A Cautionary Tale of a Former Phone King

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In all the excitement, hyperbole, and hope of Apple's (NAS: AAPL) iPhone 5 pronouncement -- er, unveiling -- we'd do well to remind ourselves that few technology giants dominate their markets for very long. That isn't to say that the sharp tech slingers from Cupertino can't rule their smartphone niche for many years to come; it's only that such a level of dominance requires cleverness and flexibility to maintain over time. For recent proof, look no further than those fallen Finns, Nokia (NYS: NOK) .

Rise and fall
Nokia's fall from grace has been well documented; nevertheless, it's a sad tale worth repeating. Once upon a time, a fairly obscure manufacturer of such cutting-edge products as paper and gas masks, crept into the telephone supplies segment in the early 20th century. That line of business became a rather lucrative one and, eventually, all of the company's non-phone business units were either spun off as separate companies, or sold to third parties.

Nokia's laser-like focus on telecoms was beautifully timed. It coincided with snowballing advances in cell technology, during which time, the prices of cell phones started to approach levels within the grasp of the average consumer. The company pounced on this and, seemingly overnight, became a worldwide beater. In certain countries in Europe in those days, for instance, it seemed that nearly every cell phone user was yammering into, or texting on, a Nokia product.


The company quickly became THE cell phone supplier to the world, and stayed there for a very long time. Beginning in the late 1990s, it was the top manufacturer on the planet -- until it was dethroned earlier this year by Korea's Samsung.

Stagnation
A decade and a half is an eternity in any tech segment; however, if Nokia had played its cards right, that number could have been much higher. But the company got complacent and, contrary to most durable tech firms, refused to change its formula. Its handset models came and went, but the brains of the phones stayed the same, utilizing iterations of the same Symbian operating system.

Meanwhile, the world changed, and smartphones became the hotly-desired consumer item. Touch screens, streaming video, instant navigation -- who wanted a clunky, menu-driven dumbphone anymore? Thanks to Nokia's stubborn refusal to significantly evolve its OS and hardware, there was plenty of space for ambitious competitors. Enter Apple, enter Google (NAS: GOOG) in the form of the Android OS (which it bought in 2005), and enter determined Asian manufacturers, like Samsung and HTC.

All of the above -- particularly Apple -- made handsome products that pushed the limits of the computing/phone/camera technology that was available at the time. Consumers abandoned Nokia and didn't come back. With the proliferation of such devices, the company's fall in market share has been especially precipitous during the last five years. In the second quarter of 2007, just BEFORE the iPhone hit the market, the company still ruled the cell phone roost, with a global market share of over 50%. That number five years later? Barely over 6.5%.

Complacency is a killer
The takeaway from Nokia's experience is simple: innovate, innovate, and never stop innovating. Even if there's nothing particularly new or groundbreaking, it's worthwhile for companies to at least seem as if they're producing something new. Was Apple's recently-introduced new iPhone really anything fresh and different? No, but at least by introducing a model with a fancy tweak or two, the company stayed in the game.

Nokia, by contrast, spun its wheels for a decade and a half. It's trying to make up for lost time by adapting Microsoft's (NAS: MSFT) Windows Phone OS for mobile; but that entry into the modern smartphone world has come way too late.

Besides, the choice of OS might not be the cleverest, given that the original, well-hyped Nokia Windows phone (the Lumias 610, 710, 800, and 900) run on Windows 7, which Microsoft subsequently confirmed wouldn't be upgradable to No. 8. Whoops! The two recently-introduced Lumias run on Windows 8 just fine, but Nokia stumbled on the roll-out of those products, engendering an easily avoidable controversy by faking aspects of its advertising.

Oh, and they're not available quite yet, because Windows 8 hasn't been officially launched.

Other phone manufacturers avoid such problems. New products from Apple or Samsung or HTC generally don't run into dumb controversies, or tie themselves to operating systems that will become obsolete in months. The general impression consumers get of such companies is that they know their market and their technology; these days, Nokia seems as if it's stumbling around in the dark.

This is a shame because, generally, the new Lumias have gotten positive reviews. It might be too late for them, however, since the competition is now ahead of the company, and rapidly leaving it behind. No matter how smart the Lumia is, it's going to have a hard time finding a market against the ubiquity of Android phones, and the sexy cachet of Apple's offerings. This might have been different if Nokia had more effectively changed with the times and consumer demand, and stayed on the cutting edge of the technology it once dominated.

But it didn't, and that's why the company is where it is today. Apple, of course, is a happier story, and one that's worth staying current with. There are few better ways to do that then to read our premium report on the company. It's packed with solid analysis on Apple's strengths and weaknesses and, what's more, it includes a FULL YEAR of quarterly updates. It can be had for only $9.99 once you visit this link.

The article A Cautionary Tale of a Former Phone King originally appeared on Fool.com.

Fool contributorEric Volkmanowns shares of Nokia. The Motley Fool owns shares of Apple and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, and Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple.Motley Fool newsletter serviceshave recommended creating a synthetic covered call position in Microsoft. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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