Nokia stands at crossroads on rocky route to change

Should the once-great handset manufacturer follow Polaroid’s path or seek to build its fortunes in the developing world?

It’s funny how things change. Back in 2007, there was a mobile phone brand pushing at the limitations of its business. It promised that a new “internet services brand” would take consumers into an as yet untapped world of mobile music, games and maps.

Exciting stuff. And last week, Google finally launched its long-rumoured own-brand Nexus One handset to take on Apple’s iPhone. With 3 billion application downloads for the iPhone, Apple has already moved consumers into a world of entertainment and information greater than could have ever been imagined three years ago.

Except the company launching itself into new territory in 2007 was not Google or Apple. It was actually Nokia, bringing its Ovi online store to the world. Before either Apple or Google started to offer mobile music, maps or games, it was the Finnish handset manufacturer that planned to grab the applications market.

So what went wrong? Sure, Nokia is still a leading name in mobile phones but it seems to have fallen behind newer entrants such as Apple in terms of content. While Apple has just delivered 3 billion apps to its customers in 18 months, Nokia’s Ovi Store achieved just 10 million in its first three months. By December 2009, Ovi was claiming downloads of 1 million each day – still substantially behind Apple.

The figures tell a similar story. A report at the end of last year from Strategy Analytics says that Apple’s profits outstripped Nokia’s in the US for the first time, taking $1.6bn in profit in the same quarter as Nokia managed $1.1bn. Nokia may still churn out huge volumes of phones, but it is slipping in profits and innovation.

The problem doesn’t appear to be a lack of good ideas. The early announcement of Ovi shows that Nokia spotted the trend for mobile entertainment and information. It realised the importance of making mobiles more than simply a device for making and receiving calls.

Rather, the issue seems to be a lack of understanding of how best to innovate in an age where everything is open source. After all, mobile phone handset companies have traditionally created new models under great secrecy and then launched them with a fanfare. Some still do. I recently attended a swanky and exclusive launch at upmarket department store Selfridges for the Sony Ericsson Xperia model at a limited-edition pop-up restaurant. You virtually needed a biometric passport to get in.

That’s pretty different from the Apple method, which seems to be all about getting anything new out to market as soon as possible and refining any issues afterwards. Since its applications are developed by outside businesses, Apple has had to become more flexible and adopt open-source thinking (with strict controls, of course).

These days, no brand is safe from rapid change. It can happen in months, rather than years. The Economist reported last week that industry experts believe Nokia now needs to become “a different company”. Rather than having teams working in isolation on different handsets, it should get its workers in various units to collaborate closely to produce technology and content that works across multiple handsets.

I guess some might argue that this new way of working would see Nokia become a customer-centric company, rather than an innovation-centric concern. It would be harder to keep any great leaps forward in terms of technology secret but the business would be creating products that are designed around how useful they can be for consumers.

Nokia should be able to handle this change in focus. After all, it is a brand that has demonstrated its ability to change numerous times already. Nokia started out as a paper mill before moving into electricity generation and even rubber boots. And it does understand customer-centricity; its early mobile models were notable for their ease of use.

It could also take heart from recent reinventions from the likes of photography brand Polaroid. For decades, Polaroid was the only brand selling instant photographic equipment and film until digital cameras eroded its business. The company was strong enough to see off Kodak in the instant market in the 1980s, but digital cameras proved too much.

While Polaroid did move into digital cameras, it was overtaken by brands that specialised in making electronics easy for consumers, such as Sony. In 2001, the business filed for bankruptcy and it stopped making instant cameras altogether in 2007.

This should have been the end of Polaroid. But after some controversial reorganisations, the company has moved into products mixing its original purpose with digital means, such as an instant mobile printer. Last week, it even announced that it had appointed pop star and marketing whizz Lady Gaga as its creative director to help develop new products for modern youngsters.

So will Nokia change its business in 2010 and start the year with a new focus and strategy like Polaroid? I’m not convinced that it will be able to change its innovation cycles quickly enough to catch up with developments at Apple and Google. But perhaps the brand has other plans altogether.

Nokia announced last week at the Consumer Electronics Show in Las Vegas that after selling 750 million “basic” phones in 2009, it has created the “Nokia Economic Growth Venture Challenge”, an initiative encouraging mobile phone developers to create programmes useful to those in developing countries.

Nokia may no longer be the darling of the smartphone world. But this kind of project shows the company still has some interesting ideas within its walls. It may be that while media types like myself download our latest app for the iPhone or Nexus One, millions of people in emerging economies are doing their banking through Nokia – which could make it the most consumer-centric mobile brand of all.