RIM and Nokia’s grand unravelling

In this month’s Innovation Talk, I look at the startling decline of Nokia and RIM. Once the twin pillars of the mobile industry, they’re flailing now, with no sign of hope. In this week’s Monday Note, former Apple executive and all-round sharp guy Jean-Louis Gassée was even more blunt – “Nokia, once the emperor of mobile phones, shipping more than 100 million devices per quarter, is now in a tailspin, probably irrecoverable, taking its employees into the ground.” A sad sight to see, but also a touch inevitable, I’m afraid.


From The Irish Times, Monday, June 18, 2012


In April of last year a big advertising campaign for a much-hyped gizmo was launched, and it was not lacking in self-confidence – “Amateur hour is over: the Blackberry Playbook is here”. In the pantheon of absurdly hubristic marketing slogans, Research In Motion’s launch of their iPad rival will surely deserve a special pedestal.

RIM founders and then joint chief executives Jim Balsillie and Mike Lazaridis always had a flair for arrogant pronouncements, but rarely has a slogan been so starkly at odds with reality. If you’re being charitable you could say that this misstep hinted at a company that’s lacking in good judgment when it comes to promotion and marketing, but the precipitous decline of RIM in the 15 months or so since then suggest that the complacency and lack of judgment is rather more endemic.

At the end of May it was revealed that RIM had over $1 billion worth of unsold inventory – a lot of which was taken up by unsold Playbooks. Think about that – $1 billion of gadgetry that no one wants sitting in warehouses. That’s a desperate state of affairs, and new chief executive Thorsten Heins, who took over when Balsillie and Lazaridis were forced out in January, is in crisis mode, recently hiring JP Morgan and RBC to “explore options”, which sounds like the corporate version of euthanasia.

What lesson is there to learn from RIM’s woes? Is its decline merely a matter of woefully arrogant mismanagement and poor execution? Unfortunately, I don’t think so because there’s a worrying pattern of crisis over the past two or three years in the mobile phone industry, and for case study B we need look no further than Nokia.

For more than a decade Nokia virtually owned the dumbphone market just as RIM’s Blackberry dominated the smartphone space. Now, however, they’re in a tailspin, burning through their cash reserves and with rumours that both Samsung or Microsoft might be eyeing up the Finnish company; indeed last week, chief executive Stephen Elop announced plans to cut up to 10,000 jobs as he reduced Nokias earnings forecast for the second time this year? What happened? Was Nokia’s management suffering from the same derangement syndrome as RIM’s? How can two hugely successful companies suffer parallel declines?

The reality is that it’s not just those two giants who are stumbling – the mobile space is a veritable bloodbath these days. Motorola was bought by Google, HTC is facing dwindling revenues, the Sony Ericsson brand was dissolved, LG is having to focus on its TV business, and then there’s Palm, which went from PDA giant to plucky underdog to distant memory in just a few years. For an industry that’s booming this sure looks like an industry that’s dying – what’s going on?

The answer, of course, is an epic market disruption that began with the launch of Apple’s iPhone five years ago and continued with the emergence of Google’s Android operating system – the incumbent companies have been hopelessly ill-equipped to deal with transformed customer expectations and technological challenges.

Horace Dediu, the most perceptive analyst of the mobile industry, calculates that in the fourth quarter of 2011 Apple and Samsung made 99 per cent of the profit among the top eight mobile vendors; HTC made 1 per cent, and the rest lost money. What revenues remain in the dumbphone sector of the market, which Nokia relied on to keep itself afloat, particularly in the developing world, has been commoditised by no-name entrants.

As Dediu put it recently: “A tipping point has been crossed. This is the point where some participants are disrupted enough that they cannot recover.”

This is a compelling illustration of the innovator’s dilemma that I wrote about a few weeks ago. Both RIM and Nokia are being disrupted to death – they both pioneered different areas of the mobile phone business at the high and low end, and both have been usurped by developments that they are neither agile nor technically adept enough to react to. The institutional biases towards preserving their existing revenue models meant they were at first oblivious to the attraction of touchscreen-based mobile devices – the Blackberry’s main selling point was its keyboard, and Nokia seemed incapable of innovating beyond its keypad design despite the plethora of various designs it churned out every month.

Then, when it became clear that the era of touchscreens and app stores was upon us, they lacked the key resource to be competitive in the field – user-centric software design experience. Both RIM’s Blackberry and Nokia’s Symbian operating systems were clear evidence of companies that created software as an afterthought to their hardware rather than as an equal and integral part of the design process; thus when software design became critical to success in mobile neither had the necessary expertise to challenge Apple or Google. Now Nokia is relying on Microsoft to gain traction with its Windows Phone operating system, which shows little sign of making up for lost time, while RIM is betting the house on its forthcoming Blackberry 10 operating system.

In mobile change can happen fast, so it would be foolish to write them both off entirely, but this disruption is likely to take at least one of them down, and soon. Amateur hour, it seems, is very nearly over.

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