Nokia N8Nokia apparently developed an internet-ready prototype phone with a large display and touchscreen in 2004 — three years before the iPhone debuted — but killed the concept for fear of it being a flop, a former Nokia employee who demonstrated the device tells the New York Times.

Ari Hakkarainen, the former employee in question, was a marketing manager for Nokia’s flagship Series 60 phones at the time. “It was very early days, and no one really knew anything about the touch screen’s potential,” he explained. “And it was an expensive device to produce, so there was more risk involved for Nokia. So management did the usual. They killed it.”

According to another employee, Nokia in 2004 also rejected a design for an online application store — something that would later be popularized by the Apple’s iTunes App Store and which was mimicked by competitors, including Nokia itself. Yet another former employee, Juhani Risku, said that the company rejected plans for a 3D user interface in its Symbian operating system in 2002 — something that Samsung and LG introduced in 2009. Risku said that his team offered 500 proposals to improve Symbian but never managed to get any through.

We’ve seen this story many times over: A company becomes very successful in a key market, but eventually that success begins to stifle innovation. Microsoft is perhaps most guilty of this phenomenon, but even it has been able to innovate when pressed — for example with the Xbox 360 console and Bing search engine.

Nokia, on the other hand, doesn’t have much to show in the way of innovation since the launch of the iPhone. The N8, its most recent flagship device, could find some fans among teens and young adults, but it can’t compete with the iPhone 4 or high-end Android phones when it comes to features, hardware, and software. Last week, the company announced that shipments of the N8 will be delayed for several weeks due to a software error. Nokia’s Meego platform — a joint open-source operating system developed in conjunction with Intel — will eventually make up its high-end devices, but that’s still far from release.

With Microsoft’s Stephen Elop joining the company as CEO, there’s a chance that Nokia may be able to turn itself around. Elop is already familiar with highly bureaucratic corporate cultures, and the company is certainly more aware now that it needs to innovate.

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