For romantics among us, one of 2017’s most enticing storylines will be witnessing the return of the Nokia brand to the world of smartphones. Nokia is the company that defined the mobile phone for most of us in Europe (even if its US presence was never that large), and its revival as a phone maker must be greeted with a fitting amount of nostalgia-tinted enthusiasm. But as fun as the prospect of a new Nokia Android phone next year may sound, it’s also one of the most quixotic ventures imaginable, and the new company’s chances of commercial success are, in my judgment, somewhere between slim and none.
DOA, or "dead on arrival," is one of the briefest ways to dismiss an incoming piece of technology that you foresee no future for. You could have written off the chances of every BlackBerry over the past four years with that initialism — and you’d have been right. I think the same is true for any neophyte entrant into the irrational and mostly profitless market for Android smartphones. Nokia’s banner in that fight will be carried by a new company called HMD global, with the manufacturing handled by a Foxconn subsidiary by the name of FIH Mobile. A cynic would see this as a Chinese company trying to penetrate European markets with a fondly familiar name, and that cynic would probably be right. Nokia promises that it will ensure its high standards for quality, design, and engineering will be upheld, but those are no longer the differentiators they once were.
Back in 2012, Nokia introduced the Lumia 920 as "the world’s most advanced smartphone." It had a touchscreen that could be used with gloves on, and it had a unique and gorgeous unibody polycarbonate construction in bright and appealing colors. It even had wireless charging and a PureView camera with optical image stabilization. In spite of those hardware advantages, the 920 was running Windows Phone, was released months after its announcement, and ultimately failed. Well, now Nokia is rectifying the OS issue by switching to Android, but its arsenal of tech advantages has dissipated. It’s harder to build a bad smartphone than a good one these days, and high-end design is now a standard expectation rather than a unique reason to buy one device ahead of the rest.
All the best designers and engineers of the former Nokia mobile business either moved to Microsoft when the latter took over or quit to pursue independent projects and startups of their own. The name’s still the same, but the expertise is gone. HMD’s executives are talking a good game about "the best designers in the world ... lining up" to join the company’s ranks, but they’ll all be starting from scratch. HMD may retain the Nokia cachet, however it lacks the scale of the old company and so there’s no chance of securing early or exclusive access to hot new tech or materials. Too inexperienced to deliver something exceptional like the Google Pixel camera, too small to command a unique supply chain, HMD’s Nokia is landing into HTC’s position of being a respected brand with mightily constrained capabilities.
What profit there is in selling smartphones is mostly soaked up by Apple and its high-margin iPhones. Samsung has so far been the only company able to come close to that with its premium Galaxy devices, and the clearest, but also most challenging, route for Nokia will be to try and supplant one of those giants in the truly high end of the market. HMD is investing more than $500 million over the next three years to market Nokia devices, and the featurephone business it is inheriting won’t be enough to justify that sort of expenditure.
There’s no extra room for Nokia to compete alongside Apple and Samsung — since the smartphone market is no longer expanding as it once was — so the challenge is to dive in at the deep end and impress the most discerning and demanding smartphone buyers. Hence my unhappy DOA forecast for any new Nokia Android smartphone. Frankly, any premium device that isn’t made by Apple, Samsung, or Google in the US or a native Chinese company in China will find it extremely hard to survive in the next year.
And yet, it feels facile and unsatisfying to spurn the new Nokia effort before it’s even begun. There is a light at the end of the Android smartphone tunnel, but for HMD / Nokia to reach it, it needs a strategy that goes beyond phones. OnePlus offers a salient example of how that can be achieved: it runs a very lean operation, relying on word of mouth marketing and a direct-to-consumer sales model to keep costs down. As it grows, OnePlus has branched out into selling more profitable (if also more prosaic) things like cases, cables, T-shirts, backpacks, messenger bags, and really good headphones. The joke about Apple’s hottest growing category being accessories this year isn’t a million miles off the mark — phones can be the gateway to getting consumers to spend money in other, more lucrative ways.
China’s Xiaomi has built its entire business on this premise of creating extremely appealing smartphones with negligible, if any, profit margin as a way to route shoppers to its online sales platform. Chinese consumers can buy air conditioners, drones, laptops, luggage, hoverboards, and a litany of other things from Xiaomi. It’s a smartphone maker that doesn’t hope to profit directly from making smartphones, and that’s a reasonable path that Nokia can pursue as well.
If the new company, HMD global, hopes to be a straightforward smartphone designer and maker, it will likely fail and our hopes for a successful Nokia revival will be dashed. It takes years of development and huge amounts of investment to compete and differentiate at the high end where the profit is, and the world doesn’t need yet another mid-range Android vendor. But Nokia, the original company, bought fitness-tech outfit Withings this year, and it could work with HMD on creating a unified "Nokia" ecosystem of devices that is worth more together than as separate parts. If the new Nokia can think beyond the boundaries of the old Nokia, the future could still be a happy one for this revered Finnish brand.