The challenge Nokia faces in the smartphone market was grimly detailed last week. In the third quarter, according to IDC, Nokia’s worldwide smartphone sales fell 37 percent to 16.8 million phones from 26.5 million a year ago.
Nokia’s retreat comes in a booming market. Smartphone shipments grew 43 percent in the third quarter.
Stephen Elop, Nokia’s chief executive, is not despairing, and he has a turnaround strategy. The game plan is coherent and ambitious, but its success is not assured.
The opening for Nokia, Mr. Elop explained, depends on Nokia’s ability to exploit the rapidly shifting market in smartphones, to profit from its new alliance with MicrosoftÂ and to develop services based on its own assets, like the company’s advanced mapping and location data technology.
“There is tremendous opportunity for differentiation,” Mr. Elop said Monday in an interview.
The difference, saidÂ Mr. Elop, who joined the Finnish phone maker from Microsoft just over a year ago, starts with Microsoft’s new Windows Phone operating system. The well-reviewed software presents the user with large touchscreen tiles, which can be tailored to collect all the communications — e-mail, Twitter, Facebook — from a person’s family or spouse, for example.
Its smartphone interface, Mr. Elop said, contrasts with the “grid of icons” for software apps that greet users of Apple‘s iPhone or phones that run Google‘s Android software. The first Nokia smartphones powered by Windows software were announced two weeks ago. They will go on sale in six European countries this month and in the United States next year.
But Nokia and Microsoft face the latecomer’s dilemma. The smartphone market is a business with powerful network effects — the more people who use your hardware and software, the more applications developers who are attracted to your platform, whose apps in turn attract more users.
Once that snowballing effect gets under way, it can be quite powerful. And things are rolling for both Apple and Google’s Android. Samsung, for example, jumped to the top of smartphone market in the third quarter; its sales tripled thanks to its popular Android smartphones.
Such technology platforms are often called ecosystems, and Mr. Elop described Nokia’s strategy in those terms. Mobile network operators, like AT&T and Verizon, would welcome more smartphone competition. “They want a third ecosystem,” Mr. Elop said.
Nokia competes with other handset makers, like Samsung, HTC and LG. But Mr. Elop made it clear that was not his greatest concern.
“The highest priority for us is to beat Android and Apple,” he said. “This is an ecosystem to ecosystem battle.”
Nokia, Mr. Elop said, is also developing services to try to distinguish itself from the smartphone leaders. He pointed to the company’s Navteq location data as an example. Nokia acquired Navteq,a leading provider of mapping and location data,for $8 billion in 2007. It supplies GPS systems like Garmin and Magellan, online map services like Mapquest, Yahoo Maps and Bing Maps, and the geographic data to create the flyover terrains in Microsoft’s Flight Simulator.
Nokia recently announced a location-based service called Nokia Live View. Point the smartphone’s camera at a building like Madison Square Garden, and it not only identifies the building but, based on past browsing and purchasing behavior, it might tell Mr. Elop, who is Canadian and a hockey fan, that a professional hockey game is scheduled that night at the Garden.
“These devices are essentially a platform of sensors,” Mr. Elop said. “The Navteq location data is one of the best assets we have. Fully integrating that technology into our smartphones is a major area of investment for us and a real area of differentiation.”
The Nokia strategy in alliance with Microsoft, analysts say, makes sense. Yet even if Â it is successful, it will take time and a lot of money. “Birthing a new platform is a big deal,” said Al Hilwa, an analyst at IDC. “It’s a long-run game, one that will take years.”