There’s plenty of room at the bottom

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Famous US physicist Richard Feynman’s talk which inspired the micro-chip and nano-technology booms was given in December 1959 and published the following year. Entitled ‘There’s plenty of room at the bottom‘ it encapsulated the challenges and opportunities of manipulating objects on a small scale.

I was reminded of Feynman’s lecture when I read about the apparent CEO search at Nokia. The primary reason given for this by the media was Nokia’s apparent inability to compete with the iPhone and Android. They believe that is further compounded by Nokia’s inability to crack the US market.

First question: does Nokia have to compete with the iPhone?

I would be inclined to say no. Part of the reason for this is the ‘better mouse trap’ rule: even if people were offered as good a phone and ancillary services as the iPhone they aren’t now likely to move. They have a raft of tracks in iTunes that they’ve either burned or bought. In fact, technology commentator Robert X Cringely says that a technology would have to be ten times better to encourage us to move. That is why Microsoft’s pursuit of Google is costing billions of dollars and going nowhere fast, or that Apple is never able to skim more than a fraction of the PC market and instead has had to change the game.

Should Nokia entertain US Carriers?

Yes, but not now. In order for Nokia to crack the US carrier market, the company needs to operate from a position of strength. If I was Verizon or Sprint why would I want to work with Nokia – there is no strategic imperative, so that means that the only motivation is that cost reduction – cheap handsets and lots of co-marketing dollars. Nokia biding its time maybe beneficial:

  • Allowing to to focus on markets that it can win in
  • Allowing future technologies to reduce the plethora of mobile standards that currently exist in the US: iDEN,  GSM, WiMAX, CDMA, CDMA2000 | EV-DO, WCDMA

So where can Nokia go?

Well the first thing would be to look where competitors currently aren’t. There is a market for a good quality voice experience – a spiritual successor to the Nokia 6310i, and in mature mobile markets many people juggle a number of handsets to get the best tariff. Markets such as Europe and Hong Kong also have a lot of business and leisure travel abroad: both of these requirement sets require good quality handsets with capacity for two or more SIM cards.

Secondly, I would argue that the company should play to its strengths in emerging markets. Nokia has withstood a barrage of Chinese mobile handset brands in emerging markets because they understood consumers want status not just cheap phones. Nokia has the distribution channel, it needs to up-sell and cross-sell in these marketplaces. It has done this successfully (as a happy accident) in the past with devices such as the Communicator-series in Indonesia as a prime example.

How can Nokia improve its margins?

Nokia is a large company that has tried to make mobile handsets for every sector of the market. Focusing at the bottom will necessitate the company to focus more sharply on cost reduction. Reduction in engineering teams sizes, may ironically be beneficial in completing deadlines a la Fred Brook’s Mythical Man Month. This is not about off-shoring teams, but paring them down; keeping only the smartest people and giving them challenging projects to work on. If you reduce the size of an organisation, you also can reduce the size of management infrastructure and people required to oversee it all.

This is the operational part of the puzzle that Nokia will struggle to deal with due to Finnish employment law. Having all that talent in one place (outside Nokia) however, given the right impetus could create an ecosystem of mobile technology start-ups which would be more beneficial for Finland in the medium-to-long term. Secondly, I am sure the Finnish government when faced with the choice of a slim Nokia or no Nokia would opt for the former.

Secondly, think about market needs. For example, in sub-Saharan Africa some of the mobile phone providers have become banks as person-to-person mobile commerce and payments has taken off. People trust the cellular provider better than their own currency. Nokia has a lot of work that would be beneficial in this space for instance around near-field communications. It is in areas like this that Nokia could build up a portfolio of services.

Act II: Going back to the top

Succeeding at the bottom would require Nokia to become leaner, smarter and more entrepreneural. Just the kind of qualities that could be applied at a later date to re-enter the top of the cell phone market with a set of disruptive products and services – there would be no pressure and no legacy to worry about. In order to do this the organisation would need to give the market time to ‘forget’ Nokia as an also-ran.

Rolling with a tightly managed cost base would be devastating to competitors by now used to high margins. Think about the way Apple has used its reinvention to become a smart, formidable competitor in new markets. It may be even the right time to expand the company’s Vertu brand. However, I would recommend that they focus on getting act I right before act II.