Nokia. The Finnish company that spent its first century making rubber boots, toilet paper, cables, and gas masks reinvented itself in the 1990s as the world’s dominant mobile phone maker, controlling roughly a third of global handset sales by 2000 — a share that would peak near 40% around 2007 — and selling more than 400 million phones a year at its height. In 2014, Nokia’s handset business was sold to Microsoft for about $7.2 billion, a fraction of what it had once been worth, and effectively disappeared. The collapse wasn’t caused by a single missed product. It was caused by the way a confident company stops listening.
The rubber-boot years nobody remembers
Nokia’s story begins in 1865 on the banks of the Tammerkoski rapids in southwestern Finland, where a mining engineer named Fredrik Idestam built a groundwood pulp mill. A second mill went up a few years later beside the Nokianvirta river, and the town — and eventually the company — took its name from the water.
For the next hundred years Nokia was a conglomerate of things you could touch. Paper. Rubber galoshes stamped with the Nokia name and sold across the Soviet Union. Bicycle tyres. Cables for the Finnish telephone network. Televisions. During the Cold War it manufactured gas masks for the Finnish army. If you had told a Nokia line worker in 1975 that his company would one day sell more mobile phones than any other on Earth, he would have laughed into his coffee.
The turn came in the 1960s, when Nokia’s cable division began experimenting with radio transmission. By 1979 the company had set up Mobira, a joint venture with the Finnish television maker Salora, to build car phones for the Nordic Mobile Telephone network — the world’s first international cellular system, launched in 1981 across Sweden, Norway, Denmark and Finland. Nordic geography helped: sparse populations across enormous distances made mobile radio a practical necessity rather than a luxury.
How a paper company became a phone company
The architect of the reinvention was Jorma Ollila, a young banker who was handed the mobile phones division in 1990 and then made CEO of the whole group in 1992. He inherited a mess. The Soviet Union — Nokia’s largest export market — had just collapsed. The rubber and paper divisions were losing money. Nokia’s stock was trading near historic lows and the Finnish banks that owned much of it wanted a fire sale.
Ollila made a bet that looked reckless at the time. He sold off the boots, the tyres, the televisions, the cables, the toilet paper — everything — and staked the company on GSM, the new European digital cellular standard that had just been ratified in 1987. Finland happened to be one of the first countries to license GSM networks commercially, giving Nokia’s engineers a live testbed most rivals couldn’t match.
The gamble worked with almost obscene speed. The Nokia 1011, launched in November 1992, was the first mass-market GSM handset. The 2110 followed in 1994 with the now-famous Nokia ringtone, a fragment of a Francisco Tárrega guitar piece from 1902. By 1998 Nokia had passed Motorola to become the world’s largest mobile phone maker. In 2000, at the height of the dot-com bubble, its market capitalisation briefly touched €303 billion, making it the most valuable company in Europe.
The Nokia 3310, released that same year, became the phone of a generation — around 126 million units sold, an object durable enough that its indestructibility became an internet joke that outlived the company that built it.
The machine that printed money
What made Nokia untouchable between 1996 and 2006 wasn’t a single innovation. It was industrial logistics. The company built a supply chain that could ship more than a million handsets a day to over 130 countries, with manufacturing plants in Salo, Bochum, Fort Worth, Manaus, Beijing and Chennai. It negotiated component prices no rival could match. It ran a design language — soft-cornered, easy in the hand, one-thumb navigation — that translated across cultures. By 2007 it was shipping roughly 435 million phones a year and holding close to 40% of the global market in the fourth quarter.
The company had become a national economy’s centre of gravity. According to a study by the Research Institute of the Finnish Economy (ETLA), Nokia accounted for about 4% of Finnish GDP at its peak, paid nearly a quarter of all Finnish corporate tax, and drove roughly a fifth of the country’s exports. It was the largest company on the Helsinki Stock Exchange, and for years the single biggest determinant of whether the Finnish economy grew or shrank.
What Nokia saw and could not say
Here is the part of the story that hurts. Nokia’s own engineers had a working touchscreen smartphone prototype with internet browsing as early as 2004, three years before the iPhone. A team in Tampere had built an early internet tablet, the Nokia 770, in 2005. The company’s research labs were among the best-funded in the industry, spending several billion euros a year — far more than Apple was spending on research at the time.
The prototypes died inside the building. In a peer-reviewed study of Nokia’s decline published in Administrative Science Quarterly in 2016, Timo Vuori of Aalto University and Quy Huy of INSEAD traced the failure to fear rather than incompetence. Symbian — Nokia’s operating system — had been designed for feature phones with tiny memory and limited processing power, and retrofitting it for touch, apps and full-web browsing was a nightmare. Engineers knew this. Executives were told softer versions of the truth.
Vuori and Huy documented how top managers, afraid of competitors and shareholders, pressured middle managers without fully revealing how severe the external threat was — while middle managers, afraid of their superiors, filtered out the worst news before it reached the top. The result was a leadership that stayed optimistic about Nokia’s technical position long after the ground had begun to move, and that kept starving the long-term bets the company needed.
January 9, 2007
Steve Jobs walked onto the Macworld stage in San Francisco and announced the iPhone. The initial reaction inside Nokia’s Espoo headquarters was skepticism verging on dismissal. The device had no physical keyboard. Its battery life was mediocre. It launched exclusively on one US carrier, AT&T, and cost $499 subsidised. The numbers seemed to back the calm: Nokia sold about 437 million phones in 2007, while Apple sold just 1.4 million iPhones that year, most of them in the final quarter.
The comfort was misplaced. What Apple had built was not a better phone. It was a pocket computer with a phone application, running a modern operating system that could support a developer platform. When the App Store opened in July 2008, the definition of a mobile phone changed underneath Nokia’s feet. Google’s Android, given away free to any handset maker willing to take it, opened the second front the following year.
Clayton Christensen had described this exact sequence a decade earlier in The Innovator’s Dilemma (1997). Incumbents optimise their existing products for their best customers. New entrants arrive with something that looks worse on the incumbent’s dimensions — battery life, call quality, price — but better on a dimension the incumbent isn’t measuring: software, a developer platform, a touch interface. By the time the incumbent notices, the ground has already moved.
The long unwinding
Ollila stepped down as CEO in 2006. His successor, Olli-Pekka Kallasvuo, tried to fix Symbian and shipped a series of touchscreen handsets — the 5800 XpressMusic, the N97 — that reviewers found sluggish and awkward compared to the iPhone. Market share began sliding in 2010.
In September 2010 the board hired Stephen Elop, a Canadian executive from Microsoft, as the first non-Finnish CEO in Nokia’s history. Five months later Elop sent an internal memo — the “burning platform” memo — comparing Nokia’s position to a man standing on a blazing oil rig, forced to jump into freezing water. Days later he announced Nokia would abandon Symbian entirely and adopt Microsoft’s Windows Phone as its primary smartphone platform.
The decision was defensible in a boardroom and catastrophic in a marketplace. Windows Phone had almost no app ecosystem. Existing Symbian sales collapsed as retailers stopped stocking a discontinued platform, and the new Lumia devices — well-built hardware running an operating system consumers didn’t want — never gained traction. Nokia’s smartphone share fell from roughly a third of the market in 2010 to under 3% by 2013.
In September 2013 Microsoft agreed to buy Nokia’s handset business for €5.44 billion, and the deal closed in April 2014. A little over a year later, in July 2015, Microsoft wrote down the acquisition by $7.6 billion and laid off most of the former Nokia workforce. The Nokia phone brand was licensed out to HMD Global, a Finnish startup, in 2016. The company that had once sold two of every five phones on Earth was, as a manufacturer of them, finished.
Nokia itself did not die. The parts that hadn’t been sold to Microsoft — the network equipment business, the mapping division (later sold to a consortium of German carmakers as HERE), and the patent portfolio — became the new Nokia, headquartered still in Espoo. It completed its acquisition of the French-American telecoms giant Alcatel-Lucent in 2016 and today competes with Ericsson and Huawei to build 5G and 6G network infrastructure. It employs around 75,000 people. It is a large, profitable, unglamorous company that most consumers will never buy anything from directly.
Finland absorbed the shock. GDP contracted in 2012 and 2013, partly because of the eurozone crisis but substantially because of Nokia’s contraction. Yet the wreckage seeded a recovery: Nokia’s Bridge programme helped thousands of departing employees start companies, and a wave of software firms and startups absorbed much of the lost talent — the game studio Supercell, the health-tracking firm Oura, dozens of B2B software companies — and Helsinki quietly became one of Europe’s most productive startup hubs.
Walk through Espoo today and Nokia House is still there, a low glass building on the edge of the Baltic, gulls circling above the car park. The sign on the door still says Nokia. Inside, engineers are building base stations for 6G. Nobody is building phones.
