The fall of Nokia

On top of the world

Before the iPhone, the phone in most people's pockets was a Nokia. The Finnish company made tough, cheap, easy-to-use phones with great batteries, and it sold them everywhere on Earth. In 2007, Nokia sold 37.8% of all the mobile phones in the world, more than its next few competitors put together.

Its investors did well too. In the spring of 2000 Nokia's stock peaked at around €65 a share, and it was the most valuable company in Europe. Nokia had huge factories, a famous brand, and thousands of engineers. It even had early touchscreen and internet phone prototypes years before the iPhone. Former chief designer Frank Nuovo later told The Wall Street Journal that the company had shown carriers and investors an internet phone with a color touch screen, but leadership didn't turn it into a product.

When you're that far ahead, it's easy to believe you always will be.

2007: the game changes

In January 2007 Apple announced the iPhone. It was expensive, it didn't even have 3G at first, and it sold in tiny numbers next to Nokia. Many people inside phone companies saw it as a toy for rich people. Nokia's phones were still winning on the things Nokia measured: price, battery, durability, sales volume.

But Apple had changed what a phone was for. The iPhone was a pocket computer, and from 2008 the App Store let outside developers build the things people wanted to do on it. Google's Android followed and gave every other phone maker a modern system for free. The fight was no longer about who built the best hardware. It was about software and app ecosystems.

Nokia's smartphones ran Symbian, a system designed in the days of small screens and keypads. Engineers knew it was hard to modernize. Nokia started a replacement (MeeGo), but it moved slowly while the company kept selling huge numbers of phones built for the old world.

Hubris and fear

Hubris means pride so strong that it blinds you. Nokia's leaders had been right for so long that big warnings looked like small problems. They kept measuring success with the numbers they were used to, total phones sold, while the market moved to a new kind of phone.

Researchers Timo Vuori (Aalto University) and Quy Huy (INSEAD) interviewed 76 Nokia managers, engineers, and outside experts. They found a culture of fear. Top managers were afraid of looking weak to investors and competitors, so they pushed hard for short-term results. Middle managers were afraid of their bosses, so they softened bad news or kept quiet about how far behind Symbian really was. The people at the top got an overly optimistic picture of their own technology.

Put those together and you get a company that couldn't hear the truth and didn't believe it needed to.

2011: the burning platform

In 2010 Nokia hired a new CEO, Stephen Elop, from Microsoft. In February 2011 he sent employees a memo that leaked to the press. He compared Nokia to a worker standing on a burning oil platform in the North Sea who has to jump into the freezing water to survive. He was brutally honest:

“The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes.”

The big bet, and the sale

Days later, Nokia announced it would drop Symbian and bet its smartphones on Microsoft's Windows Phone. The Lumia phones that followed got good reviews, but customers and app developers had already picked iPhone and Android. Windows Phone never got past a few percent of the market.

In the first quarter of 2012, Samsung passed Nokia as the world's biggest phone maker, ending Nokia's 14-year run at the top. In July 2012 Nokia's stock fell below €1.50 for the first time since 1996.

On September 3, 2013, Microsoft agreed to buy Nokia's phone business: €3.79 billion for the business plus €1.65 billion to license Nokia's patents, €5.44 billion in all. The deal closed on April 25, 2014. Barely a year later, in July 2015, Microsoft wrote off $7.6 billion related to the purchase and announced up to 7,800 job cuts, mostly in the phone business.