COMMENTARY Nokia is a company that cannot catch a break from the press. So when it debuted the U.S.-targeted Lumia 900 at the Consumer Electronics Show (CES), skepticism was heavy. If Nokia fails, so does Microsoft's (MSFT) Windows Phone, by extension. Christopher Lawton at the Wall Street Journal had an interview with Nokia CEO Stephen Elop that fairly dripped with negative assumptions.
And yet, Morgan Stanley expects 43 Windows Phone handsets to sell this year and predicts 74 million in 2013. That's just looking at Nokia and HTC. And both Motorola (MMI) and Lenovo plan to use chips from Intel (INTC) in smartphones and tablets, which gets the semiconductor company into a market it has lusted after for years. So why are these companies seeing a reversal in fortunes that might have surprised the cognoscenti not that long ago (even if they wouldn't admit it today)? Because the mobile market works far differently than many have assumed.
"Rules" are out the window
Many writers and analysts had made their minds up about what was possible in the mobile market by working with rules that they had come to embrace. The rules included the following:
-- Device specs are everything.
-- Established players will keep out newcomers.
-- Everything is do or die, with no continuity of effort.
Not that anyone would actually agree such rules made sense if you asked directly . There are too many counter examples. In the mobile industry alone, the three names that disprove these three rules are Apple (AAPL), Microsoft and Google (GOOG), respectively.
Start with specs. Apple iPhones often have had less impressive technical specifications than competitors. But the company has understood since the late Steve Jobs rejoined it that user experience was the most important factor in product success. Make customers happy, and they are unlikely to care about exactly how much RAM is in their phones.
Microsoft proved how a strong grip on a market like mobile phones can easily evaporate if a company doesn't maintain its position. Google showed that tenacity counts, particularly when you consider the number of experts in 2008 who would have laughed at the notion that Android handset sales would ever catch up to the iPhone.
Only geeks and those with bad eyesight buy specs
Many of the people who are ready to write off companies' chances in markets don't intuitively grasp consumers or industries. Technology analysts and journalists are often geeks. Nothing wrong with that, but it can mean assumptions about what is important that don't coincide with the interests of regular people.
They also rarely come from the industries they cover. Long exposure can give insights (management guru Peter Drucker was originally a newspaper reporter), but it's easy to miss important dynamics and to put too much weight on some factors and too little on others.
For instance, success in business isn't just about the best or most desirable product or service. Those qualities help tremendously, but a company needs smart partnerships, distribution strategies, marketing, and pricing and operational controls. Fail in any one of these areas and you risk overall disaster.
It's business, bub
At the same time, strength in one area can help a company's competitive stance in another. Intel has enormous R&D resources that it brought to bear to create chips whose lower power consumption made them a possible choice by handset vendors. Microsoft and Nokia will use each other's capabilities to attempt another run at the consumer phone market. They remember that most people don't buy operating systems; they buy phones and brands.
If this model doesn't sell, they'll try another and another until both companies finally give up. That could take years. (And if they do sell tens of millions of units, forget about capitulation.) This is the end of rules in the mobile market as companies will go back to business fundamentals.