back 1997 when Nokia’s star was on its meteoric rise and the Sony PlayStation was rapidly redefining the games market, Apple was arguably on its knees. Its flagship product, the iconic “Mac “, had lost the PC wars to the clones and its revolutionary mobile PDA, the Newton, had proven to be far to ahead of its time. The question wasn’t really about what would we see next from Apple’s Innovation Engine but would Apple be around to compete in the next round of the information revolution? It took a $150 Million investment from Microsoft and the return of Steve Jobs to nurture the seeds that have subsequently disrupted Nokia’s market dominance.
The rest as they say is history. Apple has been the American success story of the noughties.
Fast Company is leading this month’s issue with Invincible Apple: 10 Lessons From the Coolest Company Anywhere. Providing us with rich contextual insights like…
- Apple’s specialty is the remix. It curates the best ideas bubbling up around the tech world and makes them its own. and,
- Steve Jobs’s primary role at Apple is to turn things down.
They aren’t the first, nor will they be the last, media outlet to wax lyrical about Steve Jobs and Apple’s achievements over the past few years. Nor is the analysis limited to words. We also have pictures and illustrations like Ben Millen’s iPhone Deconstruction Diagram. Each in turn will attempt to offer some insight into how Apple’s Innovation Model has once again disrupted an existing market and left the competition for dead by becoming the new profit leader.
We’ve already undertaken some analysis of Apple’s Innovation Engine (Think: Discovering the DNA of Apple’s Innovation Engine, What Apple can teach Google about market disruption, and What Apple can teach the newspapers about innovation) and you will recall from these posts that one of the discoveries we made was Apple spends significantly less as a % of its revenues on R&D than its competitors. But, if we include the “Freemium” R&D investment made by the developers who supply the games and apps that fill the App Store into the mix then the level of R&D investment as % of revenues is equal to that of Nokia.
| Apple | Nokia | Sony | |
| Business Week’s Innovation Ranking |
1 |
23 |
10 |
| R&D Expenditure (Billions) |
$1.1 |
$8.7 |
$4.8 |
| R&D as % of Revenue |
2.3% |
11.8% |
6% |
So has Apple redefined the future of R&D? Has Apple’s revolutionary new approach to R&D rendered obsolete the much celebrated Disruptive and Incremental Innovation of Engines of Sony and Nokia?
The trend towards outsourcing R&D to cut costs and get new products to market faster is not new. Business Week has been tracking this growing trend by the world’s leading Brands for the past decade (See the reports from 2005 and 2008). There is also the recent report in The Atlantic and Andy Grove’s commentary piece this week for Bloomberg on the export of US technology jobs to Asia. The trend reflects the global movement towards Speed and Agility being the new drivers of innovation. (See Innovation Clouds and Rainbow Brands)
Like most of its competitors, Nokia was already outsourcing some of its R&D capabilities to its suppliers. The problem now is Apple appears to have taken this outsourcing trend to the next level and significantly reduced its R&D costs by engaging its loyal following of developers to enrich and enhance the product’s basic capabilities at little or no cost to Apple.
Nokia isn’t the only R&D icon that has been disrupted by Apple since 1997.
Sony’s ongoing commitment to Innovation Leadership had defined the future of the Electronics Industry for more than 50 Years. From Magnetic Tape to DVDs, Transistor Radios to Walkmans Sony had consistently redefined how we create and consume electronic media by disrupting the established market leaders.
For example, the PlayStation Sony disrupted the game console industry by selling the revolutionary new gaming platform at a low-margin to secure market share. The profits came later from downstream sales on the high-margin games software that was developed by Third Party Developers. The revolutionary new model was so successful that by 2002 the PlayStation generated 60% of Sony’s profits.
Earlier in the decade Apple’s iPod usurped the Sony Walkman as the portable music device. Now it is the turn of the iPhone and the iPad to disrupt Sony’s portable gaming device (PSP) by turning the model on its head with a revolutionary new High Margin mobile gaming platform that has secured market share by flooding the market with Low Margin (i.e. Mostly Free) software.
So what does this mean for Nokia? Can it do what Apple has done? Does it have the R&D capability to disrupt the industry it has dominated for over a decade or will it suffer the same fate as Sony and allow Apple to render its platform obsolete?
For the past decade Nokia thought it was in the business of Connecting People. Today Nokia’s believes its future lies in selling experiences.
At Nokia, we’re constantly thinking about the future. We spend our days envisioning a world that few can imagine but that we know is just over the horizon. We have developed a vision of how the physical world will fuse with the digital world in the future through mobile technologies.
In reality Nokia is still in the business of providing its customers with the gadgets to allow them to walk into a crowded room and say:
If you think that’s cool then take a look at this!
Apple’s revolutionary iPod, iPad and iPhone platforms are nothing more than blank electronic canvases that allow the customer to design their own mobile digital life style. The iPhone, just like the original Apple Macintosh, is an empty shell waiting to be populated by its owner. Facebook is pretty much the same – a blank electronic canvas that allows the customer to personalise their little bit of the web with the things that interest them today – be that Apps, Games or Content.
This is why, in the end, I don’t believe there is anything innovative about the iPad. It’s just Apple doing what Apple has always done well. Designing blank, dare I say plain vanilla “electronic” slates that allow everybody to project their vision into the vacant shell through the Apps, Wall Papers and Media they install onto the device.
Think Apple Mac: Graphic Designer or Accountant, Video Editor or Journalist. Chemist or Music Composer. It all depends what software you installed. Fast forward 20 years and Think iPad. The device is the mirror for your personality. You load the Apps, Games and Media that defines who you are.
Nor then does it take a rocket scientist to predict that Apple will continue to bring revolutionary new plain vanilla electronic slates of varying shapes and sizes to disrupt other established markets in the future.
Here then is the subtle difference between the market that Nokia dominated and the market Nokia now finds itself operating in. In Nokia’s world there is a wide range of Mobile Phones of different shapes, colors and features for you choose from. Each one allowed you to express your personality. It was like choosing between an SUV, Sedan, Convertible or Sports car – That’s why the original Nokia strategy was to become the GM of the mobile phone industry.
In an iPhone world there is one (very plain) device and it’s what you install on it that makes it cool.
Nokia’s problem is simply making another plain device isn’t the answer to the problem. But that is what it is focused on doing. Even though it is still the Smart Phone market leader, Nokia is playing iPhone catch up. The once proud market innovator is increasingly looking like a Me2 player in a market it once dominated.
Take a look at Nokia’s MobCon Radar and you’ll see that the 5 year strategy to build the world’s biggest proprietary mobile media platform has been seriously undermined by the run away success of Apple’s App Store.
What's on Nokia's Radar?
Clearly Nokia is now in the business of chasing developers to join its platform. While Apple is increasing the barriers to entry for developers wanting to publish titles through the App Store Nokia is busy making it easier for independent developers distribute their apps through Ovi Store. For example Nokia have recently made their SDK freely available to developers. Plus they have introduced competitions that offer cash incentives for developers to create new apps.
“So stop now and ask yourself: forgetting your current battle, where is the next battleground and what can you do today to begin positioning yourself there?” - Nokia The way we live next
Operating in a post the iPhone world we have come to realize the future of the mobile device is it is no longer about product innovation (i.e. Features). It’s all about platform innovation or more accurately it’s all about providing developers with an innovative and revolutionary platform that will allow them to freely market their fashionable “Bling” – be that Apps, Games or Content – to large numbers of Customers seeking to personalise your Platform to fulfil their immediate lifestyle expectations.
Moving forward Nokia has two clear options. It can adopt the iClone strategy adopted by IBM and Microsoft during the 1990’s or it can build a brand new platform.
The Nokia CEO has said previously “Irresistible” devices and services are the key to future success and he is right if the future is to be a marketplace of iClones. Chances are the market leader will be the one who gets the mix of Killer Gadgets and Killer Applications just right. At the moment that is Apple. Question is can Nokia benefit from an iClone strategy?
The iClone strategy is a proven Apple killer. You basically publish the standard and allow the emerging markets to decimate the margins on the Apple products while profiting from the OEM OS deals. The problem for Nokia is, being a device manufacturer, it would also be a Nokia killer. That’s why the iClone is more aligned to Google’s and perhaps even Microsoft’s mobile future than Nokia’s.
Nokia needs to abandon its iClone strategy and start building the next generation mobile device platform. A platform that makes Apple’s blank slates look and feel like Retro 20th Century Relics. Could this new platform be the Morph? Maybe. But then again, given the power of Nokia’s Innovation Engine, imagine what could happen if they switch their innovation strategy from incremental to disruptive.
Moving forward the easiest way for Nokia to disrupt the market is for it to forget about Apple and redefine the market in its own image. If it can do this then Apple’s bubble will quickly deflate and it will once again become a niche player in a global market reshaped and re-energized by Nokia’s Innovation Engine.
Further Reading
- What’s on the Radar for Google and Nokia?
- What’s on Apple’s Radar?
- Some quick thoughts on why insight is more important than intelligence
[Update 2-10-2010]
“At Nokia, we believe that connecting people with great mobile experiences is at the heart of what Ovi is all about. Today people discover Ovi through Maps, Music, Messaging, Ovi Store and Ovi Lifetools. With a new generation of amazing devices, like the Nokia N8, developers are looking at Ovi as a good business decision and a chance to innovate and create next-generation mobile experiences for our family of new Symbian devices.” – Tero Ojanpera, executive vice president, Nokia
October 7th, 2010 → 1:00 am
[...] in shareholder value? The answer of course is the iPhone, I strongly recommend an article on Excapite which analyses this fall from [...]