Nokia and HP trying to catch up and innovate

Nokia and Hewlett-Packard, in different ways, both recently provided vivid evidence of that challenge.

In a memo to Nokia employees, new chief executive Stephen Elop compared its predicament in trying to catch up to Apple and Google in smartphones to that of a man, in a story, who was standing on a burning oil rig at sea.

“The man was standing upon a ‘burning platform’, and he needed to make a choice,” Elop wrote in the memo, which was widely circulated on the Internet. “He decided to jump.”
In the memo, Elop went on to say that Nokia, too, had to jump, metaphorically — take bold action to make up for lost ground.

Meanwhile, in San Francisco, HP, the largest personal computer maker, took its own leap on Wednesday. The company announced that it would introduce a new tablet, the Touchpad, in an effort to chase Apple and its iPad. HP also introduced two new smartphones, entering another market in which it has lagged.

But Nokia and HP — tech giants though they are — face long odds in catching up with competitors that have a head start in a rapidly changing landscape. It’s hard to do that in any business, but especially so in technology markets.

“It’s possible to catch up, but it’s very difficult,” observed Mark R Anderson, chief executive of the Strategic News Service, a technology newsletter. “It almost never works.” History offers a handful of successful catch-up stories. For example, IBM, the mainframe behemoth, trailed the leaders in the new markets for minicomputers and then personal computers, but later caught up. And Microsoft was a latecomer to Internet browsing software, yet eventually became the market leader.

Still, slip behind in the innovation race, and fleet-footed rivals can gain momentum that is hard to slow down. Industry partners, software developers and customers flock to the front runner, and its gains snowball. As more people use the new technology, the more valuable it becomes, unleashing the power of “network effects,” in economic terms.

In Elop’s memo to employees, which first surfaced Tuesday on the blog Engadget, he noted such effects. He wrote that Nokia found itself losing in “a war of ecosystems,” including developers, software applications and games, advertising, e-commerce, search and other services.

Nokia, Elop wrote, must “build, catalyze or join an ecosystem.” Elop is scheduled to address an analysts’ meeting Friday in London, and is expected to begin to outline Nokia’s new strategy. But what might that strategy include? For Nokia, which is based in Finland, joining a major technology partner, analysts say, is the most likely option in the long run. “Nokia doesn’t have the weapons to fight this fight on its own,” said Forrester Research chairman George F Colony.

The most attractive partners would be Google and Microsoft, analysts say. Both companies have been courting Nokia recently. Although Nokia may be losing ground in the smartphone market — with its worldwide share falling to 28 per cent in the fourth quarter of 2010, down more than 10 per cent from a year earlier — it still sells more smartphones than any other company. It could be a valuable partner and marketer for Google’s Android smartphone software or Microsoft’s Windows Mobile 7.

Most Nokia smartphones run on the much-criticized Symbian operating system. To get Nokia to switch, Google and Microsoft are offering hundreds of millions of dollars worth of engineering assistance and marketing support, according to a person who has done consulting for the company and was told of the talks.

Elop joined Nokia last September, and was recruited from Microsoft, where he was a senior executive. “But the obvious choice for Nokia is Android,” Colony said. “Microsoft would be the higher risk path.”

While Apple’s iPhone redefined the smartphone, handsets using Google’s Android software are fast attracting users and developers. In 2009, some 25 million iPhones were shipped, compared with about eight million phones running Android. Last year, Android shipments reached 61 million, compared with 48 million iPhones, estimates Sanford C Bernstein & Company.

HP started its drive into the tablet market on Wednesday, as well as introducing two new smartphones. No pricing was announced, nor have wireless carriers yet been signed up as partners.

The products are the first based on technology from Palm, which HP acquired last July for $1.2 billion. “We lost a product cycle — no doubt about that,” said HP senior vice-president and Palm’s former chief executive Jon Rubinstein.

Making progress in the tablet market is a priority for HP, especially if tablets eat into the PC market, HP’s stronghold. Tablet sales are projected to jump more than fourfold over the next two years, to 71 million worldwide in 2012, according to International Data Corporation.

At an event in San Francisco, HP executives showed off the TouchPad, which looks similar to Apple’s iPad. HP is betting that customers and developers will welcome a large entrant in the tablet market, especially one with a tradition of working with business customers, unlike Apple.

And HP emphasised that it has the resources and patience for the long term. “This is the beginning of the marathon,” said HP executive vice-president Todd Bradley.

Analysts say that to catch an innovative leader, big technology companies need to strip away bureaucracy. The analysts added that such companies needed to focus the full resources of the enterprise and innovate. For example, to jump-start its PC business in the early 1980s, IBM created an independent team of so-called “wild ducks” and put them in Florida, far from corporate headquarters.

In his spirited internal memo, Elop echoes a famous call to arms from his former boss at Microsoft. In 1995, Bill Gates wrote an internal memo, “The Internet Tidal Wave.” In it, Gates wrote of a “new competitor ‘born’ on the Internet,” Netscape, which then held 70 percent of the market for Web browsing software. The new rival’s intent, Gates warned, was to “commoditize the underlying operating system,” Windows.

Microsoft’s single-minded focus on dealing with the Netscape challenge, analysts say, galvanised the company and spurred its engineers to innovate, though its tactics also led to a federal antitrust ruling against Microsoft.

Still, Gates wrote his warning call before Netscape went public, while it was still a relatively small company. By contrast, Elop’s impassioned memo comes at the time when Nokia’s most direct smartphone rival, Apple, is a corporate powerhouse.

Nokia and HP bring some formidable assets to their catch-up campaigns. Nokia has the largest market share in mobile phones, deep relationships with telecommunications carriers around the world, and a stellar brand.

HP brings to the tablet competition its resources as the largest PC company — manufacturing expertise, brand recognition and global distribution.

“In their respective fields, Nokia and HP hold the biggest installed base of customers and the largest market share,” said Harvard Business School professor David B Yoffie. “But the fundamental challenge for both Nokia and HP is can they move fast enough, given how fast the rest of the world is moving.”