Last week’s story of Nokia’s fall from grace in the handset market probably didn’t surprise anyone because it’s been a slow and agonizing decline, a wasting away for all to see. At this point, turning around almost certainly would require the company being acquired, either by another player or by a private equity firm who would make radical changes, likely including breaking up and selling off pieces.
What happened here? The answer is that Nokia like other companies fell victim to “network consumerism”. Phones were largely utilitarian gadgets up to the iPhone, and Nokia did well producing stuff that worked but wasn’t going to turn heads and make their users a social success. Once smartphones began then fashionphones were in no matter what. Nokia was one of many companies who never figured out how to market fashion stuff; they produced solid, conservative products but never dreamed of being glamorous. You can’t buck reality.
The immediate question for the network equipment space is what will happen to NSN. The fact that Nokia couldn’t sell a stake in NSN isn’t why they’re in the tank; all that would have done was give them a longer runway to the same point they’re at now. Nevertheless, NSN is in an awkward position. It’s unlikely that it can continue as a Nokia-Siemens partnership, even more unlikely than that Nokia can continue as a company. And what happens to NSN may impact other players in the space.
NSN had contracted their scope, focusing on wireless and LTE, but that’s not going to be enough at this point to sustain the operation lacking backing from the parents. They have to find a suitor too, either independently of Nokia or as part of the deal. Or Siemens and Nokia have to shake hands and call their JV a day. There isn’t time to wait out a return to happy days of service provider capex, both because of lack of financial resources and because we don’t know if that will ever happen.
Part of the problem with NSN’s own position is the same conservatism that hit Nokia. The communications industry isn’t the happy old world of Bell and PTTs and the CCITT. When you’re not selling to a regulated monopoly with a mandate to provide specific services, you have to worry a little about the value proposition of your buyer, and as that value proposition becomes more consumeristic so must your consideration. Nokia, and NSN, never mastered that. But they’re not alone, and that’s what makes me wonder what else might happen in the network vendor space.
The rumor that Microsoft is going to field a tablet stirs this pot. It’s not yet clear if this is a Microsoft-branded Windows 8 tablet, a Barnes & Noble partnership for an Android Kindle competitor that works with Xbox and includes a placeholder Windows 8 app, or something in between. Some Windows 8 connection seems essential, but it’s hard to see how Microsoft would enter a Windows 8 tablet of its own into the fray when it has to count on loyalty of device vendors for both Windows 8 and its Phone 7 software. The thing is, tablet competition from Microsoft is inevitable, particularly given that Android tablets aren’t sweeping the market as Android is sweeping smartphones.
How about the network vendors, then? The presumption I’d make is that cloud wars at the tablet level will accelerate the drive to the cloud across the board, both for productivity applications in business (which Microsoft is sure to push) and for entertainment to the consumer. That implies that it would accelerate service provider cloud deployment, private cloud adoption, etc. I think the former would be impacted more and faster than the latter, but both areas are likely going to show more life in 2013 than they would have otherwise.
Cisco emerges here as the likely big winner, whether due to incredible insight in the timing of their Live “architectures” pitches or to incredible serendipity we’ll never know for sure. The point is that they have set themselves up to be a more obvious player in the emerging cloud space than any of their competitors have. Beyond Cisco, it’s hard for me to handicap things. A cloud war isn’t necessarily a wireless war, it’s a more general service-layer war. That means that Alcatel-Lucent, Ericsson, and NSN don’t have a natural position of strength to leverage. Juniper, whose own analyst event offered no real cloud insights, is still talking bits and boxes. Any of these guys could in theory revamp their positioning, but since they’ve not been singing a good cloud song we don’t know if they really have any assets to work with. If not, this acceleration could be a bad thing because it only shortens the time to their own moment of reckoning.
Here’s the point. Even under the current pace of change, Nokia is threatened. Is anyone out there silly enough to think there’s not a systemic problem behind that? If tablet wars speed cloud wars, which speeds OTT service conceptualization, it only accelerates a shift up the value chain from bits. I think Cisco showed it got that message. I don’t think the others have demonstrated their own grasp of the present, or the future.