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Decision Time for Nokia: Become Apple Brilliant or Google Prolific

Nokia (NOK) continues to get the stuffing kicked out of it by investors. They're quickly writing the company off because its market share continues to drop like a rock.

However, too many people mistakenly think that the company's critical choice was whether to use an operating system from Microsoft (MSFT) or Google (GOOG). The real decision was which winning business model -- becoming brilliant in product concept like Apple's (AAPL) iPhone or ubiquitous like Google Android -- it should adopt. And Nokia has yet to make a real choice.

Windows or Android, who cares?
Monday morning quarterbacking has been in full swing, even though the cell phone behemoth still managed to sell 450 million units last year. The future clearly belongs to smartphones, and, as Bloomberg Businessweek noted, Nokia's smartphone market share has plummeted from a pre-iPhone high of 49 percent to 25 percent in the first quarter of 2011. The company failed to produce smartphones that consumers wanted and worked a glacial schedule on its own new operating system, MeeGo.

Credit to CEO Stephen Elop for recognizing that the company stood on a burning platform and had to jump off. And yet, reducing Nokia's future to the choice between Android and Windows Phone is short-sighted. Success isn't about magic software, but a compelling approach to business.

The two smartphone market leaders -- Apple and Google -- show a contrast in winning strategies. One has succeeded through anticipating the market. The other, by overwhelming it. Unfortunately for Nokia, it has been yet to embrace either approach or find a third alternative, and is now mired between the camps.

Giving people what they really want
Apple senior vice president of industrial design Jonathan Ive gave the best summation of his company's approach when the British Council Design Museum asked why many new products are bland and derivative:

So many companies are competing against each other with similar agendas. Being superficially different is the goal of so many of the products we see. A preoccupation with differentiation is the concern of many corporations rather than trying to innovate and genuinely taking the time, investing the resources and caring enough to try and make something better.
Speaking at the D9 conference yesterday, Elop said something that sounded uncomfortably close to that preoccupation with differentiation, when asked why he opted for Windows Phone and not Android:
Speaking at D9 Wednesday afternoon, Elop said the answer is simple: differentiation. "The biggest question for us was what degree of influence could we have over Android to ensure differentiation," he said, adding that in the end there wasn't enough. "Is sustainable long-term differentiation possible with Android? We felt the opportunity for that was better with Windows Phone."

With Windows Phone, Elop said, Nokia has the flexibility to differentiate over time, something that Android OEM's don't have. It also has exposure, scale and, potentially, a robust ecosystem. "This is no longer a battle of devices, it is a war of ecosystems," he said.

Although Nokia would doubtless say that it wanted to bring the best phone to market, the quote is telling -- the driving factor is to be different from other vendors. Not be unique, not provide something that no one else had thought of doing, but be different. That's why Nokia tried to do all along, and it has failed. Stacking a touch screen capability on that inclination will do nothing. Real innovation isn't doing what is different, but finding something new that customers see as useful and desirable. Elop still has the company standing on that burning platform.

They're everywhere, they're everywhere
Google's approach to innovation has been partly indirect. Rather than become a handset vendor (other than the abortive Nexus One attempt), the company made software available and relied on partners to create final products. It's a classic Microsoft Windows approach that resulted in some real winners as well as total losers through an almost Darwinian evolution. Generations of phones appear on the market and only the commercially viable survive.

That's what differentiation for its own sake produces. Google succeeds because it doesn't depend on any particular model phone, and it also has no financial risk. If a given product takes off or flops like a dead fish, the strategy continues. Some other Android handset on the market will take up the slack.

Nokia isn't in the same situation, because it lives and dies on hardware sales. Putting a variety of different handsets into the market could, in theory, allow it to grab more market share. There's just one problem: execution. Nokia has been incredibly slow in getting product out, and, as Elop's recent admission of inventory mismanagement in China shows, execution continues to be sloppy.

Between bad execution and an overemphasis on differentiation, Nokia is unready to follow either Apple's or Google's strategy. That's why the operating system that the company uses is immaterial. Until Nokia makes a definitive choice and changes the way the company works to choose one of these paths, it will likely continue to flop around and fritter away market position and strength.