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Nokia Rocks the World: The Phone King's Plan to Redefine Its Business

Nokia already owns the global cell-phone market. Now Tero Ojanperä is launching the world's biggest delivery system for services, apps, and entertainment.

Dave Stewart
MISSIONARY MAN: Stewart in his L.A. studio. As Nokia's ambassador to the entertainment world, he wants to create an open-source rival to Apple's closed ecosystem. | Photograph by Jill Greenberg

The gathering in the courtyard dining room at the Greenwich Hotel in Tribeca has the feel of a meeting between the Mafia's dwindling five families and an emerging Balkan gang looking to join forces. Instead of bookmakers, drug smugglers, and racketeers, the endangered species assembled are music executives from the industry's remaining major labels, including Warner and Universal Music, and an agent from the Beatles' Apple Corps.

Despite the general tension typical of an industry in free fall, there is a reunion vibe and everyone greets one another warmly over cocktails, throwing out a bit of cocksure swagger to project the notion that they can still deliver a hit. Still, nobody in attendance would deny that the days of record companies making a killing in the music industry are over.

The hosts for the evening are Nokia's 43-year-old executive vice president of entertainment and communities, Tero Ojanperä, and Eurythmics founder and Nokia consultant, Dave Stewart. The two make for an odd pairing: Stewart with his quintessential British rock-'n'-roll-ness and Ojanperä with his Finnish-savant electrical-engineer-ness. But tuning in closely to Ojanperä's precise, inflected words, it's hard to elude his magnetism, a cross between Andy Warhol mystic and James Bond villain.

Before dinner is served, Ojanperä taps his glass of pinot noir with a knife, waves a piece of paper at his guests, and begins his opening remarks.

"This is an early advertisement from Nokia. It says: A tire you can trust ... from Nokia," he says. "Nokia is a great company from Finland that I joined in 1990. In its history, it has made great car tires and also great rubber boots."

The crowd is visibly flummoxed; after a smattering of awkward laughter, table chatter resumes. Ojanperä is close to losing his audience but plunges on. "We have since become the No. 1 cell-phone company in the world, with nearly 40% market share and 1.1 billion users. Today, Nokia is making 13 phones every second. So you can think about how many we are making during your dinner."

The magnitude of those numbers seems to register on the diners, drawing their attention back to this stranger dressed in black.

"But the numbers are not important," Ojanperä continues. "The point here is, the world is a vibrant place. We are in India, China, Africa, Russia, the United States. Think about a young boy in India who is getting his first phone: He can listen to music or take a picture or watch a movie or even make a movie. In many ways this" -- he holds up his slim E71 handset -- "is his first computer and it is connecting him to the rest of the world for the first time."

Because the group is composed of music execs, Ojanperä then explains Nokia's Comes With Music service, which offers unlimited downloads of more than 6 million songs (that can be kept for life) and is paid for with a fee built into the cost of certain mid-to-high-end Nokia handsets. "The two forces we are competing against are actually nonconsumption and piracy," Ojanperä says. "If we can get people engaged with music and compete against piracy, then we have won the war. And we believe we are revolutionizing the way music is being consumed."

Eyes roll in the audience, but Ojanperä reels them back in. "It's not only about music," he adds. "It's about paying."

That last word hangs in the room's dim yellow glow. "We want to make a difference in the payment for music. Nokia not only wants to revolutionize music, but I am claiming now that we will quickly be the world's biggest entertainment media network."

The last comment elicits snickers from every table. Ojanperä waits for the last chuckle to die. "You can laugh and say, 'What is the point? Nokia is a cell-phone company; it will never get into the entertainment business.' That's okay. Laugh. That's what people did when we said we were going to be the biggest cell-phone company in the world -- back when we were making car tires and rubber boots."

Last year, Nokia sold 472 million cell phones and generated $70 billion in revenue, earning $7 billion in profit. It is the 88th-largest company in the world by revenue, counts more than 1.1 billion customers, sells its products in more than 150 countries, and runs an operating system translated into more than 180 different languages. Nokia's share of the global cell-phone market is greater than its next three competitors combined. Yet when I ask CEO Olli-Pekka Kallasvuo to describe Nokia, the first thing he says is, "We are not a cell-phone company."

He goes on. "Just three years ago, we were competing against Motorola, Sony Ericsson, some Korean players, even Siemens," he says from his office in Espoo, Finland, just outside of Helsinki. "The competitive environment in the industry at large has changed, and I sometimes struggle to define what industry we are in at the moment and what are the boundaries. But remember, I spoke in 2001 about putting the Internet in your pocket. And now consumers are realizing that these devices are not just for communicating by voice: It is all about information."

As the walls that divide television, computers, and cell phones crumble, it is increasingly clear that any device's fate will be decided by its ability to gather and present information on demand. And the cell phone has emerged, for now at least, as the single most important device in the global marketplace. Nokia has never managed to leverage its position as a world leader in handset sales to achieve similar dominance in the United States, where it has only 7% market share. For years, the company seemed content to target Europe, Asia, and developing countries -- and no doubt there are plenty of sales to be made in those places. But the rise of Apple's iPhone, RIM's BlackBerry, and the new Palm Pre -- coupled with the ever-widening supply of bandwidth available over those devices -- has begun to shake Nokia's comfortable perch. The iPhone, iTunes, and the wildly successful App Store -- which one analyst says will generate $1.2 billion this year -- have set the standard for what a mobile, customizable, always-on Internet experience feels like and has forced the rest of the industry to scramble. Nokia, for its part, has felt Apple's bite: In 2008, 139 million smartphones were sold worldwide, up 14% from the previous year. Of those, 61 million came from Nokia while 11.4 million were sold by Apple, giving them, respectively, 43.7% and 8.2% of the market. But in the first quarter of 2009, Nokia's market share fell to 41.2%, while Apple's rose to 10.8%.

Kallasvuo may have seen the future early -- Nokia actually produced a rudimentary Internet-capable phone as early as 1996 -- but it could be argued that his company was complacent about innovating aggressively in subsequent years. It announced Ovi, its competitor to the iTunes platform, back in 2007, but didn't actually roll it out until June of this year. Its N97 touch-screen phone, pitched as an answer to the iPhone, has been met with tepid reviews, largely because it relies on Symbian's clunky operating system (Nokia bought Symbian in 2008). At press time, the phone had yet to sign on with an American carrier.

But it's easy to assume that because Apple has done the best job to date of creating a luxurious digital platform -- hardware and software -- that scratches the modern itch for constant connectivity and content, it will proceed to conquer the world. Nokia may be slower and less sexy than what Ojanperä calls "that fruit company in Cupertino," but it has endless patience, a very long reach, and a willingness to study the competition. Asked what it's like to go up against Apple, Kallasvuo responds, "I have learned to live with it, but I also appreciate what they have done for the industry. They have shown the business opportunity to developers. It's a scale game when it comes to apps, and now we have a machine in place to counter their growth trend."

Nokia plans to win that scale game. Just take a look at the "machine" Kallasvuo is referring to: Ovi (Finnish for "door"), a hub for the company's music and gaming offerings as well as its app market, is its counter to iTunes and the App Store. Ovi is as yet available to only a fraction of Nokia customers, but when it went live in May, more than 50 million people in 109 countries instantly got access to 20,000 applications compatible with 50 different handsets (Apple currently offers more than 50,000 apps on three iPhone models). After flipping the switch to go live, Nokia execs stood in front of a world map as green lights illuminated in places where people were connecting to Ovi: The customer base was so vast, they saw lights appear in areas they thought were covered with water.

High-tech companies often talk about how their work can help people climb the socioeconomic ladder. All too often, however, their products are designed -- and priced -- for only a tiny subset of humanity. An iPhone or BlackBerry Curve or Palm Pre doesn't do much to improve the lives of the hundreds of millions of cell-phone users in India who can't access or afford a data plan.

Nokia has always been a company with a conscience. Maybe it's something in the (icy) water of social-democratic Finland, home to the father of open-source computing, Linus Torvalds, who created Linux. But as a result, Nokia has invested a great deal not only in the development and production of hardware but also in studying the people who use it.

The company believes there are three reasons why people adopt new technology. The first is survival, the second is social, and the last is entertainment. The common thread among the three can be loosely described as culture, and Nokia has worked hard to develop a deep understanding of all the cultures in which it operates. It runs 10 research labs worldwide, each based on an Open Innovation philosophy and affiliated with a local university -- Berkeley and Stanford in the Bay Area, MIT and Cambridge in the two Cambridges, as well as locations in Hollywood, Helsinki, Nairobi, and Beijing. Researchers learn what different people's needs are -- and what they can afford -- by immersing themselves in locales that cover the widest spectrum of the human condition. So while Apple, RIM, and Palm offer singular products that target an elite, niche market, Nokia builds devices to satisfy every budget and appetite for information, making it indispensable all over Africa and Asia. In effect, it micro-slices the global population: Its 100-odd phone models run from $10 to $700, offering the barest of functions on the low end to rich media on the high end. "By providing services and tailored content to even the low-end market, we become a lifeline," says Ojanperä.

When I meet with Henry Tirri, Nokia's research chief, who oversees the R&D labs, he explains how his teams are working to build a handset that senses what a user is doing -- jogging, say -- and then selects music from a personal library to suit that activity. Then in the next breath, he describes how his labs developed features such as a compass that shows Muslim users the direction of Mecca or a voice-based version of a Craigslist-style service for countries with high illiteracy rates. Last April, the company launched a program in India called Life Tools. For a fee of $1.30 a month, users can receive daily information about agriculture, education, and/or entertainment. In addition to cricket scores and Bollywood gossip, rural farmers get weather updates and daily crop prices from three of the closest markets. The pilot program has been expanded from one Indian state to 10, and Nokia is in the process of applying the model to Africa and the rest of Asia. Recurring micropayments from even a small fraction of those combined populations could quickly become a multibillion-dollar revenue stream. As Gartner Group's lead analyst, Nick Jones, puts it, "India has a billion people and is primarily a rural country -- if you get a dollar a month from 200 million farmers, that's a good business. Of course, they won't all buy the app, but it's all part of Nokia's wider vision to offer services."

The rollout of Ovi was a major step in Nokia's effort to infiltrate the cultural turf now ruled by Apple. "Apple has a dominant role in the U.S.," concedes Tirri. "But in the global game, it's a very different company. Personally, I'm fascinated by the law of large numbers. Nokia makes more than a million handsets a day, so when we do an innovation, we can have it in the hands of more than 400 million people very quickly."

While U.S. app developers have, to this point, been focused mostly on Apple, it may be only a matter of time before the size of the opportunity Nokia offers begins to dawn on them. "Nokia is a richer community for developers," notes Gartner's Jones. And that creates a rich opportunity for Nokia, too: "If they can extract even a few dollars more from each handset," Jones adds, "there's a huge business there."

Ovi is only one part of a multipronged strategy to redefine Nokia's mission and its reputation. In the developing world, that may mean delivering farming information; in richer markets, it means entertainment and media. Ojanperä -- an architect of the Ovi project who once ran Nokia's research group and after that was chief of strategy -- has taken it upon himself to spearhead this effort. Two years ago, he relocated from Finland to the United States, to be closer to the world's most famous content creators. From the company's U.S. headquarters, in a drab office park 30 miles north of Manhattan in White Plains, New York, he has quietly brokered multimedia collaborations with the likes of filmmaker Spike Lee and Heroes creator Tim Kring.

But it is Ojanperä's experiments with Dave Stewart that best reveal the range and depth of Nokia's ambition. For most of us, Stewart registers as the less-beautiful half of the groundbreaking '80s musical duo Eurythmics. A company like Nokia -- hungry for a pop-culture ambassador -- couldn't have done much better. In addition to Stewart's work with Annie Lennox (which has sold more than 75 million records), he is a black-card-carrying member of the Cannes/Davos/TED contingent. He has recorded hits with Mick Jagger, Tom Petty, No Doubt, Celine Dion, and others (collectively selling more than 100 million albums). He is a longtime friend of Microsoft cofounder Paul Allen (who was best man at Stewart's wedding, where Deepak Chopra officiated and the wedding singers were Bono and Elton John). He hangs around with the bad boy of the art world, Damien Hirst. ("Damien had this idea for a piece where he was going to have his hands surgically removed and then, you know, sewn back on," says Stewart. "It was mad, but he was dead set on it. We found this doctor in Mexico who was going to do it, but luckily, he decided against it.") In his spare time, Stewart also runs a consulting business with Chopra called DeepStew and is the U.S. creative director for the international ad shop the Law Firm. Last year, he got a personal thank-you note from President Barack Obama for "American Prayer," the song he cowrote with Bono and turned into a celebrity-packed video endorsing Obama.

I met Stewart one afternoon last September at New York's Morrison Hotel Gallery, on the Bowery, in what was once the rock venue CBGB. When I arrive, he is helping mount a collection of his photographs for a show the next evening. He unrolls a print of his portrait of France's first lady Carla Bruni. She is bathed in sunlight with her hands in a prayerful position and a hand-rolled cigarette in her mouth. It could be titled "Madonna and Spliff." "I'm writing an album with her," says Stewart, who in July performed with Bruni at Radio City for Nelson Mandela's 91st birthday. (In 2003, Stewart had organized the 46664 Concert in Cape Town to help Mandela raise AIDS awareness in Africa and created a phone donation campaign around Mandela's prison number.)

Stewart's function at Nokia is to connect the company to talent, opportunities, and new ideas. While not a staff employee, he has an official title: change agent. Stewart and Ojanperä were introduced at the Consumer Electronics Show, in Las Vegas, in 2006, and Ojanperä was captivated by Stewart's unorthodox style. "We both connected very deeply around the idea that a cell phone is really just an empty shell," says Stewart. "And we also agreed that content is the seed." The two met for breakfast the next morning, and a day hasn't gone by since that they haven't communicated.

That summer, at an annual Nokia corporate event in Helsinki, Ojanperä brought Stewart along. "We invite maybe 150 people," says CEO Kallasvuo. "Typically they're men in dark suits. Tero comes in with a guy in a white suit. And I said, 'Who is this?' " Stewart has taken Ojanperä into his inner circle as well. "I took Tero to meet Bono at his house in the south of France," says Stewart. It's not hard to imagine Ojanperä at Chateau Bono discussing how Nokia is using technology to help raise people out of poverty, or to imagine Bono seeing the appeal of working with Nokia. "Tero's definitely thinking 3-D all the time," Stewart says. "He is very contemplative, and that is attractive to Bono."

Ojanperä and Stewart's mission was to persuade Bono and U2 to release the band's recent album through Ovi, a plan that never materialized. Nevertheless, the visit underscores Nokia's approach to building out this part of its business. Where Apple chose to let the technology (and moneymaking potential) do the talking when it came to getting desperate record labels to sign on with iTunes or getting app makers to sell their work through the App Store, Nokia sees the process as first and foremost about building relationships with individual human beings. As Stewart puts it, "Maybe this is because of the social-democratic philosophy of the Finns, or maybe it's just their humanity, but Nokia actually cares about artists."

I facetiously ask Stewart if his experience with Ojanperä is less exciting than hanging with pals like Bono. "Oh no, no, no. We talk for hours and hours," he replies. "He's the one who can comprehend the two worlds of creativity and engineering and this vast enormous network and how they can possibly come together. It's like he sees these two enormous ships floating in space yet moving hundreds of miles an hour; with Nokia, he can direct them to a docking point."

Just how well Ojanperä is able to meld creativity and engineering may be the biggest question for Nokia going forward. But no one can fault him for being unwilling to roll the dice. He and Stewart have even gone so far as to create what they hope will be a global, multi-ethnic pop star from scratch.

Stewart is sitting on a sofa in his Hollywood recording studio with a singer named Cindy Gomez. Originally a performer with Stewart and his 30-piece orchestra, her life changed when Ojanperä put Nokia's director of gaming, Mark Ollila, in touch with Stewart. "We had this idea for a dance game, but we didn't really have any content to drive it," says Ollila. "We just knew that we wanted it to bridge music and gaming and be available exclusively on our mobile phones."

Stewart suggested that Nokia build the game around Gomez. "Dave was so quick to understand," says Ollila. "He saw very clearly that she could be the star and also use the game as a platform to launch her as an artist."

When I visit, Stewart and Gomez are recording the third of what will be five music tracks for the game, eventually titled Dance Fabulous. The next week, Gomez, a Canadian who happens to sing in eight languages -- including Cantonese, Hindi, and Mandarin -- is heading to Berlin to do the motion-capture work that will transform her (gorgeous) likeness into the avatar at the center of the game. "I'm not sure we could have invented her," says Ollila.

Before Dance Fabulous went live in June -- to some 40 million Nokia handsets -- Stewart, who manages Gomez, signed a deal with his longtime friend Jimmy Iovine at Universal. The songs from the game are now sold via Nokia's online Music Store (its pay-per-song site) and also through the prepackaged Comes With Music. Gomez also nabbed a five-week European concert tour -- backed by Nokia -- of venues in Helsinki, Paris, and Rome, and played to a crowd of 65,000 in Vienna at an AIDS benefit called the Life Ball.

"Fifteen months ago, I was selling furniture in Toronto," Gomez says. "Now I'm the first artist to debut in a game where I'm also this crazy video character." After the Life Ball, Stewart and Gomez flew to Cannes to take in the film festival and spend a few days on Paul Allen's boat, Octopus. "We ended up performing for everyone," says Stewart. "Quentin Tarantino, Juliette Binoche, Mick Jagger. It was really quite wild."

In early June, Stewart sits on a private jet in London on his way to a consulting gig in Yorkshire. A week earlier, he was in the studio with Mick Jagger, singer Joss Stone, Slumdog Millionaire composer A.R. Rahman, and reggae scion Damian Marley for a stealth supergroup he's building. (That's not a first for Stewart: The Traveling Wilburys came together in his backyard while he was entertaining Bob Dylan and George Harrison.) The details are still being worked out, but if plans proceed, Nokia and major phone carriers will partner in presenting the band to the world.

Before the plane takes off, Stewart mentions yet another project he's working on. "I've written a story about this Indian boy who finds a Nokia phone and starts playing Dance Fabulous," he says. "He's quite good, but also quite poor. He convinces his family to drive to Mumbai for a big dance competition -- sort of like Little Miss Sunshine. There's a character played by Cindy who is going to be the host of the show and it's going to be a love story, like Slumdog. So anyway, I've sold the idea and it's going to be a movie called Street Dancing, and A.R. Rahman is going to take the songs I wrote with Cindy and remix them in a Bollywood style. Pretty great, right?"

A few days later, I sit down with Ojanperä in a conference room in White Plains. I mention his speech at the Greenwich Hotel and how it seemed at the time that the music execs were skeptical. We discuss the Dance Fabulous collaboration with Universal and how Nokia is allowing Stewart and Gomez to sell the music in any venue. I suggest that another company might have locked up the rights to such a project.

Ojanperä reminds me of what he said that night at dinner: "I think that people feel better when they are working together and sharing their creativity." ("The reason I get on so well with Nokia is that we are both open-source," Stewart notes.) In Europe, says Ojanperä, "we struck a cross-continent licensing arrangement with all the majors. Our plan is to change the whole landscape of how music publishing works, and I think it is going to be a better direction for everyone."

He also tells me that while his ambition for Nokia is to be the biggest entertainment base in the world, it's only part of an even greater ambition to be the largest network in the world -- period.

Beyond entertainment, Nokia sees in its billion-person base an opportunity to insert itself into all types of commercial exchanges. One example currently being tested in Nokia's labs is software that recognizes images shot on a cell phone's camera; the image acts as a sort of visual bar code, then connects users to a menu of online information -- the best price on a pair of Nike Air Force Ones, say, or a movie review, or a reservation number for the restaurant in the Eiffel Tower. "With our point-and-find technology and navigational services, we can essentially turn the world into a gallery where users can comparison-shop, find the best price, and then order online. All the technology is there," says Ojanperä. "We want to be part of the new value chain, and eventually, I'd like to earn a piece of every transaction in the world that happens with this device."

That seems quite a distance down the road for Nokia. Apple and its ilk have shown that "putting the Internet in your pocket" for the highest-end customers can be an extremely lucrative proposition. But for all of Nokia's success in the bottom and middle tiers -- and all of Ojanperä's well-connected efforts -- the Finnish company still has work to do before it is a leader, or even a contender, in the finicky minds of the American techno elite.

"Nokia hasn't yet established that 'I'm a Nokia person' brand that would stand up against the 'I'm an Apple person' brand," says Gartner analyst Jones. "Nokia is stronger on the engineering stuff than the emotional stuff, and they need to become more balanced." Still, Jones continues, in the long run, maybe that won't matter much. "Look at the real world: It's not about people in the high end. The real world is people in the middle, and Nokia owns that world in terms of numbers. They may not own mindshare, but they certainly have a lot to work with.

"This is a long-term game," Jones goes on. "They've changed the company's whole organizational structure. I think they can do it."

"Businesswise, I don't believe in revolution," says CEO Kallasvuo. He talks about Nokia's "evolving" into a content provider: "We now think of ourselves as a devices-and-services company that is deeply involved in media, music, gaming, and navigation." Still, that doesn't mean evolution can't eventually turn you into something quite different. As Kallasvuo says of Ojanperä: "Tero is looking more and more like Dave Stewart every day."