Nokia Made Too Many Phones

The phone market in 2000-10 was crazy, but Nokia’s strategy was even crazier. Just in the year ‘05 alone, it launched more than fifty models, more than the number of iPhone models Apple has shipped in sixteen years of its existence. Granted, many of the Nokia models were barely different from each other, but nonetheless, Nokia was creating an absurd number of categories.

Nokia phones were business-centric, music-centric, camera-centric. They had everything from 1-bit monochromatic displays to 24-bit AMOLED displays. The body-design itself had multiple type: Bar, Flip, Slide, Qwerty, and … Lipstick?

For some models, the company decided to drop all forms of conventionality.

To clarify, making different models isn’t the core issue here. Laptops, monitors, and appliances all come in various specs and sizes to serve different needs. However, they don’t deviate too much from the core design. Nokia, on the other hand, was experimenting too much. Not only the variety of devices was creating an incoherent user experience, but it also made it almost impossible to create an app market.

…why?

In the 1960s, Nokia was a conglomerate selling everything from toilet paper to tires. It did a commendable job transforming itself into a telecom-based company in the 90s. However, market segmentation was baked into Nokia’s strategy. In their ‘05 annual report, they wrote:

For Nokia, a competitive mobile device product portfolio means a broad and balanced offering of commercially appealing mobile devices with attractive features, functionality and design for all major consumer segments and price points supported by the Nokia brand, quality and competitive cost structure.

The interesting part is how the idea manifested itself in how the organization worked.

Nokia’s Mobile device division had three sub-divisions: mobile phones, multimedia, and enterprise solutions business groups. And each of those divisions had further sub-divisions. Each sub-division was independently creating phone models, trying to capture the market they were assigned.

Take a look at the Mobile phone division. It had five separate units (Nokia Annual report ‘05, p28):

1. Broad Appeal unit focused “on mid-range products where the balance between price, functionality and style is key” (eg, Nokia 3250).

2. The Entry unit addressed markets where they believed “there is potential for growth and where mobile penetration levels are relatively low.” (eg, Nokia 1100).

3. Lifestyle unit concentrated on “top-end products for consumers who will pay a premium for higher-quality materials, design, and features.” (eg. Nokia 8800).

4. A CDMA unit to collaborate with operators and create models using CDMA technology.

5. Vertu, a unit for luxury communications products, focused “towards establishing a luxury mobile phone category.”

The multimedia division focused on phones with “the ability to create, access and consume multimedia”. This included the N-Series phones, and XPressMusic phones.

The enterprise division focused on business users. This included the E-Series phones, 9300 phones.

You can already see where the trouble started brewing. Tens of sub-divisions, each launching multiple models to capture specific segments of the market. While Nokia did invest heavily in R&D, it was impossible to produce cohesive research that could improve their phones in general; the crucial research that would pave the way for the iPhone in a few years. And the rest is history.

One of the first things that Jobs did after returning to Apple was to kill individual “business units” and reorganize the company based on functions. It’s interesting to see how Nokia succumbed to the bad strategy that had almost killed Apple in ‘97. Nokia perceived the smartphone market as composed of multiple categories, not as a whole. And that’s where it lost the battle.