Stephen Baker

The Numerati
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Nokia and the iPhone

June 14, 2011News

I covered Nokia in its glory years, from 1998 to 2002, when it towered above the rest of the mobile industry. With its focus on consumers, mastery of intuitive interface and enormous advantage in scale, it thrashed Motorola, Ericsson, and a host of other pretenders (Alcatel, Sony, Philips, Siemens, etc.) quarter after quarter. The company appeared poised to dominate the next phase of Internet communications--the mobile revolution. I went so far as to propose a book on the company. (I dropped the idea when BusinessWeek moved me back from Europe to New York, following the dot-com bust.)

Nokia's future competitors, as phones turned into computers, were likely to come from the software and consumer electronics industries. Nokia understood this, and they beefed up research in Silicon Valley. But whenever I raised computer-makers like Dell as future competitors, the Nokia folks always had the same response: They had spent decades building expertise in radio technologies, and it was hard stuff. It would be no easy thing for a computer or software company to slap "telephone chips" into their machines, as my writing implied. Radio was hard.




                                       Nokia's original Webphone, the Communicator, in 1996

Well, I'm sure they were right. It was no easy thing. But companies like Apple and Google figured it out and, along with Canada's RIM, maker of the Blackberry, they have taken over the smart-phone market. Nokia's stock is swooning and its bonds are rated only one notch above junk.

I was reminded of this while reading this morning that Nokia and Apple have reached an agreement on disputed intellectual property. Apple will now pay Nokia royalties. I have no ideas what the patents cover, but it must be cold comfort to Nokia. Instead of exercising its hard-won mastery over radio technology to win control over mobile, the world's most important communications market, it simply gets a slice of royalties from the marquee company it lost to.

A couple more points from those Nokia years. When I was writing, it seemed that Europe, with its single GSM standard, was well positioned to lead the mobile Internet. Asia, with some of the most advanced mobile markets in the world, appeared a much more powerful rival than North America, which was viewed as a mobile backwater. But software innovation, along with design, transformed the market. (Producing great software can make up for lots of handicaps, which is one reason to be optimistic about continued innovation leadership in the U.S.)

One more point about Apple. As I mentioned above, when I was looking at computer-industry competitors for Nokia, I had my eyes on Microsoft, Dell and Palm. I saw Apple as a potential acquisition. It seemed to me that Nokia, whose market cap climbed to a quarter of a trillion dollars during the boom, might gobble up the computer maker, or at least form an alliance with it, to benefit from Apple's design and software prowess. I don't know if Nokia execs ever considered such an idea. But if they read BusinessWeek, they were at least familiar with it.

One more point, this one extending into the realm of wild hypotheticals. If Nokia had taken over Apple, would Nokia have produced the iPhone? My guess is that the iPhone would never have happened. Nokia would surely have insisted that any smart phone work on top of its Symbian operating system and fit into the family of Nokia phones. That would have been the kiss of death. Still, Nokia would no doubt be better off today if it had spent billions from its boomtime stash to buy--and kill--Apple.



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