Finland's fortunes in balance as Nokia opens Windows

Opinion

This post originally appeared on Sciblogs.co.nz.

Wow, I'd love to be a fly on the wall at the Nokia booth at the Mobile World Congress in Barcelona this week - well, on the wall of the meeting room housing the companies top executives and emissaries from Microsoft, Google and other operating system makers.

The Barcelona show is always a colourful one - I've been four times over the years and there's usually a good deal of exciting new technology to see - though as with the Vegas gadget-fest CES, Apple usually boycotts the MWC, leaving the rest of the pack feebly attempting to look cool and innovative.

But this year will be particularly interesting given Finnish mobile giant Nokia's decision to drop its long association with the Symbian operating system for smart phones and get into bed with Microsoft.

The implications of the move for the mobile industry and the mobile phone maker itself are monstrous. Nokia had to do something to address its slide in the smartphone market (in Q4 2010 it had 30 per cent of the smartphone market, down from 40 per cent in 2009), but the deal with Microsoft hasn't been well received at home in Finland or abroad by the tech community.

Take shareholders for instance - a group of them went ballistic at the news, launching "Plan B" to sack Nokia CEO Stephen Elop, limit development of Windows Phone 7 Nokia smartphones and re-jig R&D and software development at Nokia to try and jumpstart innovation. That plan stalled before it even got off the ground:

"...the responses that we received from institutional investors were not encouraging. These institutions have a fiduciary responsibility to their customers and are legally bared [sic] from supporting radical initiatives like seating a bunch of kids on the board of directors. If they do not agree with Nokia's plans, they are better off simply divesting and putting their money in other companies that better fit their investing strategy (which is exactly what they have been doing)."

John Dvorak hits the nail on the head when he says the partnership is a bad move for Nokia - but better than the inevitable slide towards oblivion the mobile maker was and may well still be heading for.

Microsoft was single-handedly responsible for perception that the smartphone was a dog of an idea. The smartphone languished under Microsoft tutelage. Then the iPhone came along, and Microsoft was dumbfounded and slow to react. Years had to go by before a kind of iPhone-like Windows Phone 7 appeared too little and too late.

Windows Phone 7 is a decent operating system, but it literally took Microsoft 10 years and the arrival of both Apple iOS and Google Android to get its act together. I was at CES this year - Microsoft spectacularly failed to create any forward-looking buzz around WP7. Having your Xbox 360 avatar pop up on your phone is not the way to win hearts and minds in the smartphone space.

Symbian is a dog of a mobile operating system. I have given away well-designed Nokia handsets - the Communicator and the N7 because I can't stand the cumbersome software they run on. MeeGoo, the Nokia-Intel Linux based system developed in the wake of Symbian's slide towards extinction appears to be much better, but Nokia lost its nerve, consigning the fledgling operating system to oblivion in favour of a deal with Microsoft, reportedly resulting in massive money and marketing support being lavished on Nokia.

Personally I think Nokia should have embraced Google's Android platform and become the premium developer of handsets and tablet PCs optimised for the Android operating system, leveraging the Android app store and integrating Google's search and location-based services properly into the mobile world. It has instead chosen a laggard as a partner in the mobile software space and has such, the future prosperity of a country surrounded by the PIG countries of Europe could well be affected.

Others were quick to seize on this, even before the announcement of the alliance with Microsoft:

There's one other reason that Nokia would not make any substantial move away from Finland: the terrifying impact it would have on the Finnish economy. While shifting HQ to another country would not result in the immediate draining of all money from the country - for starters, Nokia would most likely remain listed on the Helsinki stock exchange - it would have dramatic consequences almost straight away.

The future of Nokia and the health of the Finnish economy and intertwined. It is the flipside of the rosy Nokia success story - when a company that big is responsible for turning around a country's economy, it could also be the company that destroys the economy when it takes its eye off the ball and fails to innovate.

Nokia is perilously close to that position at the moment. Sure, it employs 132,000 people around the world, has revenue of euro 42B, profit of euro 2 billion and is officially the biggest manufacturer of mobile handsets in the world. But look what happened to Motorola, another mobile giant that five years back was on a roll with its Razr handset but has since been broken up after a string of failures in the mobile handset space. One thing is undeniable about Motorola - its software was always a dog.

If you want to get an idea as to what extent the fortunes of Finland rest on those of Nokia, read this piece in the Helsingin Sanomat:

The role of the Nokia sector as a motor of growth was crucial for Finland in 1995-2000... It accounted for an additional growth of 5-6 per cent in Finnish GDP. At the same time... the proportion of exports in Finnish GDP rose from 20 per cent in the 1990s to nearly 50 per cent in 2000.

When growth in world trade collapsed in 2000, exports of electronics was cut in half in a year, reducing the growth rate of GDP by 2.5 percentage points.

Since then ... electronics production has gone up and down like a yo-yo, causing confusion in cyclical analysis and in political debate.

The closest New Zealand comes to the likes of Nokia is our biggest company, dairy giant Fonterra, the health of which is correlated with GDP. But while Fonterra has thousands of dairy farmers as shareholders and serves customers around the world, its ecosystem of suppliers and customers is nowhere near as vast as that of Nokia's.

Finland is literally in the palm of Nokia and the executives who steer it. A bad move for the company is a bad move for the nation that created it. In that sense, former Microsoftie Elop is playing it safe cosying up to cash-rich heavyweight Microsoft. But Apple and Google have shown how the mobile sector can turn on a 10 cent piece on the back of innovation.

The decisions Nokia makes in the next year or two could spell the success of failure of the company. It has bought itself some time with WP7, but its longterm software roadmap is far from certain. If it is smart, it will court Google in the background and prepare for a potential switch to Android.

This interesting Harvard School of Business paper documents the spectacular success of Nokia, but the serious level of exposure Finland's economy has to the fortunes of a single technology-driven company.

Peter Griffin is managing editor of Sciblogs and the Science Media Centre. View his work and that of 35 other scientists and science writers at Sciblogs, New Zealand's largest science blogging network.