​End of the line for Nokia as Microsoft begins new gambit for lost dominance in India

A decade or so ago, Microsoft used to have a stranglehold over operating systems, but today, the ones that dominate are those made by Google and Apple that run your phones and tablets. By reorienting Nokia, can Microsoft recapture its lost glory?

A few weeks ago, the "Nokia" name was expunged from product history, replaced by "Microsoft Lumia" and introduced to the world via the "535", the company's first solo outing in the phone landscape under Brand Microsoft Mobile Oy. The company had previously announced that it would gradually phase out all feature phones as well as the hybrid Asha series, which meant also ending support for those lines.

It is somewhat ironic that the first place where this transformation towards a new entity is happening is in a country that made Nokia one of the truly great brands in the world -- India.

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Microsoft Mobile's first product, the 535
Speaking from personal experience, I cannot think of many phones -- make that many devices -- that have impacted me as much as my first Nokia, model 1100. It was a svelte thing that you could slip into the tiniest of pockets, but the one thing that cemented its place into my heart was its flashlight, and this was before I even had kids who as some of you may know tend to wake up at 3am screaming because they can't find their pacifiers, which have vanished into the dark recesses of their beds. Once my children were born, the 1100 transcended novelty into the realm of inspirational.

Tack on excellent build quality, audio, and battery, and the thing was simply indispensable and indestructible. When I would misplace or break any of my smartphones in the last five to eight years or so, I would get a perverse little surge of satisfaction by buying an offspring of the 1100 instead of a cheap smartphone, regardless of the inability to check emails on the fly and other such conveniences on the Nokia.

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The indestructible and iconic Nokia 1100
So it was with a little twinge of nostalgia and regret that many of us Indians, whose first and most memorable experiences with a cell phone came through the Nokia brand, read about the handover.

I suppose we shouldn't really feel so bad, considering Nokia's squandering of its humongous market share in India and the world -- upwards of 80 percent at one time -- an event that will go down in history as one of the most amazing evaporations of a dominant business. To underscore the dramatic irony inherent in this tale of corporate catastrophe, it needs mentioning that Nokia helped catalyse the smartphone boom in India thanks to its hugely popular Asha series of feature phones that acted "smart", but weren't; a sort of gateway phone for the masses. Even as recently as last year, Nokia remained the second most trusted brand in India, so converting their loyal following would have been a cinch.

And so the missed opportunity that the Finnish company had in tantalising reach, begging to be converted into smartphone glory, will be one of the most tragic and mystifying missteps in corporate history. At the time of the steady market share meltdown, it seemed as though Nokia's senior management were firmly stuck in some kind of peyote-induced trance, watching everything disintegrate in slow motion in front of their eyes, helpless or unwilling to act in even the most basic ways to stave off impending disaster.

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Smartphone market share in India
Today, Nokia has around a 17 percent share in India, mainly in feature phones, but these are declining rapidly as the population has begin to move towards inexpensive smartphones. Its share in smartphones is in the single digits, and can't even make the top five in India (Motorola, which has been there for less than a year, has grabbed 5 percent of the smartphone share).

This desultory tale is something that Microsoft is intent on changing quickly, partly precipitated by a decline in the share of Windows mobile OS to a paltry 2.5 percent today. So, it's no surprise as to why it chose India to unveil its new brand identity. The country is the hottest smartphone market in the world, with Q3 in 2014 registering a second consecutive quarter of more than 80 percent year-on-year shipment growth for smartphones, according to research outfit IDC. And contrary to China, this smartphone explosion has just begun, with 68 percent of the population yet to upgrade from their feature phones. It's a market that Microsoft cannot afford to ignore, especially when you consider the opportunity to leverage the legacy of a great and popular brand.

But there is another, more powerful, reason for Microsoft's presence and ambition in the phone market.

MS' Windows OS monopolised and captured the focus and attention of people at work and play for much of the '90s as the PC become a part of everyday life. There was seemingly no stopping the Windows juggernaut. Meanwhile, the internet revolution briefly threatened in the guise of an upstart company called Netscape, but despite alarm cries of monopolistic behaviour, Microsoft crushed it by ensuring that its own product, Internet Explorer, would be embedded in every PC sold. And as for that pesky little wannabe competitor named Apple, there was nothing to really worry about, as it was pretty much toast. The founder was unceremoniously tossed out in the mid-'90s, and he was now busy building an animation studio, of all things. The numbers said it all. In 1995, there were 250 million PCs floating around, and only low tens of millions of Macs.


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Then, of course, something pretty incredible happened while the world, or Microsoft, was still sleeping. The founder of that pesky little wannabe competitor vaulted back into the saddle. The company was actually making some popular computers and a nifty little device called the iPod, and was doing well enough to garner it a market capitalisation of $14 billion. At around that time, Steve Ballmer became CEO of Microsoft and he cited Microsoft's main competitors to be Sun Microsystems, Oracle, IBM, and Linux. Microsoft's market capitalisation was around $500 billion, while Apple's briefly touched $16 billion.

Today, Apple's market cap hovers around the $700 billion mark, and is well on its way to the trillion-dollar mark. Microsoft's languishes at around $370 billion, nothing to sneeze at, but much lower than what it was 15 years ago, and only around $40 billion ahead of a company that failed to make it to Ballmer's list of competitive threats when he took over -- Google.

In Q4 2013, the number of devices sold by Apple was larger than the number of Windows PCs sold globally. Keep in mind, Apple is a company that primarily operates in the high end of the market. As Ben Evans of Andreessen Horowitz puts it, in this brave new world of technology and communication, "mobile is becoming a personal computing market. And it's a much, much bigger personal computing environment than PCs. So much bigger that even the 'niche' high-end player in mobile, Apple, is selling more than the totality of the old market, PCs."

With more and more people subbing in tablets with or without detachable keyboards for PCs these days, and with the cloud becoming a de facto storage solution, the days of a laptop may well be reaching its zenith. Moreover, in places like India that have skipped the PC revolution and gone straight to a mobile one, Windows is losing out big time in terms of growth opportunities as Android and iOS (to a much smaller extent) rule. This is also the trend in smartphone-suffused China.

Just take a look at worldwide phablet shipments (smartphones with screen sizes from 5.5 inches to less than 7 inches). They will reach 175 million units worldwide in 2014, outstripping the 170 million portable PCs expected to ship during the same period.

In other words, while Microsoft is still yet to make serious gains in terms of its OS on smartphones (current market share: 2.6 percent) never mind becoming a force in its own line (Lumia), it also faces a long-term downward demand slope for its bread and butter product, the Windows OS implanted in good, ol' fashioned computers.

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Which is why the purchase of Nokia is a desperate lunge at getting a foothold in a segment that matters. In India and China, though, it's a brutally competitive landscape with dominant brands like Samsung and Micromax calling the shots and the Android One upping the ante on low-end phones. Somehow, Microsoft will have to permeate through the noise and convince the ultra price-sensitive audience of its value proposition.

The Lumia phones have garnered some attention and respect because of their sensational cameras, and the phones themselves are attractive, but Microsoft will have to work hard to convince the value-conscious masses that these are the ones to pick up and not the Karbonns, the Lavas, the Micromaxs, the Motorolas, the Asus Zenfones, or the Xiaomis, all of which have caused sensations in India and China. That's a pretty tall order considering the amazing value for money that many of these brands are delivering, especially in the sub-$166 range.

And what of the fallen king? Apparently, Nokia is still operating as a telecommunications outfit providing network equipment and mapping services. They've even brought out their own high-end Android Lollipop tablet called the N1 recently, and there are a lot of people rooting for Nokia to dive back into the fray and rediscover its innovative roots.

There's a catch, though. The agreement carved out with Microsoft prevents the Nokia name from being used on any phone or tablet until 2017, after which point Nokia can do so, or even flog its name to someone else under a new licence agreement.

Meanwhile, Microsoft has its work cut out for it. It does have an attractive product in the form of the Lumia series, a stable and well-regarded mobile Windows OS and a technology and geographic foothold that is the envy of most companies, but those alone will not allow it to keep pace with Android and iOS. It will have to think of something far more devious and paradigm shifting if it wants to ensure that it stays relevant in the years to come.

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