The return of the real

On November 30, 2017, the sun set in the afternoon in Helsinki. It doesn’t show its shining face often at this latitude. An hour before it shuts down, the Messukeskus Centre has already been plunged into darkness. Behind the scenes at the tech festival Slush, spotlights placed in a circle suddenly start moving like a centrifuge around six stylized letters: Varjo. The word (“shadow” in Finnish) is the name of the virtual reality company founded by Urho Konttori in 2016. After screening a clip promising an industry “revolution,” the entrepreneur suddenly appeared, clothed in light.

Urho Konttori
Credit: Varjo

“I’m the CEO of Varjo, a Helsinki company that creates the most advanced virtual and augmented reality technology in the world,” he says to a huge crowd. In addition to the 20,000 people present at the Finnish capital this year, the Slush brand drew some 11,000 attendees to conventions in Tokyo, Singapore, and Shanghai. At the time of its launch in 2008, the global financial crisis sent Finland spiraling into a decade of economic malaise. Sanctions against its foremost trading partner, Russia, and the bankruptcy of its flagship, Nokia, didn’t help things. But despite all, its bet on new technologies seems to be paying off.

On the eve of the festival, Statistics Finland noticed an acceleration in the central bank’s promised recovery. Not only was the recession past, but the predicted 1.3% growth rate for 2018 seems to be an underestimate. According to its Minister of the Interior, Kai Mykkänen, “the knowledge and human capital of the electronics industry has been transposed into health technologies, a very promising new sector: it was worth 2.1 billion euros in 2016, or half of all technology exports.” In 2017, Finnish startups raised a record 349 million euros, compared to 318 million the year before.

Now that he’s in the spotlight, Urho Konttori is no longer hiding his intention to shade out the competition. Last summer, Varjo left its secret offices in Helsinki’s design district, which showed no outward hint of its existence to visitors, to set up shop in an art deco building right next to the central station. On the wall, a poster featured a quote from a NASA engineer during the space race between the US and the Soviet Union: “Failure is not an option.” The Finnish company, with its 30 employees, refuses to be a mere meteor in the constellation of virtual reality. It wants to take on Facebook, Google, Samsung, and Microsoft.

Credit: Varjo

Urho Konttori has recruited geniuses from Nokia, Microsoft, Intel, Nvidia, and Rovio. “We know how to build the machine, the system, and we know how to make something a global success,” he says proudly. The beneficiary of two large fundraisers – one for $8.2 million and another for $6.7 million – his startup is already delivering prototypes to partners like BMW, Audi, Volkswagon, Airbus, and 20th Century Fox. According to its designers, they’ll provide access to unparalleled experiences of “realism.” To do it, Varjo mimics the inner workings of the eye: instead of providing a uniform visual scene, like in a video game, the user perceives with particular clarity whatever he’s looking at, while his periphery is fuzzier. True to reality and finely detailed, the experience is even cheap in bandwidth.

Varjo offers users an environment that’s as comfortable as the environment that allowed it to grow in the first place. As its boss presented to the audience at Slush, it was revealed that the Finnish innovation agency Tekes had given it $6.7 million. With its 5.5 million inhabitants, Finland is third in the European Union in innovation investment, behind Sweden and Denmark, according to the European Innovation Scoreboard 2017. The Finnish ecosystem includes incubators such as Maria01, a campus set in an old hospital in Helsinki. “We needed a place to bring together the vast community of startups that was developing,” its boss, Voitto Kangas, says. The number of Finnish tech startups is beyond count. There is, for example, Naava and its green walls; Yousician, a platform for music tutorials; and Singa, the Spotify of karaoke. In a way, they fill the void left by the fall of Nokia.

A Paper Monster

Founded as a paper mill in 1865, Nokia became, after repeated acquisitions, the third biggest European television vendor by the end of the 1980s. At that time, Urho Konttori was buying figurines of the boardgame Shadowrun. Already, shadows and alternative realities attracted him. After seeing The Matrix a decade later, the young man decided to study computer science at the University of Helsinki. At the same time, he worked at a small software company, Absolutions, before joining Nokia in 2008. The company was then at its peak. It made, most notably, the most reputable cell phone in Europe, the N82.

Nokia N82

On the back of this worldwide success, Finland earned the nickname “the Nordic Japan.” It didn’t start out with the same kinds of advantages as the Asiatic archipelago. Its vast spaces could have made it a leading producer of natural resources. But they resulted instead in the diversification of Nokia. Born at the edge of the Tammerkoski rapids in the region of Tampere, the company manufactured papery using hydraulic energy. Wishing to take advantage as well, the National Rubber Company came along at the end of the century, then bought the majority of Nokia’s shares in 1918, before taking over the Finnish Cable Company in 1922.

That would play a decisive role. At the end of the Second World War, the Soviets fined Finland $300 million for forming an ad hoc alliance with Nazi Germany. A quarter of the sum being paid in cable, the cable company had to increase production. Once its debt was paid, the company searched for opportunities abroad. But Finland couldn’t work with the US, which excluded it in the Marshall Plan for its proximity to the USSR, and it couldn’t work with Moscow, which had taken the northern Finnish region of Karelia after the war. So it developed its own technologies.

In 1963, the army sent out a call for radiotelephone production. Five companies were in competition, including Televa and Nokia. Partnering with Salora, Nokia created a VHF radio. The project’s eventual cancellation pushed the companies to sell their prototypes abroad. In the 1970s, Nokia joined with Televa, entering the forefront of the state-of-the-art telephone market. Their partnership led to the DX200, the world’s first digital voice exchange platform. It also grew through the Nordisk Mobil Telefoni, a network established in 1981 by the Finnish, Swedish, Norwegian, and Danish states. It grew so well, in fact, that in 1984, electronics revenues surpassed that of forestry, cable, and rubber industries. Most of its production was exported to the Soviet Union.

The same year, Nokia launched in South Korea with the American company Tandy. The business grew by swallowing up its European competitors like the Swedish Luxor AB and the French Oceanic. Faced with the recession of the Finnish economy in the 1990s following the Soviet Union’s collapse, the company refocused itself in the telecommunications field. “Nokia managed to distinguish itself from its contemporaries because it was constantly mastering the entire value chain, from innovation to marketing and service,” says the economist Dan Steinbock in The Nokia Revolution. That might explain why Urho Konttori believes that “Varjo will succeed by combining technique, design, and marketing.”

The Nokia Campus in Espoo, near Helsinki
Credit: Nokia

Renaissance

Urho Konttori started from the top. As he arrived at Nokia in 2008, there was no bigger portable phone producer in the world. Half of the sector’s revenue ended up in the pockets of the Finnish giant. But it was also a turning point: the first iPhone was ushering in the era of smartphones. For its part, Nokia launched the N96, a model designed for video, with good speakers and a 5-megapixel camera. “When Nokia put all its resources into something, it didn’t need to be first,” says Pekka Koponen, a former manager. “It could dominate the market Steve Jobs had created for it.”

While working on another model, the N9000, Urho Konttori linked up with Roope Rainisto, Klaus Melakari, and Niko Heiden. They would start Varjo together. “I learned to lead groups of 100 engineers and to focus my attention on objectives,” Konttori observes. “It’s easy to get yourself lost.” For there are projects at every stage of development: “I also learned that I could inspire people to innovate. Out of the 80 patents we developed in a workshop, we only kept four.” How many concerned smartphones? Clearly not enough: Nokia was late, after Apple and Samsung. The platform it designed in 2002, Symbian, never challenged iOS and would be surpassed by Android. For the professor of management Yves Doz, co-author of Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones, the company’s massive size crippled its own agility.

In 2011, Nokia dropped its operating system, switching to Windows Phone. At the same time, it shut down its platform development project Maemo. Urho Konttori remembers seeing employees in tears. “It was terrible, but I was so busy finishing the N9 that I didn’t understand the extent of it. Then everything collapsed.” The drop in sales led to a massive layoff of 4,000 employees. For a country of Finland’s size, that’s a disaster. The era where “everyone knew someone who worked for Nokia,” as Voitto Kangas had put it, was over. In 2013, Microsoft bought the Finnish device and service company for $7.9 billion.

Voitto Kangas, CEO of Maria01
Credit: Twitter

Niko Eiden, Klaus Melakari and Urho Konttori found themselves in Microsoft’s Forward Lab, a team focused on future technologies notably working in the field of virtual reality. From that came the HoloLens helmet. Konttori “began to believe [that he] could create something.” But he’d have to do it elsewhere. In 2016, Microsoft split off most of its Finnish assets and gave the three men a choice: come to the US, or be unemployed. One of its clients, the software company Umbra, presented them with an investment fund, Lifeline Ventures, whose patron, Timo Ahopelto, believed that Finland could be a leader in virtual reality. “I hope that they are the new Supercell,” the businessman said.

In its eight years, Supercell has become one of the most famous video game companies in the world, with the success of its Clash of Clans. “That’s what pays most of the taxes in Finland,” Voitto Kangas said. Its main offices are located in an old Nokia research building, southeast of Helsinki. “There are three types of new players in the Finnish economy,” Maria01’s boss says. “We have a ton of good video game companies like Next Games; a lot of startups by former Nokia employees; and software specialists who work for corporations.” After designing a prototype in his garage, Urho Konttori and his colleagues have received $700,000 from Lifeline Ventures, $93,000 from Microsoft, and $117,000 from the group Tamares, owned by Finnish billionaire Chaim Zabludowicz.

The enthusiasm received at a previous Slush festival pushed Urho Konttori to persevere. When he returned in 2017, it was to promise “a revolution.” According to Voitto Kangas, the country’s startup network is big enough to produce several players at the international scale. “Good support from the government,” especially by the innovation agency Tekes, has something to do with it. Already, despite a thriving education system, the country is looking for foreign talent. Nokia is a fading memory, but the sun will always rise eventually in Finland.