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Round table with Nokia Vice-President - Anssi Vanjoki

In mid December we had a unique opportunity to meet with Nokia's Vice-President, Anssi Vanjoki, who is also the man in charge of Nokia Markets division. At that round table, held in one of Moscow's restaurants, we were accompanied by a dozen of other journalists, and while some of their questions sounded at very least amusing, or even ridiculous (such as the one referring to a billion dollars of uncollected debt), Mr. Vanjoki's honest and comprehensive answers can give you a good idea of where Nokia is going and what areas they will be developing in the coming months. Let's start with his opening statement:

If we look at what’s going on in the world today, of course we have been going through quite turbulent times for the past several months, starting with the financial crisis that then hit the economy at large, and of course the market of telecom or rather I’d say the Internet market is starting to slow down.

But the underlying trend these days is that Internet is getting very ubiquitous and the next stage of development, which, as we see it, is starting right now, is that the Web will get mobile and contextual with Nokia being one of the main shapers of its development.

Recently, we have introduced a number of new products that are really computers rather than mobile phones, but we aren’t going to ditch the mobile phone space either. In Russia, for example, there is still quite a lot of penetration potential left.

So if you look at what’s hot today, it’s the introduction of the Nokia 5800 XpressMusic here in Russia, which we decided was worthy of being the first market to get this product and so far it has enjoyed a tremendous reception here.

Just a week ago we released another important product that will help this mobile convergence concept come to life - the Nokia N97, a small computer that actually is going to change how people think about mobile devices for good.

From Nokia’s perspective, the Internet is a very interesting and fast-developing market that we are really excited to make mobile and contextual. And when it comes to specific regions we feel very enthusiastic about Russia – even in the present economic climate we believe that it’s going to be a very nice market for us, so we want to increase our presence here and help the development and evolution of this market to move from mobile telephony into a much larger Internet-driven stage.

So that’s basically all I wanted to say as an opening statement and now we can move on to your questions.

We can’t argue that the performance of the Nokia 5800 in Russia has been extraordinary, and that it has already broken some all-time records here. However, a fair number of phones are flowing out to other regions that don’t have the 5800 on sale yet. Do you have any estimation of how many units have already been smuggled and how are you dealing with this issue?

Anssi Vanjoki: When we are about to release a new product, we select one or two key markets where we believe we can make a significant impact in the very first instance. This is how we ended up launching this product here in Russia first – we gave this market all units we had, but at the same time the initial success we saw was so overwhelming that we even had to delay its release in some other markets a little bit, but now we are back on track, launching it in Spain and Hong Kong, and it proves to be just as phenomenal there as well. And everything we have shipped has vanished immediately from the stores, so we are very busy at the time, trying to ramp up our production.

Of course when we have a shortage of something and there is an arbitrage possibility products like this will always show up in markets where we never meant to launch them this early. But in the case of the 5800 we don’t think that these leaks are considerable volume-wise. And starting early 2009 we are going to expand our presence to other regions as well, so we aren’t really concerned about this at the moment.

How soon will you be able to ramp up your production of the 5800? As it stands today, you are facing serious shortage problems all over the world and it doesn’t seem that you actually can keep up with the ever growing demand for the Tube.

A.V. We have a very big capacity plan for this product because we knew right from the beginning that it was going to be extremely popular, however it seems it has exceeded even our highest expectations by quite a margin. But, generally, when we launch a new product like this, it takes us around 12 weeks to reach the peak capacity, and now that we have been producing it for over a month, I believe we’ll catch up during the first quarter of 2009.

Do you expect the sales to remain on this level in January as well?

A.V. We discussed this question earlier this morning and the consensus was that after the Russia New Year the market will be soft, but we hope that already in the 1Q the bottom will be reached at some point, and then the market will start growing again. Of course we are in a very favorable position now, since we have the Nokia 5800 and a whole line-up of other affordable products, so we believe the market will be going our way next year.

Speaking of the financial crisis – will it force Nokia to revise some of your plans regarding new products or market strategy?

A.V. Actually the economic downturn means that we have to speed things up, and instead of freezing some of our projects we need to do exactly the opposite. We have to make sure that all these new services and products launch on schedule, so we are focusing on getting everything done rather than postponing some of our solutions. Another thing about economic downturns is that it's exactly the time when new winners are built and we really want to be among them.

Do you already know where the N97 will debut?

A.V. I do know, but unfortunately I have to keep it to myself for the time being. However, I also think that we need to do some more research for the N97, because it’s not just another new product – it represents a completely new product concept and when it comes out it won’t be some ordinary phone, but will include services made both by Nokia and many other companies. So we will have to make our final call based on what markets will be ready to make use of this phone’s abilities.

Over the past few years Nokia have been really pushing some of their new products on the US market. Will we see any changes in your US policy down the line, with the financial crisis raging out there?

A.V. I think that we will just continue with our strategy, although a bit faster than before, now that we have invested into a product development center based in San Diego that makes phones for the US alone (we have just started developing two products for Verizon, and more are to come for AT&T), so we are making great progress there, step-by-step.

How successful was your 6555 affair with AT&T? At first Nokia claimed the phone was designed exclusively for the US, however later on it appeared on other markets around the globe, as AT&T didn’t report any considerable sales for this phone.

A.V. I think that we are pretty happy with what we are doing there. And the fact that we took this product to other markets only indicates that we saw other opportunities for it outside the US (its original target market).

A lot of fake phones, such as “Nokla”, get to Europe through Eastern regions of Russia. How are you dealing with this never-ending stream of counterfeits?Are you running any advertising campaigns that inform your consumers about what these phones really are?

A.V.The best way for us to fight these counterfeiters is to try to go where their production is and we have found of number of places that are now shut down, where our brand rights were violated by “Nokla” products and such. So instead of delivering a message to consumers it’s much more effective to go right to the places where these fakes come from.

Since Nokia now positions itself as an Internet-company, I’d like to know your opinion on how successful the company has been in this field so far, and with OVI services in particular?

A.V. Actually Nokia’s strategy in services was not a very new one –we had been preparing it for a very long time and it all came together in the form of the announcement you heard a year ago; since then we have been working hard to implement all the features we unleashed back then and make them practical. And what I can report today is that we are ahead of our original goals, we are progressing faster than what we initially thought we would; and the most successful service for us at the moment is “Navigation” that we have introduced on a number of products and across a very wide selection of local markets. Also, we have made a very significant investment into NavTeq, which is the world’s leading company in digital mapping, but for us it’s not so much about digital maps, as it’s about their platform, which we can coordinate literally the whole world with.

It’s an open secret that OVI is tailored for the Western world, since many other markets haven’t seen its localized versions yet, so the language barrier is still there. Are you going to cooperate with local carriers and service provides on this front?

A.V. One thing that makes Nokia very different from all other Internet players is that we are physically present everywhere – the fact is, most other companies are present everywhere too, but digitally. So localization is a very important part of our strategy. We are serious about taking these services to local markets, but we’ve got to do that step-by-step. You will definitely see some services in 2009 (Nokia Music Store will probably become available in Russian some time during the first half of 2009), and certainly we are going to enter the Russian service space with a localized version of OVI.

But the number one goal at the moment is to get our global services to work. For example N-Gage has been doing really very well – it has already made it to the world’s top 5 game download services and we believe soon enough we’ll break into top 3, even though we launched the service only in October of this year.

In 2009 we are going to start paying more attention to partnerships, but so far we have been focusing more on getting our entire suite of services out in the market and getting them to work.

These days there is a number of communities, centered around old-time services, such as flickr, livejournal and so on, and these users are very unlikely to switch to your offerings since they give them pretty much the same benefits. But seeing how the financial crisis is sending all stocks through the floor, wouldn’t it be better for Nokia to acquire several companies for reasonable money and expand your presence on local markets this way?

A.V. So if you look at our services strategy in general, OVI is a complete environment that deals with clients who own mobile computers. I tend to call our strategy “inclusive”, which means that we have a certain basic portfolio of Nokia’s own services, but then we incorporate other services, like YouTube, flickr and so forth. All of them can be used with our products. And in this way, I’m not counting out the possibility that we’ll cooperate with local providers here as well, to make the whole environment richer.

What sets Nokia apart from most other phone makers is that you’ve got a wide array of prototypes and concept models. Can you give us an estimate of how many ideas really get implemented? Some time ago Nokia introduced a nanotech-based handset (Morph) – I'm curious when you think it’ll see release as a commercial product.

A.V. If we look at our product development process, it’s safe to say that for every 100 ideas only 2 get implemented. So, we start with a hundred of them, we conceptualize them and some get dropped already at this stage, then we move to production issues and commercialization, and only the concepts that meet all the criteria pass - the success rate here is around 2%, which is very little. When it comes to a more global concept, such as the Morph, that’s based on a very real-life technology understanding, so I can’t give you any timeline as to when nanotechnologies will reach the level at which they’ll be applicable in this form. But I’m pretty sure that if I live a normal life, I will be old enough to see some Morph-type product to really hit the market.

Have you found any use for nanotechnologies in mobile phones? If not, when do you think phone makers will start utilizing them?

A.V. Most likely, the first implementation of nanotechnologies you’re going to see in mass production will have much to do with our battery technologies and other conductors that we need to make more efficient and at the same time physically lighter. So there are many reasons to use nanotechnologies, but that’s the first thing we are looking to do.

Does the launch of touch-based phones spell the end for Nokia’s Internet tables?

A.V. Definitely not. We know the Touch technology inside out because we introduced the first product of this kind back in 2004 (Nokia 7710) and if you look at the Internet tablet segment, it’s not dying at all, on the contrary – it’s our future. I remember saying at some launch even that it would take five generations of the Internet tablet devices to really make them mass consumer products – so far, we have launched only three generations and the fourth is in the making at this very moment, based on the Maemo software that is written for touch-based products, so it’s a very important asset for us.

How does Nokia plan to develop its touch-based technologies and is there any chance they will spread beyond Series 60 products? Will we see extremely affordable phones with touch-sensitive displays for 200 USD and less?

A.V. First, we have three core platforms in our portfolio: S40, S60 and Maemo. Basically, we are going to incorporate select services into S40, but when it comes to the UI development, since S40 is more of mobile phone software, it’s fairly questionable whether it’s worth brining this touch-based interface into a product where it’s not all that useful in the way of services, like in the N97 with all its widgets. The bottom line is that the Series 40 will have a very limited set of services, while S60-powered phones will come with all of them, and so will Maemo, but underlying the latter is a desktop Linux platform. So these are the strategies that we have there.

You mentioned that nanotechnologies could be used for building batteries. But how will they affect the physical design of mobile phones? What breakthroughs should we expect in the way of materials and form-factors?

A.V. Over at Nokia, when it comes to product design, we always consider three different elements: physical design, materials, and software plus usability, so these three areas have to come in harmony when we make a really novel product. If we look at a very recent example of N97, specifically its sliding mechanism, it’s actually very innovative in that how rigid it feels and at the same time how easy it is to zip open. As for nanotechnology, since it has one very particular feat - that you can make very light and at the same time sturdy and flexible structures - when we’ll want to make something really thin, for example, it will provide us with a lot of tools and possibilities, so there will be a whole lot of breakthroughs in the near future.

Do you expect the total volume of sales to do go down in 2009? How will it compare to that of 2008?

A.V. We just had our Capital Markets day in New York, where we shared some prospects on the upcoming year, and we expect our sales will be 5% below the level of this year. But I can’t be more specific – at this moment there is just too much uncertainty on where the markets will go..

Several years ago, when you were only starting out with the idea of Internet tablets, you didn’t have many competitors out there. However these days, so-called netbooks seem to be all the rage and they even target the same audience. How are you planning to battle against them?

A.V. First of all, I think it only proves that we are right about what the future of the market will look like and what devices will drive it. But when it comes to what you call “netbooks” – they are simply bad laptops, with reduced feature sets, and that’s a wrong concept, furthermore, they aren’t really context-aware mobile computers. So I’m not afraid of going into competition with such pared-down devices, at all. Also we have been investing into the Maemo platform for a while now, which is a genuine Internet-driven platform, so if anything, we’ll have something to fall back on. And again, these netbooks are handy for situations when you don’t have much space around, but that’s about it, and most people who bought them earlier this year are starting to get really disappointed.

According to some rumors Nokia is yet to collect around a billion dollars from Russian retailers, and with Dixis being bankrupted, I wonder whether it will have a serious impact on Nokia’s operations in Russia. Also, it’s rumored that last week you stopped shipping phones to one of the largest Russian retailers; can you shed more light on this situation?

A.V. I always start with our standard answer that we don’t comment on various rumors. But what I’d like to add is that Nokia is not a bank – we are running a serious business, and only people who take good care of their enterprises and reputations are most welcome among our partners. Our ambition is to increase our presence on the Russian market and we believe we won’t have any reason to end our cooperation with this market’s strongest players who are going to help us reach our goals.

Also, I don’t know where these rumors come from, but if we really had a billion dollars of uncollected debt, we wouldn’t be sitting here! (laughs) We are running financially healthy operations here, but of course in 2009 some of our policies will change because of the financial crunch.

Today’s web environment is more about content search rather than anything else. However, Nokia offers only very basic search capabilities on this front, and it’s clear that you will need to step up your efforts here to remain competitive. What are going to do about your search engines?

A.V. While there are some old-time players out there, that have been around for a very long while (like Google), we believe that Nokia isn’t that far behind in this field, it’s just that we had to start from a totally different position. Speaking of the modern search engines, they aren’t complex at all – to put it simply, they are all about indexing the whole world, every web page and resource. But when we get to coordinates and relationships between people, the algorithms required to carry out semantically important, intelligent searches are still not here, and naturally, we are investing significant resources into this field in an effort to make our vision of the future come true, where Nokia will be coordinating the whole world. And it’s obvious there is no way we can achieve that with technologies as primitive as indexing – we need to invent a way to tie up the user’s real life relationships with his virtual life and this problem is of a completely different scale.

Round table with Nokia Vice-President - Anssi Vanjoki

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