European Tech Needs New Nokias
Now that Microsoft has written down its entire investment in Nokia's mobile handset business -- little more than a year after acquiring it -- and the operation in Finland is all but shutting down, it may be time for a eulogy. Nokia was Europe's only real stab at global tech leadership, and there have been no new attempts to build something as big.
For most of the 1990s, Motorola, the U.S.-based company that's said to have invented the mobile phone, led the market. At the time, the market was dominated by companies that produced equipment for the mobile networks. Motorola, with half the handset market in the mid-’90s, was perhaps the most visionary: It began to think about a mobile Internet long before such a thing was practical. But it missed Nokia's consumer-pleasing moves, the first of which, in 1997, was the introduction of a phone that could be used to play a game. (The game was Snake, and you can still play a version of it.)
That same year, Nokia also became the industry's most aggressive marketer, introducing 31 phone models. In 1998, it followed up with 17 more -- and overtook Motorola. In 1999, its first phone with an Internet browser (a WAP browser, to be precise) hit the market. And in 2000, Richard McCaffery wrote on the Motley Fool:
I see Nokia as kind of a combination of Apple Computer and Dell, with Apple's marketing and design sense, and at least some of Dell's building efficiency. Let's start with its design edge. Nokia's trademark curved shape, and other features such as removable covers, designer models (think of a credit card with your favorite football team's logo on it), and personalized tones came from its early recognition that mobile phones weren't just a niche product, but a mass-market phenomenon.
The Finnish company's next bold move was to enter into an alliance with other handset producers to create an operating system -- first Ericsson and Motorola and later Siemens and Matsushita, owner of the Panasonic brand. Together, they invested in a London-based startup called Symbian. It's easy to notice that only one alliance member was American; that's because the group was meant to counterbalance Microsoft, then maker of the dominant operating system for personal computers. Joel West, a former Symbian executive, wrote in a 2011 paper on the system's history:
A key motivation unifying Symbian and its owners was preventing Microsoft from winning the dominant market share and extracting the proprietary rents from mobile devices as it had in personal computers. By aligning Symbian with the three (later five) largest handset makers, they also hoped to limit Microsoft’s eventual market share.
Besides, in 1999, Western Europeans bought 32 percent of all mobile phones sold, well ahead of the U.S. with 17 percent. It was a European-driven market ruled by a Finnish company.
Fast forward to the late 2000s -- and, all of a sudden, Apple is better than Nokia at design and, arguably, at building production chains. Not long thereafter, Samsung and Chinese phone makers were production leaders and Google had the dominant operating system, surpassing Microsoft in installed base across all types of devices. Nokia had tarried, rested on its laurels, taken wrong turns and finally sold itself to Microsoft. By the time of its surrender, however, Microsoft was no longer top of the pile in operating systems, and few buyers were interested in Windows Mobile.
Nokia's troubles and its resounding defeat at the hands of American companies in a market that it had wrested from them and dominated for a decade appear to have destroyed the European tech industry's confidence. Of course, if you tell people familiar with the scene that European tech hasn't produced much over the years apart from Skype and perhaps Spotify (one owned by Microsoft and the other now greatly threatened by Apple), you'll likely get an angry retort complete with dozens of company names, some well-known and others obscure but important in their niches. (Did you know the world's second-most-popular web server, Nginx, was Russian-made?) But none of these is another Nokia, a global leader in a highly visible consumer-oriented market. At one point Nokia was the biggest European company by market cap.
One could say that's how the market works, and the U.S. simply has the best entrepreneurs and the best support network for them. "The confluence of a large pool of capital, world-class talent, vibrant support infrastructure and a risk-loving culture has bred a self-fulfilling cycle of innovation and entrepreneurship," is how Frenchman Nicolas Brusson, co-founder of BlaBlaCar, the global leader in long-distance car sharing, put it in a recent column.
Yet Europe can't really be satisfied with this answer. U.S. tech leadership comes with an increased risk of U.S. spying, which is rather unpopular in Europe. Besides, American companies are good at avoiding European taxes. Nokia was a conscientious taxpayer, in its heyday contributing up to 23 percent of Finland's corporate tax revenue.
There is a nostalgia for a local champion. Microsoft's smartphone market share in Europe, 6.88 percent, is much higher than the 2.6 percent it has globally, and I suspect this is a residual Nokia effect. There is still a market for a major European phone maker or two, and perhaps for European global leaders in more niches of the app market. And it's easy to see the European Union tampering with the market to help them emerge. Bloomberg Industries analysts Matthew Kanterman and John Butler wrote in a recent report:
The EU may order Google to unbundle its services from Android due to competitive concerns, which could prompt device makers to integrate their own versions of Android (skins) or their own operating systems. In China, Google's services aren't supported natively on Android smartphones, which enabled local vendors such as Xiaomi to differentiate their devices with proprietary software. European smartphone makers with strong proprietary software could do the same to gain an edge over rivals.
Nokia lost its leadership position through its own mistakes. That doesn't mean other European companies can't and won't make it to the top, and it shouldn't be too surprising if European regulators will keep looking for ways to enable such a breakthrough.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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