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Thirteen years ago — an eon in high-tech terms — a small group of psychologists, industrial designers and engineers invented the future at Nortel. The result can be seen today in a stunning 18-inch by 24-inch photo that hangs on the home office wall of John Tyson, the man who ran Nortel’s Corporate Design Group for many years.
The image is a highly stylized, eerie evocation of Apple’s more recent ads. Inside the frame, a female model holds a working prototype of a phone that slides out to produce a full keyboard and a large screen. Touching different parts of the device with a stylus or finger transforms the device into a pager, voice mailbox, wireless phone or fax machine.
The device was called Orbitor and had Nortel played things differently, it could have engineered a brilliant exit from the great telecom crash of 2001.
Instead, a pair of high-tech icons — California-based Apple and Research in Motion of Waterloo, Ont. — exploited the opportunities that Nortel and so many others missed.
They are now establishing just how valuable the franchises are. Paced by sales of the iPod (music downloads) and the iPhone (wireless Internet phone), Apple has seen its market value surge nearly 160 per cent from a year ago to $121 billion (all figures U.S.) At the same time, RIM is riding a surge in popularity for its BlackBerry devices — which make possible e-mail on the go. The company’s share price has soared 264 per cent from a year ago, giving it a market capitalization of almost $44 billion.
In sharp contrast, Nortel’s one-year return has been a relatively pedestrian 18 per cent, for a market value of $11 billion.
The question of how Nortel missed the mark fascinates because there is no doubt among the Orbitor’s designers that they had the smarts to beat Apple in particular to the iPhone.
"Yes, absolutely!" Mr. Tyson said in response to a query about whether Nortel could have managed the trick. Certainly the technical and design talent was there.
Consider, for instance, the experience of Don Lindsay who developed the Orbitor’s user interface — the combination of software and design that makes the device easy to use.
Mr. Lindsay, a protege of Mr. Tyson, left Nortel in 1994 to join Apple. There, he hired the team that created the Macintosh computer’s OS X operating system. Although Mr. Lindsay now works at Microsoft, where he run a design group at Microsoft Live Labs, his influence at Apple would remain profound. His OS X team created the user interface for the iPhone.
Of course, the same group might not have produced a similar product within Nortel, where the R&D culture revolves around the heavy-duty technology that lies at the core of large communications networks.
However, Ken Blakeslee, the former vice-president of business development who led the Orbitor project, recently shed light on just how close Nortel came to selling the Orbitor concept to one of Europe’s biggest cellular phone operators.
"We had 80 finished units going into market and service delivery trials with CellNet (now O2 Telefonica) in 1998," noted Mr. Blakesee, who advises wireless carriers through his British-based consulting firm WebMobility Ventures.
"We were so close to bringing (Orbitor) to life," he said.
What happened? The short answer is that Nortel’s top brass briefly considered the enormous risks involved and took a pass.
A host of factors went into this decision, not least of which was the company’s relative inexperience with wireless technology and consumer electronics. Nortel acquired much of the wireless know-how for Orbitor through its 1992 purchase of a stake in France-based Matra. But this investment was aimed more at acquiring the wireless technology that drives GSM-standard networks — and not the consumer-style electronics typical of mobile handsets that link to the networks.
"We simply could not design and manufacture cost competitive (handsets)," former CEO John Roth noted this week in response an e-mail. "Nortel’s circuit design skills were in large systems and not in consumer products." The wireless services industry was also in a state of flux in the late 1990s. There were three prevailing technical standards for wireless networks (TDMA, GSM and CDMA) and the industry was moving rapidly to third-generation systems that offered higher speeds.
Finland-based Nokia and Chicago-based Motorola were generally considered the favorites to win in the transition. Nokia has a superlative logistics system, along with the ability to design attractive, low-cost handsets. Motorola at the time had the advantage of manufacturing its own semiconductors, which also contributed to lower cost phones.
Mr. Tyson noted that Nortel faced an additional problem. Its engineers at the time were used to designing products that had a life expectancy of five years or more. With Orbitor, they would have to create fresh models every 18 months — even faster later on. This would demand another level of productivity from the designers.
Even so, the decision to build the initial Orbitor prototype was fairly easy.
"You can do wonders with temporary tools to create prototypes for customer trials," said Mr. Tyson. "The key, though, is to commit tens of millions of dollars to go to high-volume manufacturing." The Orbitor group was forced to fight other units within Nortel for these kinds of resources.
And it lost.
It had taken nearly four years to move from concept to customer trials early in 1998. Then followed a period of hiatus as Nortel considered whether to move to the next stage and begin high-volume manufacturing.
Finally, in 2001, as the telecom crash got underway, Nortel killed the entire 120-strong Corporate Design Group — the unit that concerned itself with ergonomics and designs that appealed to the eye and hand (as distinct from Nortel’s thousands of electronic engineers and network design specialists).
For senior Nortel managers, killing the group was an easy call. The company was losing buckets of money and the group was not contributing to the revenues. It was a matter of survival. Mr. Tyson, who had retired in 2000, believes it was a false economy.
"They really underestimated the value of the unit," he said.
The reason: The Group came as close to anything else within Nortel to replicating the freewheeling design culture at Apple — perhaps because Mr. Tyson’s charges spent their days tweaking devices used by consumers, not telephone engineers.
No doubt, Nortel’s executives saw in Nokia’s dominance in the field of wireless handsets confirmation of their decision not to back Orbitor.
Yet, that’s only part of the story. Nokia, after all, simply stuck to its strengths. There was plenty of room, it turned out, in a couple of very lucrative new niches.
Had Nortel committed to Orbitor, there’s no telling what direction the design effort might have gone. Nortel, an early pioneer in the use of e-mail in its internal communications, could have challenged Research in Motion. And Mr. Roth’s company certainly had enough time to produce an iPhone to rival that of Apple.
In fact, it’s worth examining the state of RIM and Apple in 2001, the year Nortel killed its Corporate Design Group, along with Orbitor.
RIM, for instance, had very little heft in 2001 when it posted sales of just $221 million — while Nortel the same year recorded a lofty $17.5 billion in revenues.
RIM was completely focused on wireless data technology, and growing swiftly. Nevertheless, it remained vulnerable. Company prospects stalled in fiscal 2003 and RIM co-CEOs Mike Lazaridis and Jim Balsillie would spend the next few years persuading the planet’s biggest carriers to equip themselves with BlackBerry servers. This is what laid the groundwork for RIM’s recent explosion in new sales.
At Apple, the prospects actually looked bleak in 2001. Company revenues had sunk to $5.4 billion — the lowest since the late 1980s and only half the level of 1995. But 2001 also marked the debut of the iPod. This is the music carrying device that last year for the first time accounted for more revenues at Apple than the sale of computers.
Apple co-founder Steve Jobs followed this coup last month with the introduction of the iPhone, further pushing the company into the realm of consumer electronics.
It is far from clear that the iPhone will be a commercial success. The design is undeniably beautiful but it works so far only on AT&T’s network. But that’s the thing about Apple — you can be sure its technocrats are resolving the issue of coverage even as the firm’s overactive design group is coming up with fresh models.
Apple saw an opportunity and went for it, fully confident in the ability of its designers to measure up.
When Nortel closed Mr. Tyson’s design group in 2001, it stuck to what it knew best — the complex networks that allow the BlackBerry and iPhone to function. Nortel has been a player in the industry long enough to appreciate this may yet prove to be the right call. It’s just difficult to believe amid the noise generated by a pair of firms that were mere pipsqueaks when Nortel got out of their way.
© The Ottawa Citizen 2007