What AOL Can Teach Nokia and Microsoft

I have a theory that the mobile industry ceased to exist in about 2007. I know what you’re thinking, and I’m happy to say this isn’t an iPhone piece.


What I mean by my assertion is that the traditional mobile industry, dominated by network operators and device manufacturers, has become a means to an end for third-party business models. I think most of these models resemble what economists call two-sided markets. In this structure, a “platform” generates revenue by connecting two constituencies which derive mutual benefit from the utility the platform affords. Sometimes the platform gets paid by both sides. Visa is a classic example of this. In other cases, only one side pays — think Google.

The two-sided market concept describes a variety of structures, including the one in which a mobile network operator subsidizes a handset in exchange for a lengthy service contract. I’d argue that the mobile industry functions as a massive and relatively new distribution channel for players with cloud-based platforms that have two-sided network characteristics.

The platform creates and sustains an ecosystem. It is the engine that generates self-reinforcing demand. And an ecosystem that is sustainable and creates value for its participants can’t exist without a central platform for service distribution and monetization.

Hearing Nokia CEO Stephen Elop talk about the need to create “ecosystems” to counter Apple and Google should sound very 2003 to those of us who have been in the industry a while. I’m not criticizing Mr Elop. He has to deliver a clear and simplified outline of the problem and the way forward. He’s done that in a way that is defensible and rational, and he deserves much credit for acting boldly and decisively. He’s certainly right that the industry’s moved well beyond a focus on products. Indeed, Nokia was one of the first phone-makers to understand this.

But I have two concerns.

The first relates to the idea of an ecosystem that will coalesce around the combined assets of Nokia and Microsoft. If an ecosystem stands on a platform, then I’m concerned that their platform might turn out to be an agglomeration of loosely connected pieces and not the clearer, more centralized control points that power the likes of Apple and Google.

My second concern is the possibility that Nokia and Microsoft are fighting the last war. It’s fair to say that Nokia had a very limited set of strategic options and that it’s chosen the best and most logical path. But in essence, the strategy is to counter Apple and Google with a third ecosystem that looks quite like Apple and Google. This is unimaginative.

Trying to assemble a like-for-like counter to a well-established competitive threat is a difficult and probably futile gesture. You win by imposing a different game on a market structure that either never sees it coming or is incapable of adjusting in time. For example, Facebook might beat Google by turning search from a user-pull function into an integrated contextual part of users’ experience.

As odd as it may seem, AOL might be able to teach Nokia and Microsoft a thing or two. AOL was sidelined by the advent of free Internet services. These in turn enabled things like Facebook and Twitter. AOL’s comeback strategy is based in large measure on the momentum created by these services. Would AOL have bought the Huffington Post if it weren’t for Twitter and Facebook? Would the Huffington Post even exist if it weren’t for Twitter and Facebook?

AOL’s comeback strategy may fail. But it’s thinking innovatively and aiming ahead of the momentum created by the market model that almost killed it. Nokia and Microsoft should take a cue.