When John Sculley forced Steve Jobs out of Apple back in 1985, the former PepsiCo marketing executive very quickly produced dramatic improvements in Apple’s profitability. Apple wasn’t losing money before, but Sculley improved the bottom line by about $200 million (a lot in those days) simply by cutting all of Steve Jobs’s pet projects that appeared to have poor prospects. Sculley raised profits by cutting expenses not by increasing sales. Expect the same thing at Nokia where, ignoring for the moment the “enormous payments” Microsoft will be making according to Nokia CEO Stephen Elop, the company can probably cut its software development budget to near-zero, saving $1 billion or more and increasing profits by that amount.
It’s one of those moments like when Cortez burned his ships to concentrate his conquistadores fully on their job of subjugating the Yucatan. Elop is burning his software development capability, betting on Microsoft. Sure, Symbian will be around for awhile in Nokia products, but two years from now it should be gone. And in that interim period, between lower development costs and Microsoft subsidies, Nokia will look better to investors even if its smart phone market share continues to fall.
That’s why Nokia did the deal with Microsoft, which will be assuming the burden of all that software development and paying Nokia for the privilege. It’s a short-term play that makes perfect sense in an industry where CEOs last an average of four years. Stephen Elop’s four years are now fairly certain, his golden parachute packed and ready.
Two years ago such a move would have been impossible in Europe simply because of employment laws making it very difficult to dump workers. But the current European financial crisis has changed that somewhat and Nokia’s obligations probably aren’t as onerous as they once would have been. Austerity is the thing these days in Northern Europe and almost everywhere else.
Now you might think I’d be against all this but I am not. Compared to Android and iOS, Symbian was, in a word, crap. We can have geeky arguments about it all day but the market has spoken loudly and I am right. Elop was right to make a platform change and righter still to do it this way, primarily at Microsoft’s expense. Nokia had to get out from under its bad software culture and this was by far the most elegant way to do it.
But having said that, I still don’t think it will work.
Trading Symbian for Windows Phone 7 with a $100 bill attached is still trading the worst smart phone platform for maybe the third best. With Blackberry retooling and coming up fast and HP’s WebOS as a dark horse backed by massive manufacturing capability, it isn’t at all clear that Nokia has selected a winner. Which is why I have some advice for Stephen Elop.
Nokia should put some of that Microsoft money into emulating Google’s Android development, where 25 programmers humbled the 1000+ working on Symbian. Hire a Bob Lee (or heck, hire Bob Lee), set up a small development office somewhere in the USA, and spend $5 million per year aiming at mobile life after Microsoft. By tying hardware and software as Apple has done with the iPhone and iPad (and Google, by definition, can’t do) Nokia can head Apple off at the pass with the equivalent of the iPhone 7, three years from now.
That’s what Nokia should do, but of course by then Elop will already by gone.