Spillikins #66. Nokia admits losing leadership on the top smartphone market

It happened so the major events and even news during this peaceful time are coming from the market leader, Finland based Nokia. To ignore these events means to lose them in the future. To cast only a little light on them is not fun. So again I have to bring up the vast amount of Nokia’s news, thank God they happened to be very interesting. In this week’s podcast I will pay special attention to such terms as informational death and boycott, and tell about whom the company is afraid of and who is the main problem for them.

Content:

1. Nokia on a Smartphones Market – a Way Down? Nokia CEO Admits a Short Term Defeat
2. OVI Store – Increase Downloads by All Means Possible

Nokia on a Smartphones Market – a Way Down? Nokia CEO Admits a Short Term Defeat

It’s not a secret that Nokia missed the boom of touchscreen phones and that it had to catch up by releasing touchscreen smartphones. Usual phones with such functionality based on the S40 platform will appear only in late 2010 and will cost less than their counterparts on the S60. Korean companies are occupying this niche so harmoniously, it is amazing. Samsung offers it solutions from 100 Euro and more with the price increasing by 30-40 Euros with each step. This year will witness the increase in product range plus the variety of platforms. At that Samsung completely abandoned S60 – there will be no new models based of this platform, the company sees no potential in it. Just like Samsung, Sony Ericsson is leaving the S60 behind too; the company has about 5 S60 phones under development, but Android based products proved to be more successful and thus more interesting. Are there any other major players working with Symbian? The answer is No and Nokia’s attempt to make the platform as open and friendly as possible, encountered the resistance from the other manufacturers. They just torpedoed these efforts and now Nokia yet again remained the number one manufacturer of smartphones in the world, but with a few “buts” making the picture not so rosy. Particularly, we shouldn’t expect hardware variety among the S60 products. Look at the situation with Android – for Motorola and Sony Ericsson it is the crucial OS as it helps the companies to survive, for HTC it is the opportunity to jump the Windows Mobile train for the faster one. Finally, for Samsung it is a chance to compete with the same Nokia in top price tier, where the latter simply has nothing to offer. And here we see a surprising situation: the roles of the market players changed.

Remember who set the pace in the high tech market during the last decade? Surely, it was Nokia. In 2007 the emergence of Apple iPhone made a crack in interface development as the company turned out to be unprepared for a new challenge. Year in and out Nokia promises to catch up and outdo Apple while upstarts from Cupertino are smoothly growing their sales. The average price of Apple iPhone is about 600 Euro whereas the average cost of Nokia smartphone keeps on dropping. The first quarter of 2010 witnessed the price of 155 Euro (about 210 USD). At the end of the quarter Nokia could not stand the pressure and lowered the prices for the majority of its portfolio by 10% in order to increase sales. This can be regarded only as a step of despair rather than a rational decision. Let us look at IDC data on smartphone sales worldwide in the first quarter of 2010.

From the diagrams you can see that Nokia and RIM increased sales by unit but failed to increase the market share when Apple’s share is growing rapidly. Thanks to American market Motorola also sees growth, HTC is on the rise with its new Android based smartphones. For the time being Samsung belongs to “Others”, but this year the company can take up to 10% of the market from other players, including the major ones.

Let’s look at growth percentage distribution:

• Apple grew by  131.6% to  8.8 million units;
• Motorola grew by 91.7% to 2.3 million units;
• HTC grew by 73.3% to 2.6 million units;
• Nokia grew by 56.9% to 21.5 million units;
• Research in Motion growth by 45.2% to 10.6 million units;

Nokia’s leadership is undisputable and the fact that the company holds the market share is also good. But at what cost? We know the cost. It is the average price of its smartphones dropping down constantly and it will continue to do so. In fact, Nokia cannot sell its products at maximum price as it did before; they lack the technologies and functions advantages the company used to have in its arsenal. The products will simply stop selling at the high price point. Nokia N8 is an example the initial price was set at minimal level. Should’ve the manufacturer set the price higher the sales may never come. One could also recall the sales of Nokia X6 with Nokia Comes with Music service that didn’t turn out to be very cheering. Until the Symbian^4 is released in 2011 (hopefully without delays) the only trump Nokia has in its sleeve is the price. There are no other ways out. And here we should look at what other manufacturers are doing. They are not increasing the number of entry level smartphones, they don’t have to. On contrary, they see potential in the medium and top price segments. I.e. except Samsung and HTC there are no manufacturers playing in the 650 Euro plus market in 2010-2011 (HTC HD2/3, Samsung Galaxy S/S Pro). The market cannot stand emptiness and in the absence of products from the leader other companies fill it, at the same time taking up the position of trendsetters, those who show new functionality other manufacturers are then copying. This approach destroys the value of Nokia brand, it becomes entry level device manufacturer. Do you remember the average price of Nokia branded handset worldwide? In the first quarter of 2010 it was 62 Euro ($78), which is an absolute minimum for a major manufacturer. And this average price continues to come down slowly, but surely. We see the cheerless picture of Nokia shifting from innovations to mass market. The scenario would be OK if Nokia wouldn’t have had such rivals as Samsung also producing cheap models, the phones of medium price range and competing with Nokia on every market. The war between the companies I talked about many times in 2009, is in full swing. And while Samsung attacks from all sides Nokia has no adequate response except playing games with product prices. This game is extremely dangerous and self absorbing; no one can dare to foretell its consequences. At the same time Nokia is involved in patent war with Apple. Last week the company filed a lawsuit for violation of another set of patents, now in Apple iPad. That made Apple’s shares drop down a bit when Nokia stock went up a little. IMHO patent suits won’t let the company improve its business, which is what Nokia should deal with at the moment.

In Reuters feed you will find interesting readers’ comments on today’s situation in Nokia and its loss of the smartphone market.

• http://www.reuters.com/article/idUSTRE63T1F820100430
• http://www.reuters.com/article/idUSTRE6452Z420100506

For dessert I prepared the words by Olli-Pekka Kallasvuo, Nokia’s CEO, said at the meeting with shareholders on May 6. He was quoted as saying “We are working hard to reclaim leadership in high end smartphones and mobile computers.”

Here we are to understand a simple thing: you are either a leader and are holding on to the leadership or you are losing the segment and giving it away to other companies. Nokia happened to live with the second scenario. The company is losing its position on the top smartphone market and trying to make up the lost ground… by knocking off the price for its new models. This idea was delivered in CEO’s speech, mentioning that the year 2010 is a turning point for a company and Symbian will become more accessible. Read - cheaper. Together with the facts above the year 2010 can be only regarded as a very hard one for Nokia.

Based on indirect indicators the problems already started to grow like an avalanche. I.e. Brandz, the agency measuring world brands strength, published the data for 2009. The cost of Nokia’s brand dropped significantly while the competitors rose. Nokia advocates have immediately found a lot of explanations: for example, Samsung manufactures home appliances, ships, and builds houses; thus one couldn’t compare these companies. Of course, in terms of their activity the companies are different, but critics forget a simple thing: we don’t assess the company activity but the way the brand is perceived by the costumers. The sectors of economy the brand is presented in do not matter; the question is how much does this brand cost.

For 2009 Nokia has lost 58% of its brand value (the figures are relative, but still), Apple grew 32%, Blackberry – 12%, Samsung skyrocketed 80%. Should these dynamics continue we will see amazing things in 2011.

Taking into consideration all of the above, the sharp reaction to my critique of a number of Nokia’s products and business processes becomes clear. The proverb “Nothing hurts like the truth” describes the situation in the most precise way.

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OVI Store – Increase Downloads by All Means Possible

I’m fed up with whining about what’s up with a raw and badly adopted to life OVI Store. A few days ago the company invented a wonderful way to increase the number of downloads for its store and at the same time do a nice thing for mass media. Nokia created online service for conversion of RSS/XML-files into a single app for the S40 (Java) and the S60 platforms. No programming knowledge is required: the app is created in 5-10 minutes and within 24 hours it gets approved for OVI Store. And you as the publisher get a free account in OVI, thus saving 50 Euro.

I honestly tried to create an app and managed to do it from the first time. Moreover, my app was approved within 24 hours; we tested it on Nokia 5800/X6 and experienced no problems. Then we witnessed something really strange. For example, only a few readers succeeded in finding this app using Search. About a half of our readers complained that there is no such content in the Store. Try to look for it, maybe it is me only? This is where it should be - http://store.ovi.com/search?q=mobile-review.

Going further, the things started looking like a bad comedy. It was impossible to find the published content but those who did it could encounter the download or installation error. It is impossible, for instance, to install the file on Nokia E52. Nice situation we have here – the manufacturer created a Wizard for its apps, tested it and failed to achieve compatibility with its own handsets that are marked as supported.

OK, that happens sometimes. Then I received a letter stating that our app should be removed from the store as it works incorrectly. Let me quote the text of the letter:

Something went wrong in app creation Wizard and it mistook our app for some other. Otherwise, why would there be links to other websites that were not present in the original version. Twisted is a wrong word – everything works weirdly and with very fuzzy logic. Why the product was launched publicly in such shape remains a mystery to me. Now we are planning to create the application once more and to look at the result. Perhaps Nokia has already had enough time to correct mistakes and the new version will work with all devices supporting these apps. In general however, this is a small detail showing that the company is losing control over its business processes somewhat. Primarily quality control.

Do you want to talk about this? Please, go to our Forum and let your opinion to be known to the author and everybody else.

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Related links

	Spillikins #64. Nokia N8 – company’s flagship or disappointment of the year?
	Spillikins #65. PR in high-tech or poor kings

Eldar Murtazin ([email protected])
Twitter    Livejournal

Published — 13 May 2010

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