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This article was taken from the June 2012 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
Marko Ahtisaari, Nokia's 43-year-old chief designer, is giving a performance in a meeting room on the top floor of Nokia's headquarter's in Helsinki. He's imitating a couple he witnessed in a restaurant on Valentine's Day, who were absorbed by their handset screens instead of each other. Ahtisaari bends his head closer to an imaginary screen. The sound he's making -- "Dut, dut, dut, dut" -- resembles Morse code. It's designed to convey multiple impacts on a touchscreen.
Touchscreens are treacherous, says Ahtisaari, lifting his head finally. They're "immersive" and demand your attention. "Actually," he says, "they ask for more attention than they need."
Both Android and Apple's iOS operating system make a bad situation worse, he says. Both cram icons into their screens and the touch targets are awkwardly small. Ahtisaari isn't keen on this. To illustrate why, he performs another mime. This time, he tilts his head left and glances down momentarily to the right, looking at an imaginary phone screen on the table. Mimicking what a user might say in reaction to an update, he smiles and says: "Ah, okay, that's interesting."
The interaction is cooler. It doesn't involve picking up the phone. Nor does it require pinching, zooming or tapping the screen.
On Nokia's Lumia handsets, what makes this possible is the user interface (UI) layer that sits on top of Windows Phone 7, known as Metro. Metro's so-called Live Tiles, which represent apps, are relatively large: in Ahtisaari's words, they also "surface" new updates in a way that's rapidly readable.
This is an example of what Nokia refers to as "glanceability". "It's not something people would explicitly ask for," Ahtisaari says. "But when given it, it's deeply beneficial. Glanceability has to do with eye contact and allowing people to be present for each other [in conversation]." The ability to interpret things at a glance, he says, is "hard-wired into us as organisms; it's just the way we are". "Windows Phone is already a step in this direction," he adds. "We'll see much more innovation through what we call the heads-up principle." The bigger point, Ahtisaari continues, is that because the smartphone market is "so hot", so "covered by the media", we "get the false impression that all of the innovation and core design of the phone itself is already done".
He follows this with a well-rehearsed critique of the "very similar" user interfaces on iOS and Android, which he describes as "dated" but "very interesting". Both are based around "multiple personalisable home screens", Ahtisaari says. "Both feel as if they come from the web or computer era of last time."
Ahtisaari's mission is to make us think differently, and give Nokia a new lease of life (as of April, it is no longer Finland's most valuable company). He believes the mobile industry resembles the car industry in the 1890s. "Then, the user interface for cars involved a tiller," he says. "It took 15 years for the steering wheel to emerge as the user interface for the motor car. We're in the middle of that period for phones. "We can re-do the user experience in a new way that's based on different principles. It cannot be the case that this is all there is. There is no industrial logic to say that there should be only one approach."
What Ahtisaari is calling for is another iPhone moment -- an irrevocable and dramatic leap forward that alters the way we think devices should look and function. "And that can happen again and again," he says vehemently. "There is a belief that it's already been done. But that's only true if you can't design something better."
The year Apple launched the iPhone, 2007, was Nokia's best-ever year: it sold 436 million handsets -- nearly 40 per cent of the total purchased worldwide. (Its nearest competitor, Motorola, sold 164 million.) That year, Nokia made £6.7 billion in profit.
Five years later, Nokia's share of the global handset market has almost halved, to just 23.8 per cent. Last year, Samsung sold more smartphones. So did Apple. In 2011 Nokia made a pre-tax loss of £1 billion. The company currently holds cash and liquid assets of just £4.7 billion. At Google, the equivalent figure is around £30 billion; at Apple, it's £28 billion. On this basis, it's not inconceivable that one of the world's best-known technology companies might run out of money.
In September 2010, Nokia hired a new CEO to reverse the decline: Stephen Elop, an ex-Microsoft executive. In February 2011, an internal document outlining his vision for the company was leaked to the press. In it he compared Nokia to a man standing on a burning oil platform who could "be consumed by the burning flames. Or, he could plunge 30 metres into the freezing waters. The man... needed to make a choice". Soon after, the company abandoned efforts to develop a next-generation smartphone operating system named MeeGo. Instead, Elop promised that the company would "do its best work" for Microsoft's Windows Phone 7.
It was the move of a man who believed that Nokia didn't have much time to pull itself back from the brink. But does Elop's strategy leave Nokia permanently diminished, with an OS-sized hole where its heart should be? Without an OS of its own, Nokia has fewer ways of making its handsets stand out in the marketplace.
This places huge pressure on the company's designers. If Nokia really is going to pull off something as significant as the iPhone, the inspiration will have to come from the "several hundred" design staff who work for Ahtisaari.
In the absence of control over its own OS, Ahtisaari and Elop believe that Nokia has four competitive advantage. First, there's its prowess in camera technology, highlighted with the recent launch of the 808 PureView, a Symbian handset capable of taking 41-megapixel pictures. Similar technology is on its way to Nokia's Windows handsets. Then there's Nokia's ability to innovate with hardware. "As a general direction," Ahtisaari says, "I would say, think
[about things happening] off the glass. On the N9 and in Symbian handsets already, if you want to listen to music, you just tap the speaker and music starts playing."
Next, there's location and mapping, which Elop describes as the third dimension of search (the first two dimensions relating to "what?" and "who?"). Nokia, which employs 1,600 geographers in its mapping division, offers turn-by-turn driving instructions in 50 languages in 100 countries. Google's competing service, Google Maps with navigation, covers a mere 28 countries and one language --
English. "It's a huge source of competitive advantage," says Elop. "These are critical and very hard-to-replicate assets."
Finally, there's industrial design: the art of building appealing products with the requisite functionality at, or below, a target cost. "Industrial design should not be underestimated," says Ahtisaari.
All too frequently it is: mobile-phone stores are filled with similar devices. The bright colours and injection-moulded polycarbonate of Ahtisaari's Lumia handsets are a reaction against this. Yet the company's turnaround plan involves competing against Apple and Google in an alliance that has an uncertain grip on the market.
Most of the 88 million Symbian handsets bought around the world last year were Nokia's. Symbian, a British-designed smartphone operating system that made its Nokia debut in 2001, is ageing and clunky, full of compromises and unexpected dependencies. Sales are now declining rapidly.
Last year, Nokia also sold 340 million feature phones (or dumbphones) for an average of £30 each. Here at the low end, Nokia is being threatened by Chinese Android-based handsets, the prices of which are heading down towards £25 each at retail. Elop, 48, is betting that the Lumia family of devices -- all running on Windows -- will transform the company. His vision, though, is hugely risky: in 2011, Windows Phone powered a mere two per cent of the 470 million smartphones sold worldwide, according to analysts Gartner.
In a market polarised between £180 Android handsets and £400 iPhones, Elop is initially going after the former, as Google's platform has, on the whole, done the most damage to Nokia. Two years ago, Nokia sold 55 per cent of the smartphones bought by Europeans. By 2011, its market share was down to 11 per cent.
According to industry analyst Horace Dediu, Android has "completely absorbed" Nokia's losses in Europe. "We are in the heart of the transition," Elop terlls wired. "So, I feel a little bit in two minds. We're doing a lot of heavy lifting. At the same time, in all these different countries, we're watching Lumia take off."
Elop has worked at Adobe, Juniper Networks and Microsoft, where he spent three years running the hugely profitable Office franchise. Addressing industry events or internal "town hall" meetings, the Canadian-born executive can seem buttoned-up.
In person, it's different. He enters Nokia headquarters dressed in a brown leather jacket, with no chauffeur or personal assistant. A serious ice-hockey fan, Elop has a picture of the Canadian national team set as the wallpaper on his Lumia 800. (He winces at the fact that Finnish newspapers have spotted him wearing different local team jerseys at different arenas in the country.)
Elop is agile in conversation, and appears to revel in the intellectual challenge of his task: "If we move this piece here,
[we ask] what's the impact," he says, using a chess analogy. "And then what's the move after that and the move after that? The chess pieces continue to move around. We ask ourselves: 'Are we still making sense?' We feel that our strategy is still relevant."
Ben Evans of telco specialists Enders Analysis says Elop inherited "a massively complacent company" that resembled Apple "the day before Steve Jobs returned in 1996". Evans adds: "They would look at the smartphone market and say, 'We invented all that stuff.' They were selling millions of Symbian devices and pretending they were smartphones. But people just weren't using them to go online. Nokia fundamentally didn't understand what was going on."
Elop says that Nokia retains "a DNA-based willingness to self-disrupt whenever necessary". This, after all, is a 147-year-old company that has previously switched between producing rubber boots, toilet paper, televisions and undersea cables.
Another pivot is not out of the question.
After Elop's announcement in February 2011 of an alliance between Nokia and Microsoft, Ahtisaari's team faced eight months of sustained pressure, which, in Elop's words, "accelerated and accelerated". The first fruits of that alliance emerged in October 2011, when Nokia launched the Lumia 800 and 710.
The well-connected son of former Finnish president and Nobel Peace Prize winner Martti Ahtisaari, Marko Ahtisaari was born in Helsinki, spent some time growing up in Dar es Salaam in Tanzania and went on to study philosophy, economics and music at Columbia University in New York. Later, he combined lecturing at Columbia's faculty of philosophy with playing bass guitar and composing ambient music. At technology conferences, Ahtisaari can still occasionally be heard singing arias.
In 1999, at the height of the dotcom boom, Ahtisaari changed direction. He spent three years working for a web design consultancy, after which he was hired by Nokia. Between 2002 and 2006, he worked first on "insight and innovation" and then as director of design strategy. Ahtisaari then left for Blyk, the ad-funded mobile operator cofounded by Pekka Ala-Pietilä, a former president of Nokia. Next came Dopplr, the business-travel startup, which Ahtisaari cofounded in London. When Nokia acquired Dopplr in 2009, Ahtisaari went back to the handset manufacturer.
Despite these long-term links with Nokia, his return to the company wasn't entirely smooth. At the start of his three-year absence, Nokia's legendary chief executive Jorma Ollila had handed over power to his successor Olli-Pekka Kallasvuo, a corporate lawyer who had spent his formative years working in, and then running, Nokia's finance department. Asked how the company had changed when he returned in 2009, Ahtisaari thinks silently for 12 seconds before replying. "I could feel it in my bones that there was a great degree of complexity in how things were getting done," he says. "I also didn't feel that design was at the core of the decision-making process."
When Elop arrived in late 2010, Ahtisaari quickly convinced him it was necessary to unite Nokia's fragmented design operation. Says Ahtisaari: "We brought together all of the industrial design, all of the colours and materials design, packaging design and all of the user-experience design into a single organisation." As a result, Nokia's chief designer now oversees "several hundred staff" in four design studios (London, Helsinki, Beijing and San Diego).
Then, in January, Elop went further, elevating Ahtisaari to Nokia's executive board. (Elop inherited ten directors, of whom only six still sit at the top table.) "Design matters a tonne," says Elop. "That's why Marko is in every discussion at the top level of the company."
For over two decades, the PC industry has defined the operational logic for the consumer technology sector: if you want to generate significant revenues, you need to own and control an operating system. Google acknowledged this when it acquired Android in 2005 and proceeded to give it away to anyone who wanted it.
Apple, by contrast, hasn't licensed an OS to anyone for the past 15 years. Yet behind these very different strategies lies the same belief: you need to own an OS if you want to be highly profitable.
In the PC industry, Microsoft makes £4 of operating profit from every £6 of revenue generated by Windows. Most of the industry's other players, including the so-called original equipment manufacturers (OEMs), such as Hewlett-Packard and Dell, struggle to make operating margins of six or seven per cent.
The danger is that Nokia will meet the same fate. In its pre-iPhone heyday, it made operating margins of nearly 20 per cent on its handsets. Today, Elop is promising investors "ten per cent or more" in the longer term. Can he foresee Nokia's profits returning to where they were? Elop says: "It's possible." He doesn't sound bullish.
Ahtisaari describes the notion that Nokia will become a low-margin box-shifter as "a real misconception". And, as for Microsoft's view that the operating system is central to the entire endeavour, he says: "It's a misperception. It's just not true." "Today, we have far fewer engineers working on OS plumbing, which is a huge consumer of R&D resource," Elop says. "Let them [Microsoft] build it, and we'll place on top things that differentiate us." Consumers, he adds, really don't care which OS powers their handsets. "[What consumers] want is a handset that offers a faster experience and does the job in fewer steps than other platforms."
Ahtisaari believes that the user interface, and the broader user experience, will become increasingly "decoupled" from the OS. It's happening already on tablets: "You see lots of innovation within the in-app interface, it's almost like anything goes. So that's another sign of the same thing," he says.
How far might the decoupling go? Can Ahtisaari foresee Nokia, for example, inserting a consistent user interface on top of multiple operating systems? "With at least some common elements to it," he replies. Ahtisaari then adds: "We've said we've launched things to learn, so we can apply them in other parts of the portfolio. As a design studio, I'm as interested in the $1,000 device as the $10 object."
In late January 2012, Nokia reported that sales of its Lumia handsets had exceeded one million units since their launch in October 2011. But a million handsets is not a proof point: by last year, Apple had sold 90 million iOS smartphones, and 220 million Android handsets had found their way to market.
Tomi Ahonen, an ex-Nokia executive turned industry consultant and a trenchant critic of Elop, says sales have been "below expectations" and argues that Nokia's future is on a knife edge. He believes "heavy-handed" sales tactics in Europe have alienated operators. Based in Hong Kong, Ahonen also foresees problems in the huge Chinese market, where China Mobile, the dominant carrier, staked much on the success of MeeGo -- and was "completely humiliated" by Nokia's decision to halt development work. "Maybe Elop has kissed and made up," says Ahonen, "but my gut instinct is that China will be a bad market for Lumia."
This is enormously important for Nokia: by the end of this year, Ahonen points out, the Chinese smartphone market will be twice the size of the US market. But he thinks Nokia should at least make sufficient progress in the US to reassure its investors there that the company "is not dying". Things could turn out much better, but the relationship between Nokia and the US carriers has never been good. The carriers, Ahonen adds, continue to "hate" Microsoft.
Beyond a certain point, he suggests, Nokia and Microsoft may find their progress in the US blocked.
The Nokia-Microsoft deal resembles an iceberg: nine-tenths of the detail is buried beneath the waterline. According to Elop, the deal is underpinned by two major flows of cash. The first involves "product support payments" from Microsoft to Nokia, the first of which -- worth £150 million -- landed on Nokia's balance sheet in the final quarter of 2011. The second major flow runs in the opposite direction: royalty payments that Nokia makes to Microsoft each time it sells a handset running Windows Phone.
Clearly, the balance of power is important for Elop. He stresses that Microsoft now depends on Nokia for location-based services "across all of their properties, including Bing". This, he says, is a counterweight to Nokia's reliance on Microsoft for OS engineering. Ahtisaari says that on the design side, "a small user-experience team" meets with their opposite numbers regularly, "essentially giving our guidance and asks to Microsoft". Their work seems to be focused upon Metro, the user-interface layer of Windows Phone.
The question of how much freedom Nokia enjoys to alter the look and feel of Windows Phone has generated much confusion. On the one hand, the software inside the version of the Lumia 800 launched in Europe -- as Athisaari admits -- is nothing more than "Windows Phone 7.5 with apps on top". On the other, Nokia apologists have hoped that the company will start tweaking Microsoft's UI as a way of differentiating its handsets from those produced by other manufacturers using Windows.
However, there are two reasons why Nokia probably won't start tweaking any time soon. The first is the company's reluctance to "fork" the development of Windows Phone in a way that would complicate the work of the outside developers who make the apps that attract users to the platform. The second is the belief that the best way to benefit from Microsoft's massive marketing spend is to produce handsets that work precisely as consumers expect them to.
This level of caution may explain why Ahtisaari balks at the suggestion that he needs to seek Microsoft's approval for changes to the Windows UI. "I haven't thought about it in approval terms," he says. "It's never come up in that form." He continues: "From a design point of view, I don't operate with a constraint that says:
'Sorry, do I need to call a lawyer?' or 'Do I need to call Joe Belfiore?' [the Microsoft board-level executive responsible for Windows Phone]."
However, Nokia will benefit exclusively from some of the things that it proposes to bring to Microsoft's phone software. Ahtisaari describes the situation in coded terms: "In Windows Phone, there will be things that happen to the core experience, on Lumia, that will be our own." In particular, Ahtisaari is referring to Nokia's camera software, which the company wants to integrate with Windows Phone without it falling into the hands of rivals, such as HTC and Samsung, which also make Windows handsets.
Yet some of the innovations Nokia brings to Windows Phone will end up being licensed by Microsoft to rivals. "It is more important, in the short term, to grow the water level of that ecosystem than to compare with others in that ecosystem," Ahtisaari says elliptically. "It's a very different way of thinking about competitiveness."
One of the many unresolved questions concerns what Nokia and Microsoft will do about low-end markets and the "next billion" mobile users, as Elop calls them. Ever since Elop's decision to go with Microsoft, rumours about a new Nokia OS called Meltemi have persisted. Something like this may still be required if Windows Phone can't stretch to compete at the bottom of the market. "Windows Phone can come well down," says Elop. However, it's clear that concerns remain about how long this might take. At this point, Elop points first to Qt, a cross-platform development environment closely associated with Nokia. At the moment, Microsoft doesn't allow Qt to work with Windows Phone 7. But, according to Nokia's head of smart devices, Jo Harlow, discussions are continuing about compatibility with Windows 8, Microsoft's next OS release. Elop also points to Nokia's research and development spend, which, at 14.5 per cent of revenues, is relatively high, despite the decision to outsource smartphone OS work. "We have increased our R&D spending [on low-end mobile phones]," he says, "so there's clearly something being developed, underway. There's some excitement there."
Nokia could use Qt to build a lightweight platform for UI and apps. Conceivably, this could sit on top of a stripped-down version of Linux. More probably, it would work on top of a "lite" version of Windows 8. This would make sense of Ahtisaari's claim that in the future we'll see more light emerging in the space between UI and OS. It would also point to an even deeper union between Nokia and Microsoft.
Elop says he has reached the "heart of the transition". But Nokia is still in the early stages of a high-stakes game, and Elop has not managed to silence his most aggressive critics. While Ahonen argues that Elop has gone too far, Juhani Risku, the author of New Nokia, a bestseller in Finland, worries that Elop hasn't gone far enough. Risku says Nokia still has too many executives who know too little about mobile technology, media and design.
Offloading OS development to Microsoft has saved Nokia a substantial amount of money. But doing this only makes sense if you believe that owning an operating system matters a lot less in the mobile realm than it did in the PC industry. Ben Evans believes that what really matters is getting operators to stock your phones and building up apps. "Nokia and Microsoft don't yet have an app ecosystem," he explains. "But as a developer, if you come to them from Android, it feels great."
It's a contrarian idea, but if correct, Nokia's chances of survival may be better than industry observers predict. Elop and Ahtisaari may yet have what it takes to succeed in consumer technology.
This article was originally published by WIRED UK
