Just imagine that the sun is shining, its rays shimmering off the ocean waves as they lazily break on a smooth, sandy beach. A friendly breeze occasionally rustles the palm trees. You are on the beach because you've done it the old-fashioned wayyou've earned it. You've worked hard; you've been smart. You've come up with new technology. You've made your company one of the most recognized in the world. You've pioneered what would turn out to be one of the hottest management concepts of the late twentieth century6 Sigma.1 You are touted in the press as one of the most admired companies. You are the market leader in what is expected to be one of the largest consumer market products everthe mobile phone. When it was unveiled, your StarTac phone was the coolest phone to own. You are Motorola.
You are doing the right thing and doing it well. This was the case for Motorola from the late 1980s and into the early 1990s. Its analog phones were the phones to own.
But then the environment shiftedradically. First, a new digital technology for mobile phones came along. However, at first it was not clear how superior the sound would be. In addition, the new digital technology would require new and expensive infrastructure. On top of that, most of Motorola's other U.S. competitors did not seem as though they would make a quick move to the new technology. The one competitor committed to the new technology was some small little company in frozen Finland, a country with a total population of less than that of Manhattan during the day. Besides, no one was really sure how to pronounce the company's nameNokia. Was it No?-kia (with the emphasis on the "No") or No-kia? (with the emphasis on the "kia")? And what does a company that has been in the forest products business for over 100 years and excels at making rubber boots for fishermen know about high tech? So what if Nokia went with this new digital phone? So what if countries in Europe adopted this new digital standard? Any of those individual countries, such as Germany or France, paled in comparison to the market size of the United States.
The result? Motorola's first reaction was to deny that this new technology or competitor was anything to worry about.
But then Nokia's revenue increased fourfold, from $2.1 billion in 1993 to $8.7 billion in 1997. All of Europe adopted a common digital standard that allowed people to use their mobile phones virtually anywhere in the region. This convenience drove even greater demand. In the meantime, the fragmented standards of the United States meant that one phone would not necessarily work in every state.
What did Motorola do? Oddly enough, it put even more investment and effort into its analog phones. It did what it knew how to dowhat it was good atand it did it even more intensely than before.
Well, we all know what happened. Motorola's share of global mobile phones dropped from about 35% to just under 15% by end of 2000. Nokia, virtually unknown in the United States in the early 1990s (or most of the rest of the world, for that matter) has become one of the top 5 recognized brands in the world just after GE and before Intel. In 2000, nearly 70% of all mobile phone handset profits went to Nokia, with a market share of around 35%. That's right: Nokia's "profit share" was double its "market share."