Nokia's Elop drops bomb: the platform is on fire

    Admitting you have a problem is the first step to recovery.

    According to reported company-wide email sent out by CEO Stephan Elop, Nokia's (NOK) current OS situation is akin to a burning platform. In his note, he uses an oil platform in the North Atlantic as a metaphor but it could just as easily be a smartphone platform, or, in Nokia's case, two platforms: Meego and Symbian.

    Elop doesn't give either platform a chance in the today's white hot competitive market, saying that Nokia might be able to produce one Meego device in 2011 while Symbian is getting trounced by Android in the midrange. If that weren't bad enough, Nokia's low end devices are getting killed by the Chinese who are building them before Nokia "can even finish a device PowerPoint."

    Elop's message is a bit long winded but certainly a fascinating read (unless you are a Nokia shareholder). Some choice quotes:

    In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

    And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

    The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

    The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

    This is one of the decisions we need to make.

    Why does a CEO portray his company in such a desperate position?

    There is only one reason. Nokia is going to have to do the unthinkable in the coming weeks and months and align itself with one of the other two OS platforms out there. They are going to have to either join up with Microsoft (MSFT) Windows 7 or Google's (GOOG) Android. With Elop's background and familiarity with Microsoft, it is likely to be the frontrunner, though from an outsider's perspective, Nokia would have more long term creative control of its destiny with Android. In fact, it could fork Android to its whims if it saw fit and still remain somewhat autonomous. From a technical perspective, Meego is much more similar to Android than it is to Windows Phone 7.

    Nokia's situation reminds me of where Apple was in 1996. Apple's attempts at building a next generation operating system were floundering and they needed a new OS before they could finish one themselves. MacOS was hemorrhaging market share to Microsoft. Apple had to pick between two former Apple executives' products. CEO Gil Amelio ended up going with Steve Jobs and NeXT even though Be's OS may have been the better product. Elop's familiarity with Microsoft could sway him artificially toward Redmond.

    The difference here is years are now months with how fast the mobile industry is moving. Microsoft's recent mobile OS shift took it out of the game for a lot of 2010 and may have killed its Mobile OS chances long term. Nokia can't afford that type of handover. To that end, Microsoft has the most to gain by a licensing deal with Nokia here. Microsoft may not be able to afford an Android-Nokia partnership because it would give Android an almost unsurmountable lead.

    Meanwhile if Nokia goes with Microsoft, suddenly there is a three-horse race in Mobile OSes again with a distant fourth, Blackberry...oh and HP/Palm (which has an announcement or something tomorrow).

    I give those other two a year before they jump on with Windows or Android.

    In any case, tomorrow should be an interesting day for Nokia's stock.