It is not profitable, but we made a conscious decision to over-invest in Windows Phone, says Nokia’s Executive Vice-President
wo years ago, Stephen Elop, who was the first non-Finnish boss of Nokia in its 150-year history, compared the company to a man standing on a burning platform and vowed to create a smartphone that could rival the iPhone. The last two years, however, have seen Nokia take several body blows, with the company’s market share and brand image dipping to an all-time low. With the market scenario changing radically, Mr. Elop hitched the fate of Nokia to U.S. software giant Microsoft, hoping that the combined entity could battle it out in a smartphone market that has proved to be almost lethal to most players. In an interview to The Hindu, the Nokia Executive Vice-President, talks on the impending acquisition, competition from local players such as Micromax, and more. Edited excerpts:
Nokia has been using Microsoft’s Windows Phone software for almost three years now and it is still not profitable. Are you and the company satisfied with this progress? Why was there no back-up plan, such as hedging on Google’s Android software?
What we figured was that it was important to differentiate. For instance, if you look at the Android-based players now, while there is one player who is successful, there are many others who are not.
What we like about Windows Phone, and this is something you have seen over the last few quarters, is the overall trend. So you are right, it is not profitable, but that was a very conscious decision. When you are starting something new, you have to over-invest, you have to put the money into it.
But if you go back, lets say five quarters ago to now … you can see a clear trajectory of increased sales building up. This is part of the reason that Microsoft is excited to do what they are doing, because this is at a time when the trajectory is heading in exactly the correct direction.
We made a conscious decision as to how much would we invest, that we would over-invest, with the intent of building that momentum. And that’s exactly what we are seeing, so we were pleased to do that.
So if the current Windows Phone trajectory is building up, why sell Nokia at this point? Is the sell-off not too early, considering the Windows Phone strategy hasn’t yet achieved success?
Well, you see… part of the consideration for the board of directors of Nokia is that you have to look at the pattern that are forming and you have to look at the price opportunity and the discussions with a company like Microsoft. And then you have to make a decision that says what provides the greatest value to Nokia shareholders.
You do that by forecasting the growth and you compare that to what money you can capture now, and so on. Also, one of the things I know is that Nokia shareholders are very pleased about the value of the Nokia share. And, because of this transaction, the share prices have gone up by quite a bit — more than just the value of the transaction.
Why is that? Because they recognize we have created additional value of being able to invest behind Nokia Solutions and Networks, which, before, did not have much in terms of funding as it will have after the Microsoft transaction. So, you put those pieces together and shareholders look at this and say “wow you have done the right thing to get more value for the devices business than we would have predicted and unlocking value from your other assets.”
Our stock price is up… I think this is because our board has made the right series of decisions about what to do with respect to Microsoft.
In India, the Nokia brand and the company’s market share have taken quite a beating over the last few years. What are you doing to shore up the base and regain market share?
What we are doing very deliberately — and you can see this with our continued introduction of the Asha family of products — is that we are introducing more and more capability at even more competitive price points.
So, this is aimed at people who are looking to get connected digitally for the first time, like in India. And this is beyond just a phone call or a text message… they [users] will have a very cost-effective way of doing it with our products. And, if you see our strategy here, it’s not about taking a big, heavy operating system and squeezing it down onto cheap hardware. You can do that, of course, but you pay a penalty in terms of the quality of experience.
So we’ve taken our heritage in low-cost devices, in great radio performance… the battery life of some of our devices can run for over a month before charging it! And then, what we do is add onto that the really important experience of Facebook, Whatsapp, and so on.
So, people getting their first digital experience on a 2G or a 3G network all of a sudden get that first exposure. For many people, when they say they want to connect to the Internet, they don’t mean the whole Internet! They mean Facebook, Wikipedia, Google... just a couple of things.
So, we do that, but, at the same time, we introduce products like the Lumia 520, which is a low price point device. So maybe we can bring people through a journey over time, as the Lumia devices become lower in price point, and as income levels rise, maybe there’s an opportunity there.
Low-cost local players like Micromax have stepped in the vacuum left by Nokia though. How will Nokia tackle Micromax’s $60 devices?
Well, I would tackle that with $60-70 devices that actually are better designed, that have a better experience, a more responsive touch experience, and so on. You have to compete with them head-on.
Our approach is different of course… it’s not about a full Android experience. Frankly, at those points [for those products], check out that experience, it’s not the same that you are seeing on your Galaxy S4 for sure. And so, we are being very thoughtful about how we optimise the experience for those market conditions.
Of course, the Nokia brand both before and after the Microsoft transaction continues on. So people who might have had a 15 dollar device for simple phone calls might take this as a next step. So, it is a part of our active competition. We think we can compete vigorously with the low-cost devices from other players.
Will Nokia’s overall brand message change as the transaction with Microsoft goes through? What will happen to the company’s massive distribution channels, which have been loyal to the Nokia brand?
So, the brand is a fundamental question. Just to describe the Microsoft-Nokia transaction, the Nokia brand will be owned by the Nokia company going forward, not by Microsoft. However, for 10 years, the Nokia brand will be licensed to Microsoft for usage of products like Asha, and so on.
So going forward, Microsoft will own the Lumia and Asha brands, but they will not use Nokia for Windows Phone smartphones. So, there’s still a decision to be made, as the companies come forward, as to what combination of words and brands will be used for smartphones.
So in a country like India where we have 140,000-150,000 points of sale with the big Nokia sign in front, we hope there will be Nokia devices for many years. We will be looking for creative ways to take advantage of that distribution network.
It’s the same distribution and sales team. Working with those people, who will be working for Microsoft, so we will be looking at ways to draw them into the Microsoft family with whatever brand we use for the higher-end smartphones.
But don’t some products such as Nokia’s new tablet and Microsoft’s Surface potentially clash in the marketplace? How much of your company’s device strategy will remain the same and how much will change?
All of the products we launched this week at Abu Dhabi, the 2520, Lumia 1520 and so on will continue. But as Microsoft and Nokia come together as one company, we have to plan what a joint portfolio of products will look like. We have to decide about branding, what the mix of products is, and so on.
More importantly, we have to think about what new innovation we can bring to the table — because Nokia engineers and Microsoft engineers will now be able to work together in ways they couldn’t work before because of limitations on patents and things like that.
Yes things will change, but I know the engineers on our side and on the Microsoft side are excited about that change. It’s a very positive force.
Nokia has a tax dispute with the Indian Government at the moment. How is it being resolved?
Our general principle on all of this is to deal completely forthrightly within the context of the law. On tax matters we believe we have operated fully and completely, paying the right taxes to India and the right taxes to Finland. Of course we will continue in deliberations with the Indian Government to resolve that, but I am sure we will resolve it one way or the other in the end.
(The correspondent was in Abu Dhabi at the invitation of the company)